Impacts of EPA’s Small Refinery Exemption Program on the U.S. Ethanol Market
By Sampath Jayasinghe
Decision Innovation Solutions
http://www.decision-innovation.com/
September 2018
In this month’s report, we look at the current ethanol blending rates in the U.S. gasoline market. Then we look at the most recent update of the U.S. ethanol market long-term projections from the Food and Agricultural Policy Research Institutes at University of Missouri (FAPRI-MU) published in mid-August 2018. Finally, we outline the small refinery exemption data just published by the Environmental Protection Agency (EPA).
Current Ethanol Blending Rates
Figure 1 shows the ethanol content as a percentage in the total gasoline supplied in the U.S. market. This percentage was calculated by using two data series published by EIA: Weekly U.S. Refiner and Blender Net Input of Fuel Ethanol (Thousand Barrels per Day) and Weekly U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels per Day). As seen in Figure 1, on an average weekly basis, 9.72 percent ethanol was included in the U.S. gasoline supply during the first 37 weeks in 2018 (January to mid-September 2018), compared to 9.84 percent during the same period in 2017, approximately 1.25 percent reduction.
US Ethanol Demand 2018-2023
FAPRI-MU published its baseline update for U.S. agricultural markets in August 2018 including the U.S ethanol market. The August update was a revision of its annual March 2018 baseline projection published in March 2018. FAPRI-MU uses ethanol supply and demand models to develop a variety of predictable market outcomes by considering major sources of uncertainty about future ethanol supply and demand conditions.
The U.S. ethanol production forecast for the 2018-2023 period under the FAPRI-MU March 2018 baseline projection and baseline update in August 2018 are presented in Figure 2. Comparing the March 2018 outlook to the update in August 2018, U.S. ethanol production is forecast to drop to 15.759 billion gallons from 15.827 billion gallons in 2019, a very slight less-than-one-percent reduction. But going into the 2020-2023 period, an average of more than a two percent reduction is forecasted from year-to-year from the March 2018 outlook.
Figure 3 shows the U.S. domestic disappearance projections for the 2018-2023 period from both the March 2018 outlook and the update numbers in August 2018. Comparing the March 2018 outlook to the August 2018 update, U.S. ethanol domestic consumption is projected to decline to 14.233 billion gallons from 14.920 billion gallons in 2019, a drop of approximately five percent. For the 2020-2023 projected period, the U.S. ethanol domestic consumption is forecast to drop by an average of six percent each year. In spite of the decline in ethanol demand, the August 2018 update indicates the U.S. gasoline demand is growing over the 2018-2023 period by approximately 0.5 percent annually. Fuel ethanol content in the U.S. gasoline supply is projected to decline to 9.5 percent in 2023 from 10 percent in 2018.
Conventional ethanol rack prices at Omaha, Nebraska, are projected to be on average $1.50 per gallon for the 2018-2023 projected period. Ethanol D4 RIN (Renewable identification Number) prices are projected to drop significantly to $0.05 per gallon in 2023 from an average $0.24 per gallon in 2018.
FAPRI’s August 2018 projections on the U.S. ethanol market are significant negative deviation from its original March 2018 outlook, revealing a number of effects from the small refinery waivers implemented by the EPA through 2023. Renewable Fuel Standard (RFS) requires the refiners to blend certain volumes of ethanol in transportation fuels or purchase RINs from other obligatory parties. However, EPA has legal power to temporarily exempt certain small refiners from its annual Renewable Volume Obligations (RVOs) if they prove economic hardships. A detail about this RFS waiver program can be found here on the EPA website.
On September 19, 2018, EPA published relevant data on the small refinery exemption on its website. Table 1 shows exempted volume of gasoline and diesel by each compliance year from 2013 to 2018. Under the RFS, EPA exempted 13.62 billion gallons of gasoline and diesel in 2017, compared with 7.8 billion gallons of gasoline and diesel in 2016.
Table 1: Exempted Volumes of Gasoline and Diesel Each Compliance Year (Source: EPA, download on September 21, 2018)
| Compliance Year | Estimated Volumes of Gasoline and Diesel Exempted (million gallons) | Estimated Renewable Volume Obligations (RVO) Exempted (million RINs) |
|---|---|---|
| 2013 | 1,980 | 190 |
| 2014 | 2,300 | 210 |
| 2015 | 3,070 | 290 |
| 2016 | 7,840 | 790 |
| 2017 | 13,620 | 1,460 |
| 2018 | 0 | 0 |
As shown in Table 2, EPA issued exemptions for 29 small refineries for 2017, releasing them from RFS requirement to blend biofuels into gasoline and diesel, up from 19 exemptions in 2016. The EPA is still considering five waiver appeals for 2017 and has received a total of 11 requests for 2018. All the 2018 requests were still pending on September 21, 2018.
Table 2: Summary of Small Refiners Exemption Decision 2013-2018 (Source: EPA, download on September 21, 2018)
| Compliance Year | Number of Petitions Received | Number of Grants Issued | Number of Denials Issued | Number of Petitions Declared Ineligible or Withdrawn | Number of Pending Petitions |
|---|---|---|---|---|---|
| 2013 | 16 | 8 | 7 | 1 | 0 |
| 2014 | 13 | 8 | 5 | 0 | 0 |
| 2015 | 14 | 7 | 6 | 1 | 0 |
| 2016 | 20 | 19 | 0 | 0 | 1 |
| 2017 | 34 | 29 | 0 | 0 | 5 |
| 2018 | 11 | 0 | 0 | 0 | 11 |
Conclusion
Under RFS, EPA can grant a temporary exemption for some small refineries from their annual RVOs. EPA issued exemptions for 29 small refineries for 2017, releasing them from RFS requirement to blend biofuels into gasoline and diesel, up from 19 exemptions in 2016. The EPA is still considering five waiver appeals for 2017 and has received a total of 11 requests for 2018. All the 2018 requests were still pending on September 21, 2018. This data shows the most complete representation of the EPA’s expansion of the small refinery waiver program to date. As a result, U.S. ethanol domestic demand is projected to decline to 14.2 billion gallons from 14.9 billion gallons in 2019, a drop of approximately five percent. For the 2020-2023 projected period from FAPRI-MU, the U.S. ethanol domestic demand is forecast to drop by an average of six percent each year. Despite the decline in ethanol demand, FAPRI-MU indicates the U.S. gasoline demand is growing over the 2018-2023 period by approximately 0.5 percent annually. Fuel ethanol content in the U.S. gasoline supply is projected to decline to 9.5 percent in 2023 from 10 percent in 2018. Ethanol D4 RIN prices are projected to drop significantly to $0.05 per gallon in 2023 from an average $0.24 per gallon in 2018.
Recommended Citation
Jayasinghe, Sampath. 2018. “Impacts of EPA’s Small Refinery Exemption Program on the U.S. Ethanol Market." Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University. September 2018.
