Reflections From The Hill

Renewable Fuels Association President and CEO Geoff Cooper talks about the state of ethanol, the industry's current regulatory priorities, and its footing under the Biden Administration.
By Tom Bryan | January 27, 2022

In an exclusive interview with Ethanol Producer Magazine, Renewable Fuels Association President and CEO Geoff Cooper shared his thoughts on the ethanol industry’s difficult period in 2020, its bounce back in 2021, and the litany of current and future regulatory outcomes the trade association is working to affect in early 2022. From the EPA’s latest multi-year renewable volume obligation (RVO) proposals to establishing a regulatory solution to E15’s vexing summertime restriction, Cooper laid out the RFA’s position and approach on each front. Here’s what he had to say.  

EPM: With most of the U.S. ethanol industry now producing at or near capacity—the weekly average ethanol production volume hovering around 16.5 billion gallons, and gasoline demand returning to normal—the industry seems to be humming along nicely once again. What’s your early-2022 “State of the Industry” assessment?
 
Cooper: I would say cautious optimism has returned to the industry. We’ve seen a return to fairly good margins—margins we haven’t experienced in a while—and there’s always a fear that the other shoe may drop, but I think the feeling across our industry at the start of 2022 is generally upbeat and optimistic. We had a strong rebound in ethanol demand starting in mid-2021, and producers responded to that surge by ramping up output very quickly, but also in a measured, responsible way that’s preserved a healthy industry dynamic.

We’re starting 2022 with a more optimistic market outlook than we’ve had in a few years. Because remember, even before the pandemic, 2019 was a disastrous year for a lot of ethanol producers. And, of course, 2020 was an unprecedented situation with the pandemic—a complete wreck. When it’s all said and done, I think we’ll look back at 2021 as a good year compared to what we had just come out of.

EPM: And despite how difficult 2020 was, the RFA has gained some new members in 2021, with both producers and industry vendors joining the association. Has this surprised you, given the unique market strains and regulatory challenges the industry has been facing?   

Cooper: We’ve weathered quite a storm over the past two years—Covid has been unlike anything we have ever seen. And, in fact, we were dealing with small refinery exemptions (SREs), trade barriers and oversupply relative to demand caused by those barriers and regulatory abuses well before Covid hit. I think the industry really understands that the RFA has played a central role in helping producers weather those storms. They know we’re helping the industry find creative ways to not just survive, but thrive, under very difficult circumstances—Covid, tariffs in Brazil, SREs—whatever the case may be. They also know we’re always looking to expand the market for ethanol and grow the value of the products our members produce. The fact that we’ve been picking up new members after having gone through a very dark period in our industry, reflects that.

I also think the industry understands that we have a vision for the future of ethanol production that’s progressive and exciting. Too many people are pessimistic about the future of ethanol and obsessed with the rise of electric vehicles and the possibility of less gasoline consumption. Yes, those are real issues—and we’ve analyzed them as much as anyone—but we continue to see a world of opportunity for ethanol. I think we have really opened a lot of hearts and minds to the fact that ethanol’s future may not always be confined to being a motor fuel for light-duty vehicles. And last July when our members pledged to achieve a net-zero carbon footprint for ethanol by 2050, it got the attention of many others in the energy sector. They want to be part of that movement and so they joined RFA. The ethanol molecule is incredibly elegant and can serve as a building block for so much more, from aviation fuels to off-road, heavy transportation applications to becoming a feedstock for producing electrons that could ultimately power EVs. There’s a lot more we can do with this molecule. And we’ve got a tremendous infrastructure in place to produce it right now. We’re trying to help the industry find those new markets and new uses for products.

EPM: In early December, EPA announced the long-awaited proposed renewable volume obligations (RVOs) for blending years 2021 and 2022 at 13.32 and 15 billion gallons, respectively, for conventional biofuel. In an unprecedented move, the agency also proposed to retroactively revise downward the already-set 2020 RVO to 12.5 billion gallons. The EPA also announced it will add 500 million gallons of remanded 2016 volume to the 2022 and 2023 RVOs (with each year getting 250 million gallons of extra volume). How did the RFA react?  

Cooper: First, it’s important to remember that we are coming off of a couple of really bad years of RFS management, with EPA having basically derailed the program with small refinery exemptions, missed deadlines for issuing RVOs, pathway petitions for cellulosic ethanol that have languished at the agency for years, and other regulatory changes—some proposed as far back as 2016—that were never acted upon. So, given that we’ve been in a state of chaos with the RFS, this package of proposals gives us a road map for moving forward, and it brings some certainty and stability back to the program. Overall, we’re excited about the proposal, not just because it restores 15 billion gallons in 2022, but because it would restore 500 million gallons of lost volume, as court ordered, from the 2016 illegal waivers that we’ve been demanding action on for the past four or five years.

We are not, however, wild about the EPA’s proposal for 2021, and we will stand against any reopening of the 2020 RVO. In fact, we don’t think the EPA even has the legal authority to do it. They have been on the record numerous times in the past saying they don’t have the authority to retroactively reopen standards that have been finalized. We’re going to hold them to their words, and we’re hopeful that during this public comment period we will be able to convince EPA that it would be the wrong move to make. Yes, Covid affected the market, but the RVOs are based on percentages of overall use, so the mechanism is already there to account for big swings in gasoline and diesel consumption. We don’t think any further adjustments are warranted or legal, and we’re pushing back hard on it.

When they finalized the 2020 standards, all the way back in December of 2019, they did so based on an expectation of what gasoline and diesel consumption would be in 2020. That expectation did not come to pass because of Covid. Gasoline and diesel consumption were about 12% lower than projected. But the actual RFS blending requirements were also reduced proportionately by 12%. That’s one of the elegant features of the RFS; it self-adjusts when those things happen, so 2020 should absolutely be left alone.

EPM: Mirroring legislation already introduced in the U.S. House, Sens. Klobuchar (D-MN) and Grassley (R-IA) teamed up with Sens. Duckworth (D-IL) and Ernst (R-IA) to introduce bipartisan legislation—the Defend the Blend Act—that, if passed, would prohibit EPA from reducing the minimum applicable volume of biofuels in transportation fuel once the obligations are finalized for any given year. This legislative effort is in direct response to the EPA's proposal to revise downward the 2020 RVO. What are its chances of becoming law?

Cooper: The goal is to send a message to EPA that Congress is watching what the agency is doing with the 2020 RVO. With the Defend the Blend Act in both the House and Senate, Congress is reminding EPA that it was never their intent to allow EPA to go back in time and revise standards that have already been finalized. The proposed legislation, above all, sends a signal to EPA, and the administration that our friends on the Hill are watching and willing to legislate if they need to.

EPM: EPA also announced a proposal to deny all 65 pending SRE applications, as well as announcing the adoption of more transparency for SREs granted in the future (based on the unappealed holdings of the Tenth Circuit Court’s decision in the Renewable Fuels Association et al. v. EPA. How big is that win for ethanol?
    
Cooper: The categorical rejection of the SRE petitions that has been proposed is fantastic news. That is absolutely the right thing for EPA to do, and the right signal to send. On balance, we see these proposals as positive for the industry and potential actions that build more optimism into the near-term outlook for our industry.

EPM: What happens now, as the RFA and other trade associations prepare data and analysis to support your comments to EPA on this whole package of proposals?  

Cooper: The work has already begun. It’s an intense effort, because it isn’t just one year’s RVO. We’re looking at three years, plus the separate denial on SRE proposals. The proposals also include some things that were floated and widely supported back in 2016, but were never acted upon by the Trump administration, such as the Biointermediates Provisions. Another is related to achieving improved transparency and disclosure on SREs. We’re very much supportive of both of those pieces and commenting on both.

EPM: Just a few days after EPA released its proposed RVOs, USDA announced its long-awaited Covid assistance for biofuel producers that were impacted by the pandemic in 2020. In addition to $100 million in funds to support biofuel infrastructure, USDA announced up to $700 million in direct payments available for biofuel producers who faced unexpected market losses due to the pandemic. Is it enough make a real difference?   

Cooper: The ethanol industry lost, or didn’t recognize, about $5 billion in gross revenues due to the pandemic, from both reduced demand and reduced prices. The RFA was very active throughout 2020 advocating for biofuel producers in the various Covid-relief packages that were moving through Congress. Unfortunately, biofuel producers were left out of every one of those until the very end of the  year—the very last package signed into law in the last week of 2020, which included authorization for USDA to provide Covid relieve funding to biofuel producers. It took all of 2021 for USDA to get this program through the paces at the White House, but we finally have it, and we think that relief will be very useful in helping the industry continue to recover from Covid. It doesn’t make the industry whole by any means. $700 million is far less than $5 billion, but it’s definitely a shot in the arm and should help restore some optimism. There are still some questions and concerns about how these funds will roll out from USDA, but overall, we are pleased that they have finally come through with this important relief.

EPM: This industry’s near-term growth strategy, E15, was dealt a serious legal setback in July when the D.C. Circuit Court of Appeals overturned the EPA’s 2019 decision to grant a 1-pound Reid vapor pressure (RVP) waiver to E15. In late 2021, RFA and five other national farm and biofuel organizations asked EPA to enact regulations requiring lower-volatility conventional gasoline blendstock in the summertime. A group of governors came forward, too. Talk about the regulatory approach to fixing our E15 problem. 

Cooper: There are essentially two ways to achieve RVP parity for E10 and E15. One way is to give E15 the same 1-pound RVP waiver that E10 gets, which is what EPA did in 2019—an action that President Trump personally championed. Unfortunately, that is also the action that the D.C. Circuit Court overturned in July. So, for now, that door is closed.

The other way to establish RVP parity for E15 is to eliminate the necessity of the 1-pound waiver for E10. That’s what the governors are asking for guidance on, and that’s what RFA and five other trade groups have asked EPA to get started on—a rule to effectively lower the volatility cap for gasoline blendstock, which makes the waiver unnecessary for not only E10, but E15 as well. Because, after all, E15 is a lower volatility fuel than E10. So that would put the two fuels on equal footing and allow them to be sold year-round throughout the summer, nationwide. That’s the approach we’re focused on right now.

A legislative approach to resolving the RVP barrier is also possible. There have been bills reintroduced in Congress that could fix this issue once and for all. But the odds of getting that type of legislation across the finish line in the near term, without opening the door to mischief on the RFS and other priorities we care about, are low. So, we’re focused first on the regulatory approach to solving this.
 
EPM: Higher ethanol blends are also important. E85 and mid-level blends could play a big role in our industry’s growth, but according to a new brochure from RFA, only Ford and GM are offering FFVs for sale in model year 2022—and GM’s models are available only to fleet purchasers. In fact, the two manufacturers will offer just 11 FFV models in 2022. That’s down from more than 80 different models from eight manufacturers half a decade ago. How concerned should we be about this? 

Cooper: I’ll start to answer that by saying that President Biden has said we need to achieve net zero emissions by 2050. We think ethanol itself can get to net-zero carbon by 2050 or sooner with the addition of things like carbon capture and sequestration, low-carbon farming practices, substituting natural gas with biogas and other strategies that are either already here or coming.

We can get ethanol to a zero CI, but we’ve got to have more vehicles to put that ethanol into in order to have the impact on reducing carbon emissions at a level that’s going to be necessary. E15 can help us get started, but we’ve got to go that next mile and get more FFVs out there. FFVs are hugely important to the future of the industry, and that’s why we continue to make it a priority to try to continue to restore some fairness in how automakers are encouraged, or incentivized, under fuel economy regulations to manufacture different alternative fuel vehicles. Right now, there is no incentive for automakers to make FFVs under current fuel economy regulations. But there are tons of incentives to make EVs. And if our goal is to reduce carbon emissions, there are lots of ways to do that. Let’s allow all fuels and vehicles that can reduce emissions to compete fairly, and lets reward those fuels and vehicles strictly based on the carbon reductions they achieve, not on what vehicle has the coolest commercial or celebrity endorsement.

Sens. Klobuchar and Ernst introduced legislation that would establish an alternative vehicle tax credit earlier this year. Unfortunately, it didn’t get wrapped into any legislation that has moved forward, but we see it as a football that could be picked up and run with in 2022.

EPM: You’ve been on the record in the past saying the previous
administration left the RFS in disarray when it departed Washington. The latest package of proposals from EPA marks an important step toward finally putting the RFS back on track.”
Without trying to be partisan—or overlooking what Trump’s EPA did for E15—is it starting to look like the current administration will be better, long-term, for the industry than the last?

Cooper: When President Biden was campaigning, he came out with some very strong positions on the renewable fuel standard and small refinery exemptions, in particular. We liked what we heard from then-candidate Biden when he was campaigning. And when he got elected, he appointed people like Agriculture Secretary Tom Vilsack—a person we’re very familiar with and excited to see land back in that position—along with EPA Administrator Michael Regan, who said all the right things about the RFS in his confirmation process. In fact, shortly after this new administration took office, we saw EPA do a hard turn on small refinery exemptions. They really laid out a radical change in position on how they were going to be handling SREs, as early as March, but then we didn’t see anything. We were waiting for the administration to follow through on all those campaign promises during the first few months. We knew this recent round of RVO proposals would be a very important indicator of where we stand, and for the most part, we are pleased with what we’re seeing.

What this administration proposed with its RVOs in December is, by and large, consistent with the things it said a year ago. I do think they’re trying to help this industry get back into growth mode in 2022 and beyond. And I believe they’re trying to completely shut off the spigots on small refinery exemptions. They’re trying to get some new and innovative pathways going again—through the Biointermediates process, so overall, we are encouraged by what we have seen from this administration on the RFS.

Looking at the bigger picture on biofuels, however, we would probably give more mixed reviews. There is just such a disproportionate focus on electrification and EVs, and one of the biggest challenges for us is just breaking through that noise to remind the administration—in particular Administrator Regan and Department of Energy Secretary Jennifer Granholm—that we have a fuel that is ready today, in large quantities, that can help the country meet its decarbonization goals. So our message to them is to take a fair, market-based approach to carbon reduction and allow ethanol to play a larger role.