Details and Analysis of EPA’s Announcement on RFS and What’s Ahead for Program
Putin again pledges to not block Ukrainian wheat from being exported from Ukraine
In Today’s Digital Newspaper
Vladimir Putin said that Russia was not blocking Ukrainian wheat from being exported, and that the grain could be shipped out via ports controlled either by Russia or Ukraine. The Russian president made the claim after meeting Macky Sall, the head of the African Union. The United Nations has warned that Africa is on the brink of famine because of Russia’s war. Before the invasion Russia and Ukraine together accounted for 29% of international annual wheat sales. See details in the Russia/Ukraine section.
Russia is calling in the heads of U.S. news outlets in the country for a meeting Monday: “If the work of the Russian media — operators and journalists — is not normalized in the United States, the most stringent measures will inevitably follow,” a Kremlin spokesperson warned.
EPA finally announced a slew of details on the Renewable Fuel Standard (RFS) program. We previously reported on them on profarmer.com, but the Energy section provides more details and what is ahead for the RFS for 2023 and beyond.
Germany’s Bundestag approved a special defense fund worth €100 billion ($110 billion) to modernize its army
McCormick concedes GOP Pennsylvania Senate race to Oz. The concession sets up an apparent contest with Democrat John Fetterman, in a race that could determine control of the Senate.
U.S. equities Friday: The Dow fell 348.58 points, 1%, to 32,899.70. The S&P 500 lost 68.28 points, 1.6%, to 4,108.54, while the Nasdaq declined 304.16 points, 2.5%, to 12,012.73. All three indexes declined 0.9% or more for the week.
Agriculture markets Friday:
- Corn: July corn futures fell 3 1/4 cents to $7.27, down 49 3/4 cents for the week and the lowest closing price since April 1. December corn fell 4 1/4 cents to $6.90, down 40 cents for the week and a two-month low.
- Soy complex: July soybeans tumbled 31 1/2 cents to $16.97 3/4, down 34 1/2 cents for the week and the contract’s first weekly decline in the past four. November soybeans fell 14 3/4 cents to $15.27, down 17 cents for the week.
- Wheat: July SRW wheat fell 18 1/4 cents to $10.40, down $1.00 3/4 for the week. July HRW wheat dropped 22 1/2 cents to $11.21, down $1.14 1/4 for the week. July spring wheat fell 7 3/4 cents to $11.91 3/4, down $1.13 for the week.
- Cotton: July cotton fell 93 points to 138.18 cents per pound, down 124 points for the week.
- Cattle: August live cattle fell 27.5 cents to $133.85, up $1.45 for the week. August feeders ended at $173.875, up $7.55 for the week.
- Hogs: July lean hogs fell $1.425 to $110.75, down 97.50 cents for the week. The CME lean hog index rose 12 cents to $105.03, the 10th gain in 11 days and the highest since last August.
— Summary: Despite widespread distrust of Russian President Vladimir Putin, he keeps on saying he will provide a safe corridor to export grain from Ukraine. Some updates:
- Putin pledges to facilitate safe passage of grain and people via ports. Chairman of the African Union, Senegalese President Macky Sall, told Russian President Vladimir Putin on Friday that the fighting in Ukraine and Western sanctions have worsened food shortages. Sall also appealed to other countries to ensure that grain and fertilizer exports aren’t blocked. Putin blamed the West for the emerging global food and energy crises and repeated his government’s offers of safe passage for ships exporting grain from Ukraine. “We will facilitate the peaceful passage and guarantee the safety of arrivals to these ports, as well as the entry of foreign ships and their movement through the Azov and Black seas, in any direction,” Putin pledged, in remarks carried on state TV after his meeting with Sall in the Black Sea city of Sochi, Russia.
Putin on Friday again denied blocking Ukrainian ports and said it was a “bluff” to blame Russia. “Of course, we are now seeing attempts to shift the responsibility for what is happening on the world food market, the emerging problems in this market, onto Russia,” he told Russian TV. “I must say that this is an attempt, as our people say, to shift these problems from a sick to a healthy head.”
Putin proposed several corridors to allow foreign ships to safely leave ports along the Black and Azov seas. Ukraine has said it was ready to agree on safe corridors in principle but voiced concern that Russia could use them to attack Odesa and other Ukrainian ports. Putin said ports under Ukrainian control can be used for exports after mines are removed, via Ukrainian ports under Russian control — Berdyansk and Mariupol — or via other countries, such as Belarus.
Sall comments. “The fact that this crisis brought the cessation of exports from Ukraine but also from Russia because of sanctions — we have found ourselves in between these two,” Sall told reporters. “It’s of absolute necessity that [Western partners] help to facilitate the export of Ukrainian grains, but also that Russia is able to export fertilizers, food products but, mainly, cereals.”
Sall noted problems. “Belarus is also under sanctions, although it’s the most direct way, in reality — through Belarus to the Baltic Sea,” he said.
Britain last week accused Russia of “trying to hold the world to ransom” by demanding relief from sanctions to allow grain exports.
ENERGY & CLIMATE CHANGE
— The Environmental Protection Agency (EPA) is requiring refiners to mix 20.63 billion gallons of renewable fuels into gasoline and diesel this year — a 9.5% increase over last year’s target. In a final rule on Friday, the agency also said it was retroactively paring the 2020 biofuel-blending quota to 17.13 billion gallons and setting the overall 2021 target at 18.84 billion gallons to reflect actual consumption. There is a 60-day comment period on the final RFS levels from the date the notice is published in the Federal Register.
Link to pre-publication version of final 2020, 2021 and 2022 RFS levels.
Link to pre-publication version of Regulatory Impact Analysis.
Link to prepublication comments document.
Link to prepublication version of proposed alternative RIN retirement schedule for small refiners.
Link to prepublication version of Notice of June 2022 Alternative Compliance Demonstration Approach for Certain Small Refineries Under the RFS program.
Link to explanation of denial of petitions for SREs.
In Friday’s announcement, EPA:
- Retroactively lowered the amount required for 2020 to 17.13 billion gallons, down from the 20.09-billion-gallon target it had set in late 2019, the last time the blend rate was set. This includes 12.5 billion gallons of conventional biofuel. This reflects actual gasoline usage for 2020.
- Required refiners to add 18.84 billion gallons of ethanol and other biofuels to be blended into gasoline for 2021, up from 18.52 billion gallons originally proposed. There was a reduction made in the cellulosic biofuel and advanced biofuel components, resulting in an increase in the level for conventional biofuel — finalized at 13.79 billion gallons versus the 13.32 billion gallons proposed. EPA said the 2021 final levels are “equal to the actual volumes of cellulosic biofuel, advanced biofuel, and total renewable fuel that were used in the U.S. in 2021.”
- Raised the biofuel mandate for 2022 to 20.63 billion gallons, which it said would be the highest requirement ever for total renewable fuel, but down from 20.77 billion gallons originally proposed. The reduction, however, came in cellulosic and advanced biofuels, leaving the conventional ethanol component at 15 billion gallons as was proposed in December, with advanced biofuels supplying at least 5.63 billion gallons. That reflects a decrease from the 5.77 billion gallons advanced biofuel target initially proposed for 2022.
- Required refiners and fuel importers to blend an additional 250 million gallons of biofuels this year on top of the quotas in an EPA bid to address a court-ordered rebuke of six-year-old targets.
- Rejected applications from 69 small refineries seeking exemptions from earlier quotas spanning 2016 to 2021 — but is proposing to give small refineries more time to comply with those past targets. EPA cited the action taken in April to reject 31 SREs for 2018 that had previously been approved. EPA said they were applying rules on SREs based on the Court of Appeals for the Tenth Circuit decision. “The Tenth Circuit held that SREs may only be granted when a small refinery’s hardship is caused by compliance with the RFS program,” EPA stated. “After reviewing more than a decade of RFS market data, public comments on a proposal EPA issued in December 2021, and confidential information submitted by petitioners, EPA concluded that none of the 69 SRE petitions demonstrated disproportionate economic hardship caused by compliance with the RFS program.”
EPA data currently shows three SREs still pending but noted their denial action “included a subset of three SRE petitions for the 2016 and 2017 compliance years that EPA had previously granted, but that were remanded to the Agency by the U.S. Court of Appeals for the Tenth Circuit after the original grants were challenged.” EPA said they were supplementing their April “Alternative RFS Compliance Demonstration Approach for Certain Small Refineries” to include these three additional SRE petitions, which EPA said will provide those refineries “with an alternative approach to demonstrating compliance with their 2016 and 2017 RFS obligations.” This means that the three small refineries affected can use the alternative compliance approach that EPA set for April and also those denied with the announcement today “may meet certain 2016, 2017, and/or 2018 compliance obligations without purchasing or redeeming additional RFS credits.” EPA said the decision was taken as they believe there are “extenuating circumstances” that apply in this situation relative to the 2019 and 2020 compliance years “including a limited availability of RINs [Renewable Identification Numbers] and the significant delay in EPA issuing its decisions on SRE petitions for these compliance years.” But as noted, there will be no SREs for the 2022 compliance year.
- Announced a proposed rule which provides for an alternative RIN retirement schedule for small refiners that gives them extra time and a “broader range of RINs” to comply with 2020 RFS obligations. EPA said the alternative RIN retirement plan is coming as they believe there are “extenuating circumstances specific to the 2020 compliance year, including a limited availability of RINs and the significant delay in EPA issuing its decisions on SRE petitions.” There will be a public hearing on the proposed plan that will take place June 28 via Zoom with no opportunity for in-person presentations. The alternative plan only applies to the 2020 compliance year relative to the rejected SREs. The alternative schedule includes five quarterly RIN retirement deadlines that extend into the 2024 calendar year, which EPA said will “allow small refineries to potentially use 2021, 2022, 2023, and 2024 RINs to satisfy a portion of their 2020 RVOs [Renewable Volume Obligations].” The agency said they are proposing this to run over 18 months between the denials announced today and the final 2020 RVO quarterly RIN retirement deadline of Feb. 1, 2024, for small refineries to satisfy, in full, their 2020 RVOs.” EPA said this schedule also will not overlap with other RFS compliance reporting deadlines.
- Announced it is finalizing provisions allowing the use of biointermediates “because we believe that the use of biointermediates to produce renewable fuels will be a reasonable and positive development for future growth in production, particularly of cellulosic and advanced biofuels.” The final rule from EPA deals with the processes they used on biointermediates and other rules and regulations covering their use under the RFS.
- Noted USDA is making $700 million to help lower costs and support biofuel producers who faced unexpected market losses due to the Covid-19 pandemic. USDA is making payments to 195 biofuel production facilities. Link to USDA release.
Environmental Protection Agency Administrator Michael Regan said that the decision will reduce U.S. reliance on oil and that the administration is “laser-focused on providing more options for consumers at the pump.”
Impacts: EPA analysts say the decision is expected to increase consumer gas prices by less than 1 cent a gallon. But as usual, oil refiners and ethanol supporters gave divergent viewpoints. EPA said the final rule will “reduce the imports of crude oil and refined products by approximately 2.9 billion gallons,” which the agency said will “result in $227 million of energy security benefits.” But EPA noted that the actual figure could be higher as the action “does not consider military cost impacts of changes to U.S. imports of crude oil and refined products.”
Chet Thompson, chief executive of the American Fuel & Petrochemical Manufacturers, which speaks for refiners, called the 2022 mandate “bewildering and contrary to the administration’s claims to be doing everything in their power to provide relief to consumers… Unachievable mandates will needlessly raise fuel production costs and further threaten the viability of U.S. small refineries, both at the expense of consumers,” he said.
Refiners said the 2022 target would boost industry compliance costs with some of the burden passed on to consumers. The value of RINs, the tradable credits used to fulfill the quotas, softened slightly during Friday’s trading session, in part because of the reduction for advanced biofuels. Record refining margins may have provided breathing room for the plan, despite oil industry pressure to lower targets, analysts noted.
Biofuel groups countered that ethanol is usually less expensive than petroleum-based gasoline. They said that there isn’t a strong correlation between the price of gasoline and market credits that refiners purchase to comply with the mandates. “By requiring petroleum refiners to blend larger volumes of low-cost biofuels like ethanol, today’s actions will put downward pressure on gas prices and provide economic relief to American families facing record high pump prices,” Renewable Fuels Association (RFA) Chief Executive Geoff Cooper said. The plan for 2022 shows the Biden administration intends to “lean in” on biofuels, said Emily Skor, head of the ethanol advocacy group Growth Energy. “We are finally getting to the place where the RFS is starting to be administered the way it is supposed to be administered.”
Sen. Chuck Grassley (R-Iowa) tweeted: “EPA barely met deadline 4 the RFS final rule where it rejected harmful small refinery exemptions = commonsense move BUT EPA went back in time to lower biofuel blend levels in 2020 = Creates uncertainty + if Biden admin wants 2 lower gas prices need 2use more homegrown biofuels.”
RFS outlook for 2023 and beyond. EPA is working on plans for 2023 for biofuels levels. With no statutory levels contained in law beyond 2022, EPA is considering several factors ahead, including electric vehicles (EVs), how RINs from producing power for EVs will be handled, how the agency intends to address the expected increase in renewable diesel production in the U.S. as companies gear up for a possible boost in Sustainable Aviation Fuel (SAF). EPA must meet a Sept. 16 deadline for decisions that were negotiated in court.
POLITICS & ELECTIONS
— David McCormick, a former hedge-fund executive, conceded to Mehmet Oz in the Republican Senate primary election in Pennsylvania. Just a few hundred ballots had separated the two candidates, forcing a recount after the vote on May 17. Dr Oz, a celebrity television doctor, was endorsed by former President Donald Trump. He will face John Fetterman, the state’s Democratic lieutenant-governor, in the general election in November.
OTHER ITEMS OF NOTE
— Germany’s Bundestag approved a special defense fund worth €100 billion ($110 billion) to modernize its army, an initiative prompted by Russia’s invasion of Ukraine. Creating the fund required a constitutional amendment — and thus a two-thirds majority in parliament — to sidestep ordinary borrowing limits. The money should boost German defense spending from around 1.5% of GDP to the NATO standard of at least 2%.