Minnesota farmers, ethanol producers see EPA waivers as attack

WASHINGTON – Brian Thalmann has been selling corn for ethanol for two decades. In that time the farmer from Plato, Minn., says he has never seen an attack on renewable fuel like the one currently underway by the U.S. Environmental Protection Agency (EPA).

Using a secretive process, EPA Administrator Scott Pruitt has increased the issuance of waivers to small oil refineries, absolving them from meeting federal standards that require blending ethanol with gasoline. Corn farmers and ethanol producers across Minnesota, fearing a financial hit, are crying foul.

"It's kind of an ironic twist that you have an administrator of the Environmental Protection Agency pushing back a product that helps the environment," said Thalmann who, like many Minnesota corn growers, relies on sales to ethanol plants as a critical source of income.

Sensing a threat to the ethanol program, a bipartisan group of Midwestern U.S. senators, including Minnesota Democrats Amy Klobuchar and Tina Smith, have called on Pruitt to stop handing out ethanol waivers and reveal who has gotten waivers and why. U.S. Rep. Collin Peterson, D-Minn., ranking member on the House Agriculture Committee, sent a letter to President Donald Trump, asking him to stop Pruitt.

Farmers and ethanol producers in Minnesota say the waiver controversy is the latest battle in a long-running war for sales and market share between the oil and renewable fuel industries. The renewable fuel standard (RFS) has been controversial since its inception in 2005. Free marketers and the oil industry see it as an anti-competitive government mandate. Anti-poverty groups have charged that it encourages farmers to produce less food for people. Some environmentalists are skeptical of the ethanol industry's green credentials.

But Trump's 2017 appointment of Pruitt to lead the EPA has brought things to a head, given Pruitt's past ties to the oil industry and his criticism of the ethanol program.

The EPA will not confirm the total number of gallons of ethanol Pruitt has exempted from production so far this year. Trade groups for farmers and biofuel producers believe it could already be at least 1.6 billion gallons. If Pruitt continues on that pace, it could significantly undercut 2018's 15 billion gallon national production mandate, ethanol producers say.

"The criteria used to grant waivers has not changed since previous administrations," EPA spokeswoman Liz Bowman said in an e-mail to the Star Tribune. "EPA follows a long-standing, established process where the agency uses a DOE analysis to inform decisions about refiner exemptions/waivers. These waivers are only considered for refineries that submit applications and that are below the blending threshold."

The EPA says it has granted 25 waiver requests so far this year, and applications for more production waivers continue to arrive.

Klobuchar called the 25 waiver figure "unbelievable."

"It used to be like six or seven of these a year from what we understood," she said.

"You want to give agencies some flexibility to help in unique business situations," Klobuchar said. But Pruitt is taking that authority "and driving an oil tanker through it."

Smith said Pruitt looks to be playing favorites. "Mr. Pruitt is giving his fossil fuel friends a huge advantage over family farmers in Minnesota," she said in an e-mail to the Star Tribune.

Tim Rudnicki, executive director of the Minnesota Bio-Fuels Association, called the situation an attempt by Pruitt "to eviscerate the law."

And at Denco II, a biofuel facility in Morris, Minn., which produces 30 million barrels of ethanol per year, General Manager Mick Miller accused Pruitt of "handing out waivers like trick-or-treat candy behind closed doors in a way that seems unethical."

The waivers allow distressed refineries that produce fewer than 75,000 barrels per day of fuel to forgo either blending ethanol, or buying credits in lieu of blending. But in addition to saving small oil refiners from economic hardship, Pruitt has reportedly been granting ethanol production waivers to small refineries owned by big oil companies.

San Antonio-based Andeavor, a company which in 2017 earned more than $1.7 billion on $35 billion in revenue, won waivers for three of its smaller refineries, including two in North Dakota, Reuters reported earlier this month. Andeavor, formerly known as Tesoro, owns a refinery in St. Paul Park, but that facility is too large to be eligible for an exemption.

Citing unnamed sources, Reuters has also reported that large oil companies — including ExxonMobil and Chevron — have applied for waivers for smaller refineries.

"It's an abuse," Rudnicki said. "I'd like somebody to explain to me how Exxon and Chevron can be small refiners. They are among the largest oil companies on the globe."

Patrick Kelly, senior policy adviser for the American Petroleum Institute, a group covering a broad swath of the oil industry, said the RFS has long allowed exemptions for small refineries owned by large oil companies. But he said the number of waivers for all small refineries has surged after a federal court decision in August 2017.

Sinclair Oil sued the EPA after the agency wouldn't grant waivers for two of its small refineries in Wyoming. The EPA ruled that the refineries should not be exempted because they both appeared profitable enough to comply with their ethanol mandates. The Tenth U.S. Circuit Court of Appeals disagreed, finding the EPA's standard was too narrow.

The EPA was granting waivers only when the long-term survival of a refinery was at stake — i.e., that a refinery faced an "existential threat," the court concluded. That definition was at odds with what Congress intended.

"The issue was how high of a bar the EPA was setting," Kelly said. "The court said it was too high of a bar, but it [the court] didn't really set the bar. The court kicked it back to the EPA to reconsider how high to set the bar." The EPA has not explained its waiver standards, Kelly said. "It is really an opaque process," he noted. "EPA should be more forthcoming in how it is setting this bar."

With the process kept secret, the amount of ethanol exempted from the renewable fuel standard is not clear at a time when knowing the number of gallons that have been cut from the national production quota is critical to farmers, said Minnesota native Emily Skor, CEO of Growth Energy, a trade group representing U.S. biofuel producers. If current estimates of more than 1 billion gallons are true, she said, it could cause corn growers to lose 50 cents per bushel and clobber the Corn Belt's rural economy, already under pressure from slumping crop prices.

Minnesota is the nation's fourth largest ethanol producer. The state's ethanol output has grown from 1.03 billion gallons in 2013 to 1.2 billion gallons in 2017. Nineteen ethanol plants now operate in the state. They employ 1,700 people directly and generate more than $2 billion in annual sales, state officials say. Corn farmers rely significantly on sales to these facilities.

Richard Syverson grows 700 acres of corn on his farm in Clontarf, Minn., and sells much of it for ethanol. Syverson bought shares in the Chippewa Valley Ethanol Co. when it opened in 1993. Ethanol, he said, "allows rural folks to participate in the energy space and it helps clean up the environment."

Syverson called Pruitt's issuance of hardship waivers "outrageous, to put it mildly."

"Some of these companies made more money than all of the corn farmers in Minnesota [put together]," he said. "That just doesn't make sense to me."

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