Small Refinery Exemptions and Ethanol Demand Destruction

Small refinery exemptions (SREs) represent the latest controversy to engulf the Renewable Fuel Standard (RFS).  When the U.S. Congress first created the RFS in the Energy Policy Act of 2005 (P.L. 109-58) it included a temporary exemption for small refineries from the mandate through 2011.  Under the Obama Administration, SREs were rarely granted after 2011.  This changed radically under the Trump Administration, which granted a total of 48 SREs retroactively for 2016 and 2017.  SREs effectively reduced the conventional ethanol mandate for 2017 from 15 billion gallons to 13.9 billion gallons.  This was not only a large reduction in absolute terms, but it also resulted in the conventional mandate being set below the E10 blend wall.  If similar numbers of SREs are granted for 2018 and 2019, comparable reductions in the effective conventional ethanol mandate should be expected (assuming the SRE volumes are not reallocated to non-exempt obligated parties)