MARSHALL — The ethanol industry has been going through a difficult couple of years, local producers and industry spokespeople said. Part of the difficulty has to do with regulatory decisions by the EPA under the Trump administration, they said.

Last week’s news that President Donald Trump reached an agreement to protect the U.S.’s Renewable Fuel Standard could be a positive sign for the future.

“It’s a step in the right direction,” said George Goblish, a Vesta area farmer who also serves on the Minnesota Corn Research and Promotion Council, and the Highwater Ethanol board of directors. But while the agreement was a positive move, it might not address some of the damage caused by an increased number of ethanol waivers granted to petroleum refineries in the past two years.

“If they could still enforce those gallons to be produced,” it would also help, Goblish said.

While factors like the trade war with China and increasing supplies of ethanol being made in the U.S. have also impacted the industry, ethanol producers say changes in regulatory actions have also played a part.

The Renewable Fuel Standard program, created in 2005, requires refineries to blend a certain volume of renewable fuels like ethanol into petroleum-based fuels. However, starting with the 2013 compliance year, small refineries could petition the Environmental Protection Agency annually for an exemption from their Renewable Fuel Standards obligation. According to EPA data, the EPA received a total of 40 petitions for compliance years 2013-2015, and granted 23 of the petitions. The agency received a total of 99 petitions for compliance years 2016-2018, and granted 85 of them.

The bulk of those exemptions were granted for compliance year 2017, when 35 out of 37 petitions were granted, and compliance year 2018, when 31 out of 42 petitions were granted.

“That had a real impact on biofuel demand across the country,” said Chris Billey, of ethanol industry group Growth Energy. Another part of the problem was that the EPA wasn’t requiring that the exempted volumes of ethanol be made up elsewhere. “The EPA has to stop the bleeding,” Billey said.

Falling demand for ethanol hurts both ethanol producers and farmers, Growth Energy said. The estimated volume of corn used for ethanol fell by 225 million bushels between November 2018 and August 2019, according to the USDA.

The drop in demand, plus factors like an increase in ethanol production capacity across the U.S. and low prices, have all put pressure on the industry. In September, the Corn Plus ethanol plant in Winnebago, Minn., suspended operations.

There are three plants in the Marshall area that produce ethanol. An Archer Daniels Midland corn processing plant in Marshall makes ethanol as well as other corn-based products. Granite Falls Energy in Granite Falls and Highwater Ethanol in Lamberton both produce ethanol.

Brian Kletscher, CEO of Highwater Ethanol, said the plant has a cash flow and is continuing to produce ethanol at its permitted rate of 59.5 million gallons a year.

A July 31 quarterly report filed with the U.S. Securities and Exchange Commission said Highwater Ethanol had revenues of more than $71.2 million for the nine months ending on July 31, compared to revenues of more than $73.1 million for the same time period in 2018. Highwater had an operating loss of about $6 million for the nine months ending July 31, compared to an operating loss of over $1.4 million for the same period in 2018.

Granite Falls Energy CFO Stacie Schuler said Granite Falls Energy is a public filing company, and referred the Independent to information provided in Granite Falls Energy’s SEC filings. A July 31 quarterly report said Granite Falls Energy and its subsidiaries had revenues of about $155.2 million for the nine months ending on July 31, compared to over $161.7 million in revenues for the same time period in 2018. Granite Falls Energy and its subsidiaries had an operating loss of over $4.9 million for the nine months ending July 31, compared to an operating income of over $5.7 million for the same time period in 2018. The company had an operating income of more than $2.1 million for May through July, compared to an operating income of over $2.2 million for the same time period in 2018.

Notes in the report said Granite Falls Energy, and the ethanol industry as a whole, were dealing with record low ethanol prices due to reduced demand and high inventory levels in 2018 and 2019. However, the report said the company believed it would be able to meet its liquidity needs through the next 12 months. The report also said the increase in refinery exemptions given by the EPA, and reductions in Chinese ethanol imports due to the trade war with the U.S., had a negative impact on ethanol prices.

A spokesperson for ADM said the company couldn’t comment on the status of individual plants, like the one in Marshall. A June 30 quarterly report filed with the SEC said Archer-Daniels-Midland Company had revenues of about $31.6 billion for the first six months 2019, compared to revenues of over $32.5 billion for the same period in 2018. The company’s bioproducts segment, which includes ethanol, had an operating loss of $26 million for April, May and June 2019, compared to a $9 million operating profit in 2018. The report said the change was affected by factors including negative margins in the ethanol industry, and lower amounts of U.S. exports.

The ethanol industry is an important customer for Minnesota farmers. According to a report by the Minnesota Biofuels Association, about 33% of the state’s corn crop went to ethanol production in 2018. The report said the ethanol industry produced about 1.27 billion gallons in Minnesota in 2018, an increase of 6.2% over 2017. The Minnesota ethanol industry also spent $2.1 billion to make ethanol and products like distillers dried grains, which are used for animal feed. That money went to pay for raw materials like corn, and other inputs, goods and services, the report said.

The impact of the ethanol industry extends down to the local level. Kletscher said Highwater Ethanol employs 42 people full-time, and has a $3.5 million payroll. The Highwater plant also uses around 18 to 20 million bushels of corn a year, which comes from area farmers and elevators, Goblish said.

In spite of recent challenges, “The ethanol industry is a strong industry in the U.S.,” Kletscher said. The country needs to continue to have renewable fuel in its portfolio, he said.

There may be some positive developments for the future of ethanol in the U.S., however. On Oct. 4, the EPA and the U.S. Department of Agriculture announced President Trump had negotiated an agreement on the Renewable Fuel Standard, which would ensure that more than 15 billion gallons of ethanol would be blended into U.S. fuel starting in 2020. The two agencies said the agreement would also build on Trump’s earlier decision to allow year-round sales of gasoline mixed with up to 15% ethanol (E15), by removing barriers to sale of E15.

The move drew praise from Minnesota Farm Bureau President Kevin Paap last week. “It is clear that President Trump heard farmers communicate the importance of adding value to their crops by increasing domestic demand,” Paap said. “The RFS provides domestic opportunities that can help when Minnesota farmers are struggling to export to international markets. This will also provide certainty for our rural communities by providing economic certainty and jobs here in Minnesota.”

On the other hand, Sen. Amy Klobuchar said Trump’s deal didn’t go far enough.

“The Renewable Fuel Standard supports American jobs, decreases our dependence on foreign oil, and invests in cleaner energy, and we need it to remain strong,” Klobuchar said. “This rulemaking won’t recover the over four billion gallons of renewable fuel that we’ve lost to refinery exemptions in the last few years. Under this plan, those gallons – and the important impact they could have had on our environment – are gone forever.”