EPA Proposal Would Bump US Biofuel Quotas

EPA Proposal Would Bump US Biofuel Quotas
The Trump administration advanced plans to modestly lift U.S. biofuel-blending targets, while dodging fights over how frequently to waive refineries from the quotas and how to offset those exemptions.

(Bloomberg) -- The Trump administration on Friday advanced plans to modestly lift U.S. biofuel-blending targets, while dodging fights over how frequently to waive refineries from the quotas and how to offset those exemptions.

Under the Environmental Protection Agency’s proposal, refiners and importers would be required to use 20.04 billion gallons of renewable fuel in 2020, a 0.6% increase over the existing 2019 quota of 19.92 billion gallons. As much as 15 billion gallons could be fulfilled from conventional renewable fuels, such as corn-based ethanol, while refiners would have to turn to advanced biofuels for the remaining 5.04 billion gallons. The EPA is proposing a 2.43 billion gallon quota for biomass-based diesel in 2021, identical to the 2020 target.

The initiative aims to balance two competing interests -- oil and agriculture -- but left both sides unsatisfied Friday. Oil industry representatives say the Trump administration is bypassing opportunities to ratchet down requirements that displace petroleum-based gasoline. And renewable fuel advocates say the EPA is failing to account for agency decisions to waive refineries from billions of gallons worth of biofuel quotas.

Biofuel proponents argue the administration has handed out the waivers too freely, undermining domestic demand for their products and the corn and soybeans used to make them. After farmers and other biofuel allies took their case directly to Donald Trump, the president directed top administration officials to evaluate the government’s handling of the exemptions.

Although the administration is considering ways to offset the waived biofuel quotas and effectively redistribute them to non-exempted refineries, the EPA didn’t make any such move in the proposal.

“EPA is blatantly undercutting President Trump’s commitment to ethanol,” said Geoff Cooper, president of the Renewable Fuels Association. By failing to account for expected refinery exemptions, “EPA has chosen to continue its demand destruction campaign that has been crippling to both ethanol producers and the farmers who supply our industry,” Cooper said.

The agency also proposed not to retroactively hike 2016 quotas despite a federal court ruling that the EPA had wrongly pared biofuel-blending requirements by some 500 million gallons for the year. The EPA said its decision reflects concern about “burdens” that retroactive requirements would place on refiners as well as an expectation that biofuel producers are unable to manufacture “appreciably higher volumes of renewable fuel” next year, beyond what the agency is proposing.

EPA Praised

Scott Segal, a lobbyist at Bracewell LLP and long-time refining industry representative, said the EPA rightly avoided reopening the 2016 target, because that “could have created profound due process and statutory problems.”

Renewable fuel advocates said the EPA’s plan to flatline the biomass-based diesel target for 2021 doesn’t reflect the industry’s full capacity to produce biodiesel from soybeans and waste cooking oil. “The proposal sends a chilling signal to America’s biodiesel and renewable diesel producers of EPA’s intent to limit market growth for cleaner fuels,” said Kurt Kovarik, vice president of the National Biodiesel Board. The proposal “is likely to reduce America’s use of cleaner, low-carbon biodiesel and renewable diesel for transportation over the next several years, encouraging more petroleum use.”

Renewable Energy Group Inc., one of the largest U.S. biodiesel producers, fell 15 cents, or 1%, to $15.59 at 12:51 p.m. in New York. The shares earlier traded as high as $15.80.

Exemptions Reviewed

Independent oil refineries and their allies on Capitol Hill have pushed back on the administration review of refinery exemptions, warning that Agriculture Secretary Sonny Perdue‘s involvement in waiver decisions could violate federal law and vowing to block the confirmation of Agriculture Department nominees over the issue.

The Fueling American Jobs Coalition of refiners on Friday asserted the exemptions have not affected ethanol demand, sales or production. Meanwhile, the group said, the U.S. biofuel mandate needs “wholesale repair.”

“The implementation of the Renewable Fuel Standard is deeply flawed, needlessly penalizing independent refiners, small gasoline retailers and others,” the coalition said.

The oil industry pressure campaign -- and a surge in tradable credits used to show compliance with quotas -- reflect growing speculation the Trump administration will dial back the exemptions. Since June 10, the day before Trump got an earful from disgruntled farmers and biofuel producers in Iowa, Renewable Identification Numbers tracking 2019 ethanol mandates have increased 61.4%.

The EPA will now take public comment on its proposed biofuel targets, keeping the agency on track to finalize next year’s quotas before a Nov. 30 deadline. It is still honing a separate, broader “reset” of the Renewable Fuel Standard.

To contact the reporters on this story:
Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net;
Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at jmorgan97@bloomberg.net
Elizabeth Wasserman, Steve Geimann


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