(Bloomberg) -- Concerns that refiners will import ethanol from Brazil and biodiesel from Argentina to fulfill renewable fuel requirements prompted U.S. environmental chief Scott Pruitt to reconsider quotas for those fuels, according to people familiar with the program.
The issue has delayed the Environmental Protection Agency’s publication of proposed mandates for 2018, as Pruitt seeks revisions, according to four people tracking the deliberations. That may include lowering the targets so refiners can rely mostly on U.S.-made biodiesel and corn ethanol, they said.
EPA had previously sent the White House proposed quotas that would require the use of 15 billion gallons of renewable fuel, but the new concerns are causing the agency to rethink that approach, according to the people, who asked for anonymity to discuss internal deliberations.
The EPA debate comes as President Donald Trump pushes an America-first approach to trade. The administration is considering slapping tariffs on foreign-made products such as steel and aluminum in a bid to help domestic producers and support national security. After a meeting with South Korean President Moon Jae-in Thursday, Trump said that nation must stop exporting “dumped steel” into the U.S. market.
As part of his American energy focus, Trump told an Iowa audience this month: "By the way, we’re saving your ethanol industries." He also just spent this week touting "American energy dominance," and the ability of U.S. exports to supply the world’s energy needs.
These trade issues have already seeped into the biofuel markets. U.S. biodiesel producers filed a trade complaint against imports from Argentina and Indonesia, asking the government to impose tariffs to counter what they say are unfair subsidies and dumping.
Unlike those trade investigations, the EPA has a limited ability to discourage the use of imported biofuels under the congressionally mandated program. That program aimed to spur production of American-made fuel, but its quotas apply to all renewable fuels -- no matter their origin.
If the EPA does take measures to restrict imports, the net result would be a spike in the price of credits tracking compliance with renewable fuel mandates and that would "drive up consumer cost significantly," said Mike McAdams, president of the Advanced Biofuels Association.
"If you want to stick it to the consumer, Mr. Administrator, just roll back the number for imported fuels with your misguided America-first policy," McAdams, whose members include Brazilian-based producers, said in an interview. "You need imports to satisfy targets."
The delays could also make it harder for the EPA to hit a Nov. 30 deadline in federal law to finalize biofuel quotas for the following year. The Obama administration missed that deadline repeatedly, until last year when they came out on time. Pruitt has promised to keep the program’s timing on track and "honor the intent" of Congress in creating the mandates.
Representatives from the EPA did not respond to requests for comment.
Under the Renewable Fuel Standard, first created by Congress in 2005, refiners can use imports to help satisfy multiple mandates in the program and make up for domestic shortfalls. For example, while refiners use U.S. corn-based ethanol to fulfill the bulk of a 2017 requirement to blend in 15 billion gallons of conventional renewable fuels, they are turning to some foreign supplies to help them hit the target.
The U.S. imported 36 million gallons of ethanol from Brazil last year, down from more than 400 million gallons in 2012, according to the Energy Information Administration. U.S. distillers produced a record 15.3 billion gallons of ethanol in 2016, it said.
The EPA is tasked with dictating specific annual quotas, but the agency has limited authority to waive the statutory goals and set lower targets. And the breadth of the EPA’s leeway is in doubt, as a federal court weighs a biofuel industry lawsuit challenging the agency’s waivers issued under former President Barack Obama.
In addition to the overall biofuel target, the agency sets standards for biodiesel, typically derived from soybean oil; advanced biofuel, which has lower carbon emissions; and cellulosic ethanol, which comes from sources such as crop waste or algae.
Sugarcane-derived ethanol made in Brazil qualifies as an "advanced biofuel," which means it can satisfy quotas for two different types of fuel in the program -- both for advanced biofuel and total renewable fuel. Corn-based ethanol doesn’t qualify as advanced.
Imported biodiesel is particularly useful because it can help satisfy quotas for three different required fuels -- advanced, total and biodiesel. Under the program, refiners receive 1.5 compliance credits for each gallon of biodiesel they blend into petroleum.