EPA Said Ready to Propose 19.9 Billion Gallon Biofuel Target

(Bloomberg) -- Oil industry opposition prompted Trump administration officials to at least temporarily abandon a proposal that would force larger refineries to use more biofuel to make up for exemptions granted to smaller facilities, according to two people familiar with the plans.

The Environmental Protection Agency is on track to issue a slate of biofuel quotas without the contentious proposal as soon as Friday, said the people, who asked not to be named to discuss private negotiations. The move follows intense deliberation over the biofuel quota redistribution plan as two key Trump constituencies -- the oil industry and agricultural interests -- clash over the U.S. renewable fuel mandate.

The agency is set to propose requiring 19.88 billion gallons of biofuels to be used in 2019, a 3.1 percent increase over 2018 requirements. With a quota for 4.88 billion gallons of advanced biofuels, that would mean the EPA is proposing to require 15 billion gallons of conventional renewable fuels, including corn-based ethanol -- the same as required in 2018 and the maximum that can be compelled under federal law.

Targets for cellulosic renewable fuel -- such as ethanol made from switchgrass -- would be 381 million gallons, up from 288 million gallons in 2018. And refiners would face a 2.43 billion gallon target for biomass-based diesel in 2020, up from 2.1 billion gallons in 2019.

The proposal was briefly held up by deliberations over an EPA-drafted plan to incorporate some 1.5 billion gallons (5.7 billion liters) of additional biofuel requirements into proposed quotas for next year, with the aim of making up for potential exemptions granted to small refineries. Ethanol producers and farm-state lawmakers have criticized those waivers, saying they undercut a 13-year-old federal law compelling refiners to blend biofuels into gasoline and diesel.

But the administration’s plan for making up for those forgiven biofuel quotas effectively would have meant redistributing the burden to non-exempted refineries, prompting an outcry from the top two oil industry trade groups.

Chet Thompson, president of the American Fuel and Petrochemical Manufacturers trade group, blasted the potential move as a “back-room deal” that “would flat out betray consumers, labor and refinery workers in Ohio, Pennsylvania, Texas, Louisiana and dozens of other states that helped elect this president.”

‘Breach of Trust’

Frank Macchiarola, a director at the American Petroleum Institute, said the plan would be “a total breach of trust between the EPA and the industry,” and warned that the group would fight it.

The EPA has been preparing to unveil a proposed rule setting biofuel blending targets for 2019 after weeks of interagency negotiations. EPA Administrator Scott Pruitt and Agriculture Secretary Sonny Perdue had planned to travel to Missouri for an event on Friday that was expected to be the biofuel announcement, but that was called off on Thursday.

The Trump administration has little political and legal room to maneuver. Farm-state lawmakers, including Iowa’s two senators, Chuck Grassley and Joni Ernst, who are both Republicans, have insisted that the EPA must back off issuing waivers or reallocate the exempted biofuel gallons. But under the federal Renewable Fuel Standard law, small refineries facing a “disproportionate economic hardship” can get exemptions from annual biofuel quotas.

Read More: Pacific Ethanol, Green Plains Rise on EPA Biofuel Quotas Report

Although the reallocation is not slated to be in the proposed rule laying out 2019 biofuel quotas, EPA staff are still mulling ways to ensure waivers are reflected in the annual targets. One possibility: writing a new EPA rule requiring refineries to apply for waivers sooner, potentially allowing the exempted volumes to be incorporated in the annual quota-setting process.

Under federal law, the EPA has until Nov. 30 to finalize the annual biofuel targets.

In visits to Nebraska, Kansas and South Dakota last week, Pruitt assured farmers asking about support for biodiesel that they’d be very happy in a week -- a comment perceived as a nod to the coming quotas. Midwestern farmers also pressed Pruitt to make up for the waived biofuel gallons during his tour.

Compliance with the quotas is tracked with tradable credits known as Renewable Identification Numbers, or RINs. The value of RINs tracking 2018 ethanol blending rose 30 percent to 30.5 cents apiece as of Thursday morning -- the highest since May 22. They traded at 23.5 cents Wednesday morning before Bloomberg first reported on the EPA’s proposal.

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