Biden Eases Biofuel Quota Blow to Farmers With Future Growth

(Bloomberg) -- The Biden administration sought to thread the needle between oil and agriculture interests by proposing modest quotas for the use of biofuels while seeking to block exemptions for dozens of refineries.

The U.S. Environmental Protection Agency on Tuesday called for cutting biofuel-blending quotas retroactively for 2020, while outlining targets for this year that track actual consumption and an increase in 2022 that could boost renewable fuel use by 3.5 billion gallons. 

In a sign the Biden administration sought to minimize disruption for both the agriculture and oil sectors, the EPA also proposed to reject bids for waivers from 2019-2021 quotas under the Renewable Fuel Standard. Meanwhile, the U.S. Department of Agriculture plans as much as $700 million in aid to biofuel producers battered by the Covid-19 pandemic, and the EPA is proposing regulatory changes that could dramatically expand production of next-generation biofuels.

“This package of actions will enable us to get the RFS program back in growth mode by setting ambitious levels for 2022 and by reinforcing the foundation of the program so that it’s rooted in science and the law,” EPA Administrator Michael S. Regan said in an emailed statement.

The proposal comes as President Joe Biden battles gasoline prices near a seven-year high and inflationary pressures that threaten to undercut the U.S. economic recovery. The move follows months of deliberations over how to set the targets following a pandemic-spurred drop in fuel demand, while still encouraging greater use of biofuels made from corn and soy oil.

Fuel Sales

The measure responds to arguments by oil refiners and their allies on Capitol Hill that reductions were critical to address a decline in fuel sales and compensate for 2020 targets they said exceeded blending capacity. EPA already said it’s proposing to delay the deadlines for refiners to prove they have complied with quotas for 2020 and 2021.

For 2020, the EPA is taking the unusual step of seeking to reduce the total quota to 17.13 billion gallons, from a 20.09 billion target established in December 2019. As much as 12.5 billion of that could be fulfilled with conventional renewable fuels, such as ethanol.

By reducing the 2020 quotas, the administration could ensure refiners don’t deplete a stockpile of previously generated credits they use to prove they have fulfilled quotas.

The proposal, which, if finalized, would set the highest-ever biofuel quota in 2022, is an attempt to “rebuild the foundations of the program” to support long-term growth, EPA Principal Deputy Assistant Administrator Joe Goffman said.

For the current year, the overall target would be 18.52 billion gallons, with as much as 13.32 billion of that coming from ethanol. The agency is proposing to boost 2022 requirements to 20.77 billion gallons, which it said would represent 11.8% to 12.3% of total transportation fuel. That could include as much as 15 billion gallons -- the maximum allowed under federal law -- from ethanol.

The agency also proposed an additional 250 million gallons of biofuels be blended in 2022 on top of the quotas, and intends to seek the same for 2023 to address a court-ordered rebuke of earlier targets four years ago. 

The proposal was viewed warily by renewable fuel advocates, who have warned the Biden administration that cuts could “destroy a decade of progress on low-carbon biofuels” and violate Biden’s campaign promises to support the mandate. 

“We see the package of proposals today as being slightly better than a mixed bag for ethanol producers,” Geoff Cooper, president of the Renewable Fuels Association, said by email. “We might even say it is a modest step in the right direction.”

The EPA’s plan to retroactively lower 2020 quotas fosters uncertainty that could hamper growth, said Kurt Kovarik, vice president of federal affairs for the National Biodiesel Board. Still, he said, the measure “provides some growth for advanced biofuels in 2022 and we hope puts an end to the demand destruction that resulted from unwarranted small refinery exemptions.”

Oil refiners slammed the plan and said it would raise costs for consumers while failing to provide environmental benefits.

“The 2022 proposal would needlessly increase already record-breaking RFS compliance costs which, in turn, will raise the cost of producing gasoline and diesel for U.S. consumers,” said Chet Thompson, chief executive of the American Fuel and Petrochemical Manufacturers. 

Under the 16-year-old standard, fuel importers and refiners must blend biofuels or buy credits that track use of the plant-based alternatives. The cost of those credits, known as renewable identification numbers or RINs, has swung wildly this year. As a consequence, refining advocates argued that some facilities, which lack their own blending facilities, were spending more on RIN purchases than other operational costs. 

RIN Costs

Ethanol RINs tripled from November 2020, when Biden secured the presidency, through early June. Since then, the credits have tumbled by more than half from an all-time high amid speculation the new administration might not be as friendly to biofuels as initially expected.

RINs tied to ethanol consumption rose 0.6% Tuesday to 91 cents each after earlier falling to as low as 50 cents. RINs tied to biodiesel also gained, rising 0.7%. Refiners pared early gains to end modestly higher.

The administration also is encouraging the production of advanced, next-generation biofuels by allowing credits to go toward more products, such as bio-oils from wood residue or other feedstocks generated at one facility and then made into finished fuel at another site.

“The level of ambition that we are proposing for 2022 and that we foresee going forward demands that we do everything we can to stabilize the program and stabilize a market that was under tremendous pressure from a pandemic and the complete uncertainty about what the 2021 obligations would be,” Goffman said. 

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