EPA to Hold Biofuel Quotas for Gasoline Steady for 2019, Sources Say

(Bloomberg) -- The Trump administration is set to order refiners to use 15 billion gallons of conventional renewable fuels such as corn-based ethanol next year, resisting oil industry pressure to lower the mandate, according to three people familiar with the plans.

The slate of biofuel blending targets set to be released on Friday will be in line with quotas the Environmental Protection Agency proposed in June, said the people, who asked not to be named discussing the matter before an official announcement.

The quotas are unlikely to satisfy agricultural leaders and their political allies who have angrily denounced the EPA’s move to exempt some small refineries from the mandates. Under the U.S. Renewable Fuel Standard law, small facilities facing a "disproportionate economic hardship" can win waivers from the annual biofuel blending requirements, and so far, 15 refineries have applied for relief from the 2018 quotas.

EPA to Hold Biofuel Quotas for Gasoline Steady for 2019, Sources Say

The EPA had proposed requiring refiners to blend 19.88 billion gallons of biofuels next year, a 3.1 percent increase over current quotas. That target included a 15 billion gallon quota for conventional renewable fuels such as corn-based ethanol, the maximum allowed under federal law and the same amount required in 2018. The agency also is set to finalize a 2020 requirement for using biodiesel that is typically made from soybeans, after proposing a 15.7 percent increase in the target.

Tradable credits tracking 2018 ethanol blending climbed 4.8 percent on the news, trading at 11 cents apiece, according to StarFuels Inc. They earlier touched 9.25 cents. On Monday, they changed hands at 10.5 cents.

The EPA will not adjust the final quotas to account for refinery exemptions, dealing a blow to ethanol producers and Corn Belt interests that wanted those waived biofuel quotas reallocated, according to two of the people familiar with the matter. Representatives of the EPA didn’t immediately respond to emailed requests for comment.

Biofuel advocates say the exemptions undercut the annual biofuel quotas.

“If true, EPA’s decision not to include projected small refiner exemptions in the 2019 requirements means one of two things: Either the agency does not expect to give out any exemptions at all from 2019 requirements, or EPA will continue the subversive practice of granting exemptions after they are finalized -— effectively reducing the RFS and undermining congressional intent,” said Geoff Cooper, president of the Renewable Fuels Association. “For the sake of America’s biofuel producers, farmers, and consumers, we hope it is the former and not the latter.”

In releasing the final biofuel quotas, the Trump administration will be kicking off a broad overhaul of the Renewable Fuel Standard program, setting off a fresh battle between the oil industry and agricultural interests over the biofuel mandate that Congress created in 2005.

Congress envisioned refiners would use some 36 billion gallons of biofuel in 2022 and expected that over time, conventional, corn-based ethanol would give way to next-generation advanced biofuels made from switchgrass, algae and other non-edible materials. But cellulosic biofuel has been slow to commercialize, with actual production lagging well bellow the congressional targets.

The EPA has said it plans to establish new biofuel blending targets for 2020 through 2022 as part of the coming RFS “reset.” And the agency is poised to ratchet down ambitious congressional goals for cellulosic biofuels as part of that process.

Oil industry leaders said they view the agency’s RFS reset as a chance to recalibrate a program created under vastly different market conditions 13 years ago, when lawmakers were eager to wean the U.S. off foreign sources of oil and develop home-grown alternatives. Efforts to revamp the program in Congress have been stymied for years because of tensions between the oil industry and the agricultural sector.

The EPA is separately moving to write a new regulation lifting summertime fueling restrictions on gasoline containing up to 15 percent ethanol, in keeping with a pledge Trump made to Iowa voters in October.

©2018 Bloomberg L.P.