U.S. is said to favor Midwest corn farmers in biofuels quota
The Trump administration will propose a requirement that refiners use 15 billion gallons of conventional renewable fuels in 2018, while lowering targets for advanced alternatives that oil refiners have described as unattainable, according to people familiar with the decision.
The move would strike a delicate balance on federal renewable fuel requirements by delivering a modest win to Midwest corn farmers supplying the bulk of traditional ethanol at the expense of companies producing next-generation alternatives, according to the people, who asked not to be named because the levels haven't been formally announced.
The Environmental Protection Agency is set to propose requiring 4.24 billion gallons of advanced biofuel in 2018, down from 4.28 billion gallons this year. That would include 238 million gallons of cellulosic biofuel, a drop from the current 311 million-gallon requirement. Cellulosic ethanol, typically made from corn stalks, switchgrass and other materials, has been commercialized at a slower pace than its supporters had hoped for.
The 15 billion-gallon quota for conventional renewable fuel is the highest allowed under federal law for that category, which is mostly fulfilled by corn starch-based ethanol. It also mirrors the current 2017 requirement.
The EPA proposal represents the Trump administration's first foray into the politically treacherous territory of the Renewable Fuel Standard, a program mandating biofuels in gasoline and diesel fuels that Congress established in 2005. The program is loathed by oil producers and refiners but embraced by farmers, public officials and biofuel producers in the Corn Belt states, such as Iowa, which play an outsized role in U.S. presidential contests.
Donald Trump promised to support ethanol while campaigning for president and he reiterated that position in a speech in Iowa last month. The ethanol industry is "under siege," but the Trump administration is saving it, the president told a crowd in Cedar Rapids.
Independent refiners without upstream oil production and substantial downstream fuel-blending infrastructure, including billionaire Carl Icahn's CVR Energy Inc., declined on the news of the proposed quotas. CVR fell 3.7 percent to $21.31 at 1:21 p.m. in New York, the steepest decline in two weeks.
Regulators track compliance with the mandates using credits known as renewable identification numbers, which reflect each gallon of biofuel blended into U.S. gasoline and diesel. The credits tracking 2017 ethanol consumption targets jumped 3.5 percent to 74 cents apiece Wednesday, on pace for the steepest one-day gain since June 8.
The administration's decision to keep conventional biofuel targets intact sets up a clash with oil refiners, which had argued a 15 billion-gallon requirement would exceed a 10 percent "blend wall," or the amount that can be easily blended into the fuel supply.
According to a May forecast from the U.S. Energy Information Administration, motor fuel demand is set to climb to about 143.5 billion gallons in 2018 from about 143 billion in 2017. Given that forecast, if the conventional renewable fuel quota were fulfilled entirely by ethanol, the fuel would represent 10.5 percent of total projected gasoline consumption. Most gasoline sold in the U.S. is E10, or 10 percent ethanol. Refiners can turn to other fuels, including renewable biodiesel, to help meet the target.
The American Petroleum Institute, which represents oil producers and refiners, had asked the EPA to set lower quotas that would reflect about 9.7 percent of projected gasoline demand; some refiners had pushed a lower 9.5 percent.
The ethanol industry counters that the government explicitly allowed vehicles built after 2001 to use 15 percent ethanol, and many vehicles can run on an 85 percent blend. Gasoline containing 15 percent ethanol is available in about 800 filling stations nationwide, according to Growth Energy, a coalition of biofuel producers.
The unavoidable tension between oil producers and Corn Belt interests is why why Kevin Book, managing director of Washington-based ClearView Energy Partners LLC, calls the program a "nightmare" for Republicans.
"It divides the Republican Party like almost no other policy in energy because it takes several very strongly Republican constituencies and pits them against each other," Book said in an interview.
The proposed decline in advanced biodiesel targets reflects top EPA officials' concerns that an earlier, internal proposal would encourage refiners to import ethanol from Brazil and biodiesel from Argentina. At the behest of U.S. biodiesel producers, the government is separately investigating whether imports from Argentina and Indonesia are benefiting from unfair subsidies and being sold at prices below production costs.
Under federal law, the EPA has until Nov. 30 to issue final biofuel quotas for 2018.
Congress asked the EPA to dictate 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.
This article was written by Jennifer A. Dlouhy, Mario Parker and Ari Natter of Bloomberg.