Biofuel Quota Plan Faces Delay Amid Refiner Backlash

Source: By Jennifer A Dlouhy, Bloomberg • Posted: Friday, June 22, 2018

Oil industry criticism prompted Trump administration officials to restart talks over a proposal that would force large refineries to use more biofuel to make up for exemptions granted to small facilities, said three people familiar with the plans.

Amid the fresh deliberations, the Environmental Protection Agency called off an announcement of proposed biofuel quotas that had been planned for Friday, said the people, who asked not to be named detailing private negotiations. The episode marked the latest stalemate over the U.S. biofuel mandate as two key Trump constituencies — the oil industry and agricultural interests — clash over the policy.

At issue is the EPA’s drafted plan to incorporate some 1.5 billion gallons of additional biofuel requirements into proposed quotas for 2019, 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 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 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 it would be “a total breach of trust between the EPA and the industry,” and warned that the group would battle the plan.

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.

The Trump administration has little political and legal room to maneuver. Farm-state lawmakers, including Iowa’s Republican senators Chuck Grassley and Joni Ernst, 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 EPA exemptions from annual biofuel quotas.

For now, the reallocation language is still in a draft proposed rule laying out 2019 biofuel quotas, said two people familiar with the discussions. But ongoing negotiations — and interventions from the top levels of the administration — could change that. Refining industry allies on Capitol Hill have been encouraged to press the issue with the White House.

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 tradeable 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 on Wednesday morning before Bloomberg first reported on EPA’s proposal.

(Updates with cancelation of planned biofuel quota rollout in 2nd paragraph.)