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Trump administration expected to release details of biofuel plan

EPA expected to boost annual biofuel-blending quotas to compensate for Small Refinery Waivers

By Jennifer A. Dlouhy, Mario Parker and Jennifer Jacobs

The Trump administration on Friday will announce plans to aid corn-based ethanol and soybean-based biodiesel, capping weeks of deliberations over how to temper a wave of criticism from biofuel advocates in the U.S. Midwest.

The Environmental Protection Agency is slated to announce several changes to propel those renewable fuels, including a commitment to bolster annual biofuel-blending quotas to compensate for waivers exempting some small refineries from the mandates. The shift, which still must be formally proposed and codified, would effectively force bigger, non-exempted refineries to take up the slack.

The planned announcement was described by several people familiar with the move, who asked for anonymity before a formal rollout. Administration officials briefed stakeholders on the package of changes Thursday.

The administration’s plan includes several measures to stoke U.S. demand for ethanol, including investments in new fueling infrastructure designed to give more consumers access to higher-ethanol gasoline blends.

The package also includes a commitment to alter requirements for warning labels that now must be on display at filling stations offering E15 gasoline comprised of 15% ethanol. Ethanol producers say sales are discouraged by the labels, meant to prevent motorists from pumping the fuel into automobiles that aren’t approved to use it.

The administration is also set to revive its scrutiny of an opaque market in biofuel credits that refiners use to prove they have satisfied annual blending quotas under the Renewable Fuel Standard law.

A previous review ordered by President Donald Trump did not result in major changes, but some refiners continue to allege hoarding and speculation of the credits, known as Renewable Identification Numbers, or RINs.

The package will not include a major concession sought by oil refiners: a ceiling on the cost of those RINs. Refiners and oil-state senators had argued they needed an insurance policy against spiking prices for the credits.

Labor unions and oil industry allies also had lobbied the White House to back off from any deal that would bolster biofuel quotas, arguing it could undermine the economics of some refineries and put Rust Belt jobs at risk.

Trump administration officials have spent weeks negotiating the final plan in meetings with refining executives, biofuel producers and farm and oil state senators.

The effort was provoked by anger in politically important farm-belt states, as ethanol and biodiesel advocates accused the administration of too liberally exempting refineries from mandates to use the products. The backlash was particularly intense in Iowa, a leading producer of corn and corn-based ethanol that helped elect Trump in 2016 -- and is critically important to his re-election in 2020.

Trump campaigned on pledges to support the Renewable Fuel Standard and protect ethanol. His administration has taken steps to help the industry, such as by authorizing year-round sales of E15 gasoline. But the EPA’s decisions to authorize more refinery exemptions -- including a batch of 31 in August -- have been especially unwelcome amid a broader trade conflict with China that has led to retaliatory tariffs on American agricultural products. Biofuel advocates say the refining waivers have hurt U.S. demand for the products.

Under the plan being announced Friday, the EPA will effectively offset future exemptions by factoring a three-year rolling average of waived gallons into annual quotas, beginning with targets for 2020. The agency will not, however, include an additional boost to upcoming targets to make up for past waivers or further encourage industry growth, which had been sought by biodiesel advocates.

Oil companies and EPA officials dispute that refinery waivers have had any effect on ethanol demand and argue other factors are at play. A wave of ethanol capacity expansions -- aimed at producing more of the biofuel to satisfy burgeoning demand in China -- was undermined by the country’s retaliatory tariffs and contributed to a domestic supply glut. Inclement weather for the better part of this year has washed out fields, delaying or prevented planting in some instances, subsequently eroding ethanol production margins.

The EPA has a limited window to make changes before a Nov. 30 deadline in law for setting next year’s biofuel-blending targets. The agency is set to send a supplementary proposal to the White House as soon as Friday, setting the stage for its release next week.

To contact the reporters on this story:
Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net;
Mario Parker in Chicago at mparker22@bloomberg.net;
Jennifer Jacobs in Washington at jjacobs68@bloomberg.net
To contact the editors responsible for this story:
John Harney
© 2019 Bloomberg L.P.
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