Updates throughout with EPA proposal.
President Donald Trump's administration may not require oil companies to fully compensate for biofuel blending exemptions granted to small refiners, according to a proposal released today, a potential blow to US farmers and biofuel producers worried about lost demand.
The Environmental Protection Agency (EPA) is considering reallocating all or just half of the exempted volumes for 2023 and later, the agency said Tuesday in the proposal. EPA is also soliciting comment on other options, including reallocating 75pc of the exempt volumes, reallocating 25pc or reallocating none.
The agency last month fully or partially granted dozens of small refiners' requests for exemptions from biofuel blending program mandates and said it was readying a plan to hike blending obligations on other refiners to make up for the exemptions.
While a White House official said last week that the proposal would include "options", EPA signaling no preferred path on Tuesday was a blow to biofuel and oil refiners seeking clarity on the program. Farm advocates have warned that any plan that would not entirely redistribute biofuel mandates lost to exemptions would throttle demand for their products at a time when trade wars and low crop prices are challenging farm economies.
Finalized biofuel quotas likely late
EPA is accepting comments on the proposal through 31 October, likely dooming its prior plan to finalize before November new biofuel quotas for 2026 and 2027. Two lobbyists said administration officials privately have signaled EPA will miss its timing target.
The agency plans on making up for 2023-2025 exemptions by hiking volume targets in future years, meaning EPA has to decide a path forward on reallocation before issuing targets for 2026 and 2027. EPA declined to provide specific timing but said it would set new biofuel quotas and reallocation plans in the same final regulation.
EPA's Renewable Fuel Standard requires oil refiners and importers to annually blend different types of biofuels or buy Renewable Identification Number (RIN) credits from those that do. Recent exemptions for the 2023 and 2024 compliance years reduce refiners' requirements by 1.4bn RINs for those years, and EPA anticipates that forthcoming exemptions for this year's quotas will mean 780mn fewer RINs, without reallocation.
But EPA punting a final decision on redistributing exempted volumes leaves larger refiners with little clarity on how much biofuel volume they should prepare to bring to market next year.
Forcing companies to fully compensate for exemptions could mean they have to ensure biofuels account for 15.47pc of the fuels they bring to market next year, but just 15.14pc if they have to account for only half of the exempted volumes, according to the proposal. Full reallocation would also mean higher mandates across program categories, including for blending costlier cellulosic biofuels and biomass-based diesel.
Those estimated percentage requirements are based on a June plan to drastically hike required biofuel blending in 2026 and 2027, which has not been finalized.
The White House this week cancelled previously scheduled meetings with industry groups about the proposal and sped it through a typically lengthier interagency review process, a signal that officials understand the issue's urgency. But EPA's generous exemptions for small refiners coupled with its uncertainty on how to mitigated the demand loss threaten its pledge to get the long-delayed biofuel program back on a regular schedule.
Whatever EPA decides is likely to frustrate oil refiners, who could sue if regulators force them to bring more biofuel volumes to market to compensate for their competitors. Conservative lawmakers otherwise on board with Trump's "energy dominance" agenda have increasingly objected to his administration's support for biofuels.
Often-volatile biofuel markets were relatively muted after the proposal's release on Tuesday, as traders continue to await more certainty on biofuel policy. Soybean oil futures were up nearly 2pc on the day, tracking gains in crude, while D4 biomass-based diesel and D6 conventional biofuel RIN credits traded up slightly from Monday's session.
EPA also reiterated Tuesday that it plans to factor in expected exemptions for 2026 and 2027 when finalizing mandates for those years and that it will not reallocate pre-2023 exemptions, since credits from those years are expired.
