US biofuel and crop feedstock markets were volatile today as traders awaited answers on how federal regulators will decide which refiners are exempt from biofuel blending mandates.
The Environmental Protection Agency (EPA) requires oil refiners and importers to blend minimum amounts of biofuels into the US fuel supply or buy credits from those that do. But refiners that process no more than 75,000 b/d of crude can request full exemptions, potentially saving themselves tens of millions of dollars in compliance costs. President Donald Trump's administration told federal courts this week in various pending cases that it "has now developed a new approach for reviewing small refinery exemptions" and is planning to "issue decisions".
The administration is expected to provide some clarity on its small refinery exemption policy on Friday, three sources said. A fourth was told by an official that some policy signal was coming "soon". EPA did not respond to a request for comment.
But it is unclear how officials will clarify their policy, which could take the form of a proposal, a memo describing the new approach, or separate rulings on the dozens of pending exemption requests stretching back ten years. Federal courts took issue with President Joe Biden's en masse denials of exemption requests, leaving the Trump administration with an unprecedented backlog to resolve. The issue is politically and legally thorny for EPA, pitting two lobbies Trump has pledged to support — oil refiners and farmers — against one other.
Public data on small refinery exemptions updated Thursday showed nine new requests but no decisions over the last month.
The September CBOT US soybean oil contract rose nearly 5pc Thursday to settle at a two-week high of 53.64¢/lb, outpacing gains in crude futures as traders bet on potentially higher biofuel demand if exemptions end up being less generous than they were during Trump's first term. Upward pressure from a higher bean oil-heating oil spread lifted the price of D4 biomass-based diesel and D6 ethanol Renewable Identification Number (RIN) credits. Current-year D4 RINs traded as high as 114¢/RIN, while D6s traded up to 106.25¢/RIN over the busy trading session.
Thorny questions remain
It is unlikely that the Trump administration will be able to immediately clarify its approach to all aspects of this complicated corner of the federal biofuel program. Exemption requests made as recently as last week give the Department of Energy little time to review applications and consult with EPA, as is required by law. And the bulk of potentially eligible refiners have not yet applied for exemptions from this year's blend mandates, since EPA has historically asked applicants to provide at least three quarters of financial data for the relevant compliance year.
Other open questions include whether EPA will require oil companies that remain in the program to blend more biofuels to make up for their exempt competitors and whether EPA will compensate newly exempt companies for past compliance. EPA's separate plan to halve RIN credits in future years for foreign biofuels also complicates the agency's enforcement — since refiners making up for old exemptions might have to bring to market more volume to meet the same mandate if some biofuels start earning fewer program credits than previously.
Legal challenges are highly likely no matter what the administration decides. Oil refiners in particular have expressed increasing frustration with the Trump administration's approach to biofuel policy, which they say is increasing feedstock and fuel costs.
EPA has signaled it wants to finalize new biofuel blend mandates for the next two years before November, an ambitious timeline given the amount of questions still unanswered about the program's future.
