25/06/13
EPA proposes record US biofuel mandates: Update
Updates with new pricing, reactions throughout. New York, 13 June (Argus) —
President Donald Trump's administration today proposed requiring record biofuel
blending into the US fuel supply over the next two years, including unexpectedly
strong quotas for biomass-based diesel. The US Environmental Protection Agency
(EPA) proposal, which still must be finalized, projects oil refiners will need
to blend 5.61bn USG of biomass-based diesel to comply with requirements in 2026
and 5.86bn USG in 2027. Those estimates — while uncertain — would be a 67pc
increase in 2026 and a 75pc increase in 2027 from this year's 3.35bn USG
requirement, above what most industry groups had sought. The proposal alone is
likely to boost biofuel production, which has been down to start the year as
biorefineries have struggled to grapple with uncertainty about future blend
mandates, the halting rollout of a new clean fuel tax credit, and higher import
tariffs. The National Oilseed Processors Association said hiking the
biomass-based diesel mandate to the proposed levels would bring "idled capacity
back online" and spur "additional investments" in the biofuel supply chain. The
EPA proposal also would halve Renewable Identification Number (RIN) credits
generated from foreign biofuels and biofuels produced from foreign feedstocks, a
major change that could increase US crop demand and hurt renewable diesel plants
that source many of their inputs from abroad. US farm groups have lamented
refiners' rising use of Chinese used cooking oil and Brazilian tallow to make
renewable diesel, and EPA's proposal if finalized would sharply reduce the
incentive to do so. Biofuel imports from producers with major refineries abroad,
notably including Neste, would also be far less attractive. The proposal asks
for comment, however, on a less restrictive policy that would only treat fuels
and feedstocks from "a subset of countries" differently. And EPA still expects a
substantial role for imported product regardless, estimating in a regulatory
impact analysis that domestic fuels from domestic feedstocks will make up about
62pc of biomass-based diesel supply next year. The Renewable Fuel Standard
program requires US oil refiners and importers to blend biofuels into the
conventional fuel supply or buy credits from those who do. One USG of corn
ethanol generates one RIN, but more energy-dense fuels like renewable diesel can
earn more. In total, the rule would require 24.02bn RINs to be retired next year
and 24.46bn RINs in 2027. That includes a specific 7.12bn RIN mandate for
biomass-based diesel in 2026 and 7.5bn in 2027, and an implied mandate for corn
ethanol flat from prior years at 15bn RINs. EPA currently sets biomass-based
diesel mandates in physical gallons but is proposing a change to align with how
targets for other program categories work. US soybean oil futures surged
following the release of the EPA proposal, closing at their highest price in
more than four weeks, and RIN credits rallied similarly on bullish expectations
for higher biofuel demand and domestic feedstock prices. D4 biomass-diesel
credits traded as high as 117.75¢/RIN, up from a 102.5¢/RIN settle on Thursday,
while D6 conventional credits traded as high as 110¢/RIN. Bids for both
retreated later in the session while prices still closed the day higher.
Proposed targets are less aspirational for the cellulosic biofuel category,
where biogas generates most credits. EPA proposes lowering the 2025 mandate to
1.19bn RINs, down from from 1.38bn RINs previously required, with 2026 and 2027
targets proposed at 1.30bn RINs and 1.36bn RINs, respectively. In a separate
final rule today, EPA cut the 2024 cellulosic mandate to 1.01bn RINs from 1.09bn
previously required, a smaller cut than initially proposed, and made available
special "waiver" credits refiners can purchase at a fixed price to comply. Small
refinery exemptions The proposal includes little clarity on EPA's future policy
around program exemptions, which small refiners can request if they claim blend
mandates will cause them disproportionate economic hardship. EPA predicted
Friday that exemptions for the 2026 and 2027 compliance years could total
anywhere from zero to 18bn USG of gasoline and diesel and provided no clues as
to how it will weigh whether individual refiners, if any, deserve program
waivers. The rule does suggest EPA plans to continue a policy from past
administrations of estimating future exempted volumes when calculating the
percentage of biofuels individual refiners must blend in the future, which would
effectively require those with obligations to shoulder more of the burden to
meet high-level 2026 and 2027 targets. Notably though, the proposal says little
about how EPA is weighing a backlog of more than a hundred requests for
exemptions stretching from 2016 to 2025. An industry official briefed on Friday
ahead of the rule's release said Trump administration officials were "coy" about
their plans for the backlog. Many of these refiners had already submitted RINs
to comply with old mandates and could push for some type of compensation if
granted retroactive waivers, making this part of the program especially hard to
implement. And EPA would invite even more legal scrutiny if it agreed to biofuel
groups' lobbying to "reallocate" newly exempted volumes from many years prior
into future standards. EPA said it plans to "communicate our policy regarding
[exemption] petitions going forward before finalization of this rule". Industry
groups expect the agency will try to conclude the rule-making before November.
The proposed mandates for 2026-2027 will have to go through the typical public
comment process and could be changed as regulators weigh new data on biofuel
production and food and fuel prices. Once the program updates are finalized,
lawsuits are inevitable. A federal court is still weighing the legality of past
mandates, and the Supreme Court is set to rule this month on the proper court
venue for litigating small refinery exemption disputes. Environmentalists are
likely to probe the agency's ultimate assessment of costs and benefits,
including the climate costs of encouraging crop-based fuels. Oil companies could
also have a range of complaints, from the record-high mandates to the creative
limits on foreign feedstocks. American Fuel and Petrochemical Manufacturers
senior vice president Geoff Moody noted that EPA was months behind a statutory
deadline for setting 2026 mandates and said it would "strongly oppose any
reallocation of small refinery exemptions" if finalized. By Cole Martin and
Matthew Cope Proposed 2026-2027 renewable volume obligations bn RINs Fuel type
2026 2027 Cellulosic biofuel 1.30 1.36 Biomass-based diesel 7.12 7.50 Advanced
biofuel 9.02 9.46 Total renewable fuel 24.02 24.46 Implied ethanol mandate 15 15
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