Trump administration to propose E15 rule: Update

Adds Trump comments.

Federal regulators will try to expand the sale of higher-ethanol blend gasoline in peak summer months and make substantial changes to the US biofuels credit market ahead of next year's summer driving season, according to a senior White House official.

President Donald Trump directed the Environmental Protection Agency (EPA) to propose a rule making that inches the administration toward delivering on his pledge to allow the summer sale of 15pc ethanol blends of gasoline, called E15, in the peak US driving season.

The change would add more fuel to the US transportation system and take the edge off of higher oil prices while helping farmers, he said today before heading to Iowa for a rally on the announcement.

"I want more industry, I want more energy, I want more, because I do not like $74/bl" Trump said, referring to US benchmark crude futures. "If I have to do more, whether it is through ethanol or through another means, that is what I want."

But the agency expects legal challenges over its decision to reverse previous EPA guidance on the rule, and remained unsure as the announcement approached over how to deliver the "win-win" deal Trump has sought. EPA did not suggest when it might publish the rule.

"He is fulfilling his promise by providing clear policy direction that will expand opportunities for our nation's farmers, provide certainty to our refiners and bolster the United States' role as a biofuels powerhouse," an EPA spokesman said. "EPA will follow the president's direction and proceed as expeditiously as practicable."

US air quality laws prohibit the sale of evaporation-prone fuels such as E15 in major fuel markets during the peak summer driving months. Statute allows a waiver for the now-ubiquitous 10pc ethanol gasoline blend E10. The law offered no such opportunity for E15, and EPA has in the past said it lacked authority to extend the waiver.

The limitation muted retailer interest in a fuel that stores must stop offering for a third of the year in some markets. And while a growing number of vehicles can accept the fuel, retailers face liability risks and capital costs to offer a blend with a small customer base. EPA has for years certified that vehicles made since 2001 will comply with Clean Air Act (CAA) standards running E15, but makes no guarantees about its effects on fuel systems. Growth Energy, which has for years pushed for broader E15 use, estimated year-round sales of the fuel might result in 350mn additional gallons of blended ethanol a year in 2021 based on an additional 2,800 stores adopting the fuel.

The US did not plan to offer any new money for retail infrastructure alongside the rulemaking, a senior administration official said on 8 October.

EPA's proposal will face opposition as refiners,lawmakers and environmental groups have all warned that a rulemaking would face legal challenges.

The change "rewards a single stakeholder among many and to the detriment of all others, including consumers," the Petroleum Marketers' Association of America said in a letter to the administration. The group has favored instead reducing federal requirements to blend ethanol under the Renewable Fuel Standard (RFS).

Administration officials offered no new interpretations of EPA power ahead of the proposal, instead pushing forward with the expectation of a legal fight well after contentious mid-term elections in November.

Iowa Renewable Fuels Association executive director Monte Shaw said the rulemaking would still be a triumph for Iowa politicians that had worked for the proposal.

"We will hold the courts accountable for their actions," Shaw said. "Clearly the EPA needs to aggressively put forward the strongest legal arguments, but I would like to repeat that we are confident that an EPA rule allowing for the sale of E15 year-round would be upheld by the court."

The agency holds far clearer authority over the market for renewable identification numbers (RINs) refiners, importers and other companies trade to prove compliance with the RFS. But EPA had few concrete details for how or when to change that complex market.

RINs represent each blended gallon of renewable fuel added to the US transportation supply. Refiners gather RINs through blending or by acquiring the credits from others to prove compliance with annual minimum renewable fuel volumes set under the RFS.

EPA was considering limits on who can hold the credits and for how long, allowing only obligated parties to purchase RINs, and requiring disclosures of RIN holdings. Obligated parties could also be required to comply more frequently, such as quarterly, instead of annually. Each discussed change favored merchant refiners, which do not operate substantial biofuel blending, and limit strategies of blenders or more integrated companies. The agency expected the rulemaking process and consultations with the Commodity Futures Trading Commission to better guide any final changes to the RIN market.

The concept found little support as an acceptable trade for E15 among refiners ahead of the proposal, in part because of the lack of detail.