Groups question impact of US biofuel change

The success of proposed changes to US biofuel mandates sought by some domestic refiners could depend on how many smaller businesses they affect.

The Environmental Protection Agency (EPA), joined by major trade groups in both the oil and biofuel industries, warned that moving the point of obligation under the Renewable Fuels Standard would create a regulatory morass driving fuel marketers out of business or leaving the ten-year-old program to implode.

Concern that such an expansion would require regulating almost ten times the current number of companies, with most of them ill-equipped to comply, underpinned the EPA's proposed rejection of the changes in November.

"We believe the parties requesting this change significantly underestimate the scope and impacts of the changes that would result from the number and nature of additional parties that would become obligated parties," the agency wrote at the time.

But a pair of groups for industries central to the debate — ethanol's Renewable Fuels Association (RFA) and the Petroleum Marketers' Association of America (PMAA) — have in recent weeks said they no longer believe changes in the enforcement of US biofuel mandates would ensnare hundreds of smaller retailers in red tape.And a market data company said EPA had misread its research to find that a much larger group of companies would be affected.

RFA chief executive Bob Dinneen set off a furious week of rebuttals and recriminations last week with the announcement that an official representing the administration had informed ethanol's oldest trade group that changes to who must ensure rising renewable fuel volumes in the US transportation supply each year were coming and were "not negotiable."

The White House denied any imminent plans for an executive order on such a change, but did not rule out other actions on the program. Sources familiar with the talks said the administration was evaluating the idea last week.

RFA continues to oppose changes to mandates that would make the program overly complex or unenforceable, Dinneen said in the radio interview. But he described as "misinformation" the argument — supported in November by the Environmental Protection Agency — that a proposed change would leave the agency regulating more than 1,000 inexperienced companies.

"I do think that the impact has been largely overblown," Dinneen said. "Some have represented that it could mean all retailers and that is simply not true."

Dinneen could not be reached today for comment.

The current structure of the program places that burden on refiners, importers and other companies producing fuel consumed in the domestic transportation pool. Those companies prove compliance by collecting renewable identification numbers (RINs) generated each time conventional fuel blends with renewable fuels to produce finished gasoline and distillates sold to drivers.

Refiners and importers that do not blend all of their own fuel production purchase RINs from companies that do, including other refiners or blenders that face no obligation to ensure the industry meets annual mandates.

Merchant refiners that lack blending infrastructure argue the arrangement creates unfair incentives to drive up the price of RINs instead of the consumption of biofuels. Those companies argued they pay for decisions out of their control.

"EPA has an opportunity to make an administrative change that will immediately calm the RIN market and end competitive distortions the existing structure of the RFS creates," Valero senior vice president Richard Walsh wrote in comments to the agency.

Supporters of the program consider it essential to ensuring refiners and importers provide competitive materials needed to make finished biofuel blends. Moving obligations closer to the wholesale fuel business would quickly reduce competition at one of the last stages of the supply chain before consumers and make the program untenable for both the regulated and the regulator, they argue.

"We believe this to be true, not just for market participants, but also for the EPA," Max McBrayer, chief supply officer for retailer RaceTrac, said in comments on the proposed change filed in February.

EPA called arguments suggesting few companies would be affected by the change "flawed" in its assessment of the proposal published in November. The argument did not consider major position holders such as railroads and logistics companies or big retail chains that do not resell fuel on the wholesale market. Railroad and trucking associations have since come out opposing the proposed change..

Data firm Opis said in a filing made during public comment on the idea that the EPA misunderstood its data. The company took no position on the change but said its analysis suggested far fewer obligated parties than the agency feared.

The Petroleum Marketers Association of America, which represents fuel distributors, dropped opposition to the change in February. The trade group opposed moving the point of obligation in November. It is neutral on the issue in comments submitted to the agency, preferring instead to cap ethanol blending and limit the ability of larger retailers to RIN sales to gain fuel market share.

Any EPA decision will take years to become effective. The agency acknowledged but did not address multiple questions on practical considerations to changing the Renewable Fuel Standard over over the past week.

Industry contacts who track these regulatory odysseys expect drafting changes to the rule could take at least 12 to 18 months. Putting those changes into practice could take another two years and almost certainly end up in court.