EPA finalizes E15 rule with limited RIN changes: Update

Adds industry reaction.

Refiners, importers and other parties obligated to comply with federal renewable fuel blending rules face new disclosure requirements but will not need to meet a more aggressive pace of compliance or credit selling under a final rule the Environmental Protection Agency (EPA) published today.

The rule extends waivers allowing the sale of 15pc ethanol blends of gasoline through the summer months and imposes additional reporting requirements for refiners and fuel importers under the Renewable Fuel Standard. EPA "put on hold" rule changes biofuel producers and blenders complained gave too many advantages to buyers, but have not abandoned the concepts, EPA assistant administrator for air and radiation Bill Wehrum said today.

EPA's completion of the rule on the eve of the official summer driving season may give few retailers enough time to offer higher-ethanol fuel in previously restricted months. Trump promised farmers last fall that his administration would allow the year-round sale of 15pc ethanol blends of gasoline, called E15, in time for the peak driving season. The submission will likely lead to lawsuits challenging the extended higher-ethanol sales.

"We know that there are folks who disagree with us, and some have already said they are going to challenge what we have done today, and that is fine," Wehrum said. "We believe that we have very good defenses to the claim and that we are going to prevail at the end."

The Renewable Fuel Standard requires refiners, importers and other companies to each year ensure minimum volumes of renewables blend into the gasoline and diesel they add to the US transportation fuel supply. Obligated companies prove compliance with the mandates by acquiring credits called renewable identification numbers (RINs) representing each ethanol-equivalent gallon of blended fuel.

The rule finalized today will require obligated parties to report the names of its RIN-holding corporate and contractual affiliates and each per-gallon RIN price. EPA also said it would seek a third-party market monitoring system to hunt for signs of manipulation.

But other requirements — including that retailers, blenders or other non-obligated RIN sellers dispose of all of their credits each quarter, that mandated parties show they satisfied at least 80pc of their quarterly obligations, and limiting who could purchase RINs — were left "in a parking lot" while the agency determined if they were necessary, Wehrum said.

The agency still supported the concepts, he said.

"Once we get better insight into the market, we will have those proposals out there, still available to take final action on, if we wanted to," Wehrum said. "No one of them would solve the problem completely, but each of the three things we proposed would be effective in beginning to address the problem of manipulation if we find it to exist."

EPA conceded early in the process it had no evidence of manipulation in the markets. Refiners, especially merchant refiners reliant on RINs generated by others to satisfy their mandates, have long insisted the market was vulnerable.

Blenders, including fuel retailers and integrated refiners, objected to market changes that upend the buying and selling flexibility of the RIN market. EPA was proposing a system that encouraged low demand and a high supply of RINs, destroying the value of participating in the program, retailer and RIN seller Murphy USA said in a response.

"EPA should focus on improving data collection and provision of that information to all market participants to enhance the efficiency and liquidity of the RIN market," the company said.

It was unlikely refiners would agree EPA achieved the "win-win" rule that Trump had proposed. Merchant refiners including Valero and Delta Air Lines subsidiary Monroe Energy had told EPA the proposals did not go far enough. Monroe proposed adopting firm position limits, as well as an even shorter, 30-day window for non-obligated parties to sell credits. The refiner also revived requested in a mid-May meeting that EPA cap or collar RIN prices, extend more waivers for ethanol RINs and revived a proposal to allow exported biofuel not consumed in the US to generate credits.

Wehrum said the approach published today was more prudent.

"We are not doctors, but we are applying the theory of first, do no harm," Wehrum said.

Biofuel producers and blenders praised the final rule. It was not immediately clear how many retailers would take advantage of eased restrictions on summer E15 sales. The change does not extend to retailers who invested in dispensers that blend E15 on site — that could come in a separate rule, Wehrum said.

Producer trade groups expect the new rule means a slow climb toward an additional 23,000 b/d of ethanol blended into fuel by 2021; the US averaged 913,000 b/d of blending last year. Soybean and corn producers have said the fuel mandates alone cannot make up for the loss of the Chinese market, and face a difficult year following a planting season mired in disastrous flooding. But it marked the delivery of a pledge to farmers already weary of the administration's actions on trade.

"This is a promise made and a promise kept by President Trump," US Senator Chuck Grassley (R-Iowa) said. "It has been a goal of ethanol producers and midwest farmers for years."

Refiners, meanwhile, reiterated their pledge to challenge the rulemaking. Both the American Fuel and Petrochemical Manufacturers (AFPM) and American Petroleum Institute said separately that they would meet the new rule in court.

"EPA has left us no choice but to pursue legal action to get this unlawful rule overturned," AFPM chief executive Chet Thompson said.

And farmers remain wary of the administration's commitment to their cause. The final rule does not address record levels of waivers issued for small refineries that have effectively slashed mandate requirements since Trump took office.

"We urge the president to build upon the momentum of today's announcement by reining in EPA's abuse of the small refinery exemption program," ethanol trade group Renewable Fuels Association said.