EPA Gives Refiners More Time to Meet Renewable Mandate

The federal government relented on quotas for renewable fuels as U.S. production of next-generation sources and demand for gasoline have lagged projections.

In issuing long-overdue final quotas, the Environmental Protection Agency today gave refiners an additional four months to reach the goal of using 16.55 billion gallons of renewable fuel for 2013. It also signaled it will cut the 18.15 billion gallon mandate for 2014, a looming requirement that had driven up the price of ethanol credits that refiners can buy to comply.

“EPA’s decision represents a positive sign for consumers and should help to prevent unnecessary increases in gasoline prices,” Jason Bordoff, director of Columbia University’s Center for Global Energy Policy, said in a statement.

Under the Renewable Fuel Standard, passed by Congress in 2007, refiners such as Exxon Mobil Corp. (XOM) must use a certain amount of renewable fuels each year, with their contribution determined by their share of the fuel market. The EPA and renewable-fuel producers argue it both spurs production of domestic fuels and cuts greenhouse-gas emissions by reducing use of gasoline or diesel.

Refiners complain that declining demand for gasoline means next year they would be forced to blend in more than 10 percent of ethanol, which they say isn’t safe for all engines and lacks support from consumers. Lobbyists for refiners such as Valero Corp. (VLO) have pressed Congress to scrap the program altogether.

EPA Pledge

The EPA pledged today to lower the quota next year based on the estimated 13.2 billion gallons of ethanol that could fit within the 10 percent so-called blendwall, plus additional biodiesel or cellulosic fuels that would qualify. Without a change, “in 2014 compliance is expected to become significantly more difficult,” according to the rule.

The companies are “encouraged that the agency indicated the need to address the blendwall when setting next year’s requirements,” Charles Drevna, the president of the American Fuel and Petrochemical Manufacturers, which represents both Exxon and Valero, said in a statement. “In doing so, EPA now has an opportunity to act decisively to bring long-term stability to the market.”

Because the 2013 quotas were issued late in the year, EPA also extended the deadline to comply by four months, to June 30, 2014. The agency also cut its 2013 requirement for use of cellulosic biofuel to 6 million gallons from a proposed 14 million, saying the next-generation fuel wasn’t available in adequate volumes.

‘Phantom Fuels’

That change “should put to an end the argument that refiners are being taxed to pay for phantom fuels,” said Michael McAdams, president of Advanced Biofuels Association, which represents makers of fuels from products such as algae and wood waste.

If refiners don’t make or buy enough renewable fuel, they can buy credits for it, known as Renewable Identification Numbers, on a market. Those RINs had surged this year, as refiners worried there wouldn’t be adequate gasoline demand to mix in a safe level of ethanol and other renewable fuels either this year or next.

After today’s announcement, corn-based ethanol RINs dropped 13 percent to 90 cents, the lowest since June 18. The RIN price was $1.43 on July 17 before Congress started hearings on overhauling the program, up from 7 cents at the beginning of the year.

Rising Prices

That run-up in price prompted refiners to join with advocates for the hungry and corn buyers such as chain restaurants to urge Congress to scrap the mandate. Refiners have argued that the RIN price is driving up the cost of gasoline for consumers.

Gasoline for September delivery declined 3.66 cents to $2.9140 a gallon at 3:55 p.m. on the New York Mercantile Exchange, a four-week low, as the value of RINs fell today.

Some of critics weren’t swayed by today’s EPA pledge.

“EPA missed an opportunity to fix the problem this year,” Jack Gerard, president of the American Petroleum Institute, said in a statement. “Now it’s up to Congress to exercise leadership and move quickly to end this dangerous mandate before it hurts consumers, damages vehicles, and harms our economy.”

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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