Renewable-Fuel Mandate Freeze to Be Discussed in Congress

Makers of renewable fuels are set to meet with congressional negotiators today, as lawmakers try to pull together compromise legislation that would freeze the U.S. mandate for corn-based ethanol.

Representative Fred Upton, chairman of the House Energy and Commerce Committee, and Representative Henry Waxman, the panel’s top Democrat, are negotiating changes to the Renewable Fuels Standard that would keep the ethanol requirement at this year’s level for the next two years and add incentives to boost low-carbon biofuels, according to people familiar with the moves who asked not to be identified discussing sensitive talks.

Corn producers and ethanol makers have resisted legislative changes to the current requirements, which escalate each year through 2022. Officials from their Washington-based trade groups are set to meet with Upton’s staff members today to discuss a possible freeze in the share of ethanol required, two of the people said.

“This is a process of negotiation to see where the sides are,” said Michael Frohlich, a spokesman for Growth Energy, which represents ethanol makers and will be at the meeting. “We don’t think there are changes that need to be made.”

Frohlich said he was unaware of the lawmakers’ plans or agenda. Charlotte Baker, a spokeswoman for Upton’s committee, confirmed that the meeting was scheduled.

Under the Renewable Fuel Standard, refiners such as Exxon Mobil Corp. (XOM) must use a certain amount of those fuels each year, with their target determined by their share of the fuel market. The Environmental Protection Agency and renewable-fuel makers argue it spurs production of domestic fuels and cuts greenhouse-gas emissions by reducing use of gasoline or diesel.

2007 Law

The 2007 law mandates the use of 13.8 billion gallons of ethanol this year and 14.4 billion gallons in 2014 and 15 billion in 2015. Lobbyists for refiners such as Valero Corp. (VLO) say that requirement is too high, and have pressed Congress to scrap the program.

The additive is typically sold at filling stations, mixed in a formula of 10 percent ethanol to 90 percent gasoline. Oil industry proponents have said that the escalating requirements of ethanol to be added would force them to sell blends exceeding 10 percent, a phenomenon known as “hitting the blend wall.”

If the lawmakers agree to cap the ethanol mandate as a percentage of gasoline use, which is what Waxman and Upton are discussing, refiners wouldn’t face that blend wall constraint. The lawmakers also want a study of renewable fuels by the National Academy of Sciences, the people said.

EPA Pledge

The EPA has already pledged 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 blend wall, plus additional biodiesel or cellulosic fuels that would qualify. That proposal is now under review by the White House, and is set to be issued soon.

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 ethanol this year or next.

The RIN price was $1.43 on July 17 before Congress started hearings on revising the program, up from 7 cents at the beginning of the year. It traded at 52 cents yesterday.

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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