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Biofuel Makers Seek to Ease Mandates to Avert Congress

July 25 (Bloomberg) -- Makers of some renewable fuels are asking the federal government to ease quotas for use of their products in a bid to head off a congressional overhaul of a program that refiners say is driving up costs at the pump.

With production of fuels made from sources such as wood waste, algae or used cooking oils at a fraction of what was envisioned in a 2007 law, the Environmental Protection Agency needs to adjust requirements for use of biofuels in coming years, according to the Advanced Biofuels Association. The statute allows the EPA to modify the requirements, and prompt EPA action would quell refiners’ fears that there won’t be enough renewable fuel to meet the mandate, they say.

“It’s highly likely they will be lower than what’s in the statute,” Michael McAdams, the president of the group representing 46 companies, said of the quotas. While changes aren’t needed this year, EPA should set out the proposed mandates for 2014 and 2015 “in one move, so everybody sees what the glide path is.”

Under the federal law, refiners such as Exxon Mobil Corp. and Valero Energy Corp. must use a certain amount of renewable fuels each year, or buy credits called Renewable Identification Numbers, known as RINs, to meet their production quotas. The program, the Renewable Fuel Standard, has separate requirements for cellulosic fuels, diesel made from biomass such as soybean oil, as well as a general renewable category that is largely filled by ethanol made from corn.

Unsafe Blend

With the use of gasoline falling, refiners say that EPA’s current mandate means they can’t sell enough ethanol without exceeding the 10 percent blended level deemed safe for all vehicles. The risk of insufficient capacity for ethanol has in recent weeks pushed up RIN prices to record levels.

The program “is today completely untethered from reality, and unless it is immediately halted will unnecessarily cost our economy and consumers billions of dollars,” Jack Gerard, the president of the American Petroleum Institute, which represents oil majors such as Exxon, told a congressional panel on July 23. Gerard, who participated in two days of hearings in the House Energy and Commerce committee this week, called on Congress to scrap it.

Supporters say that the EPA can save it by reducing some of the quotas in the next few years, which would allow the cost of RINs to fall.

“EPA needs to show more flexibility going forward than they have in the past,” Jeremy Martin, senior scientist at the Union of Concerned Scientists, said in an interview. “And I think they will be more flexible.”

Biofuel, Cellulosic

In implementing the program, the EPA has relied on an increase in biodiesel production to make up for the lack of production of cellulosic fuels, such as a gasoline made from wood or switchgrass. While cellulosic fuels production is forecast by the U.S. Energy Information Administration to grow to 250 million gallons in 2015 from 5 million gallons this year, the increase is far short of the 3 billion gallons mandated by the law for 2015.

“It’s coming, but it’s coming slower and at lower volumes than were originally anticipated by people looking at this,” Adam Sieminski, the head of the EIA, said in Washington today. He said it’s “impossible” that producers would meet the 36 billion gallon goal set for 2022.

Supporters of the program such as Martin agree, and say EPA can and should cut the overall renewable requirement to account for lower production in cellulosic fuels. The final regulation for the 2013 quotas is at the White House for review now, and could be issued next month. A proposal for 2014 is due soon after, according to an agency statement.

McAdams said adjustments should ease concerns from refiners, and reverse the run-up in the price of RINs.

“I have not found anybody in the oil industry who disagrees” with this recommendation, he said in an interview.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

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

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