Congress eyes change to U.S. biofuels mandate

Change may be looming for the U.S. biofuel mandate as a powerful Congressional panel sets its sights on the program and pressure mounts for the Obama administration to relieve fuel market problems created by rising renewable fuel targets.

Requiring increasing amounts of biofuels to be blended into the nation’s gasoline and diesel supplies, the renewable fuel program has been hailed as an unmitigated success by supporters, who see knock-on effects in boosting the nation’s agricultural economy, and slammed as fundamentally flawed by detractors.

The Environmental Protection Agency’s overdue final rule on 2013 biofuel production targets is at the White House’s Office of Management and Budget for review and could be released any day. Initial targets for 2014 could follow within weeks.

Meanwhile, after getting input from more than a dozen groups – from biofuel producers to chicken farmers – at a two-day hearing last week, leaders of the House Energy and Commerce panel have pledged action on the Renewable Fuel Standard.

In rare bipartisanship for the often-divided committee, lawmakers on both sides signaled a willingness to take on a policy that jumpstart the U.S. biofuel industry and helped to pump up U.S. corn production, shoring up the farm economy.

“This is not an issue that you’re going to just shove through with the majority party, because there are differences in our own party,” Republican Congressman John Shimkus, of Illinois, who heads the panel’s subcommittee on environment and economy, told Reuters.

Committee members will work during the August recess to seek consensus on potential adjustments to the renewable fuel program. Shimkus is one of four Republicans chosen by committee chairman Fred Upton to lead the reform efforts.

OPINIONS DEEPLY DIVIDED

Lawmakers are divided largely on regional lines. Biofuel backers say the targets have decreased U.S. dependence on oil and created a healthy renewable fuels industry and new jobs.

Oil refiners argue that soft U.S. demand for gasoline – which reflects economic weakness and rising fuel economy – has dramatically raised the cost of compliance with the program.

Refiners need to accumulate ethanol credits, or Renewable Identification Numbers (RINS), instruments created by the EPA, to prove they have blended their share of renewable fuels into gasoline and diesel. If they do not blend, they need to buy a RIN for each gallon of ethanol.

The opaque ethanol RIN market has exploded this year, with prices spiraling from a few cents in January to almost $1.50 last week.

Oil refiners have decried the costs of complying with the biofuel mandate. One, LyondellBasell, which operates a Houston refinery, said last week its RIN obligations could reach $200 million this year, up from $30 million in 2012.

FULL REPEAL UNLIKELY

While major oil groups have called for the full repeal of the targets, several lawmakers have said there is not enough support for that course of action.

Shimkus represents both corn growers and oil producers in his district, which covers a wide swathe of central and southern Illinois. He said the committee may be able to agree on a plan to modify targets for biofuel use, while still promoting growth over time.

“Are those numbers sacred?” Shimkus asked. “I would say no.”

A Republican aide said no timeline has been set on legislation, and there has been no major action on the issue in the Senate so far, meaning passage of a bill into law is still far from assured.

Oil refiners said the need for action is urgent, and that the United States is close to the so-called blend wall, the point when the federal targets will require the use of more ethanol than can be physically blended into the fuel supply at 10 per cent per gallon.

“Given the consumer preference for improved fuel economy and the surge in new vehicle fuel efficiency … the shortfall from projected gasoline demand could increase three to five percentage points per year,” energy analyst Philip Verleger told the Commodity Futures Trading Commission last week.

By 2015 the required renewable fuels blend could be between 12.2 per cent and 13.7 per cent compared with about 9.6 per cent in 2013, Verleger estimated. The blend wall will force refiners to export more refined products or cut back on production, refiners argue.

The American Petroleum Institute, which has led the charge to dismantle the renewable fuels mandate, last week presented to White House officials a proposal to cap the overall target at 10 per cent of U.S. gasoline demand.

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