In win for Big Oil, U.S. proposes biofuel mandate cut

The Obama administration has proposed slashing federal requirements for U.S. biofuel use in 2014, bowing to pressure from the petroleum industry and attempting to prevent a potential fuel crunch next year.

The Nov. 15 decision was the first cut to renewable fuel targets written into a 2007 law, and was seen as a clear win for oil refiners and a loss for biofuel producers. It followed a prolonged lobbying blitz on both sides of the issue.

The plan follows the Environmental Protection Agency’s warnings that the country was approaching a point where the so-called Renewable Fuel Standard (RFS) would require the use of more ethanol than can be blended into gasoline at the 10 per cent level that dominates the U.S. fuelling infrastructure.

Refiners have said this “blend wall,” if left in place, would force them to export more fuel or produce less gasoline, leading to shortages and higher prices at the pump.

In response, the EPA proposed to cut overall use of renewable fuels, made mostly from U.S. corn and to a lesser extent from soybeans, grasses, crop waste and Brazilian sugar cane, to a range of 15 billion to 15.52 billion gallons.

Within that range, the agency proposed a specific goal of 15.21 billion gallons, which is more than 16 per cent less than the 18.15 billion gallons contained in the law that governs the RFS, and below this year’s 16.55 billion gallons.

The proposed goal matches the number contained in a draft that was leaked and circulated in October.

U.S. gasoline demand had been expected to rise every year when Congress passed the law in 2007, but it peaked in 2008 and has been anemic since, partly because fuel efficiency of U.S. cars and light trucks has risen steadily.

“This unanticipated reduction in fuel consumption brings us to the point where the realities of the fuel market must be addressed to properly implement the program,” a senior administration official told reporters in a teleconference about the proposal.

The impending blend wall problem had led to a surge in prices for ethanol credits, known as renewable identification numbers or RINs, from a few cents a year ago to almost $1.50 at mid-year.

The surge had threatened to push up gasoline prices as the extra RINs costs for refiners would have been passed on to consumers.

The proposed change in advanced biofuels implies a corn ethanol mandate of 12.7 billion to 13.2 billion gallons, down from the previous 2014 mandate of 14.4 billion gallons.

“We are astounded by the proposal released by the administration today. It reflects an ‘all of the above, except biofuels’ energy strategy,” said Fuels America, a coalition of alternative energy producers.

The group termed the blend wall a fictional narrative, “created by the oil industry to stifle competition.”

The EPA expects to release a final rule next spring after a 60-day public comment period. After that ethanol backers could unleash legal challenges to soften or reverse the changes.

Corn falls to new lows

Biofuels stocks were mixed following the announcement. Chicago corn futures fell to new lows for the day, down 1.1 per cent at $4.21-3/4 per bushel, although the impact was muted because the Nov. 15 announcement was similar to the leaked proposal from October. Prices this month hit their lowest point in more than three years. The price of soybeans, used to make biodiesel, dropped 2.5 per cent.

Biofuels backers were livid at the announcement.

A representative for Archer Daniels Midland Co., one of the largest ethanol producers, said companies had invested in renewable fuel projects “on the basis of firm legislative commitments” and across two presidential administrations, Presidents Barack Obama and George W. Bush.

A lower mandate to produce corn-based ethanol could cost grain growers at the farm gate. Livestock producers, by contrast, were jubilant at the prospect of lower feed prices, but called on lawmakers to do more.

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