U.S. seeks middle ground on biofuel targets, pleasing few

(HuskyEnergy.com)

New York | Reuters — U.S. regulators on Friday unveiled much-delayed biofuel targets that sought to strike a middle ground for the nation’s contentious renewable fuels policy but still met with threats of legal action from two of the biggest industries, oil and corn.

The Environmental Protection Agency (EPA) decided to raise its previous target for 2014 biofuel usage. As expected, the goal fell short of the amount required by Congress in a 2007 law.

The government also pledged some US$100 million in grants to filling stations to help push biofuel blends with higher ethanol content, a boost to the powerful corn lobby.

The EPA did not cut the ethanol blending target as much as it did in its previous plan. The oil industry has lobbied fiercely against increased blending requirements, and its trade group said on Friday it would go to Congress to push for an overhaul of the policy.

The plan sought to end years of uncertainty over the Renewable Fuel Standard (RFS), a bedrock of two presidential administrations meant to reduce America’s dependence on foreign oil and shift the nation toward cleaner, domestic energy sources.

The EPA proposed that some 16.3 billion gallons of renewable fuels should be mixed into the country’s gasoline or diesel supply this year, increasing to 17.4 billion gallons next year.

It also revised the 2014 target up to 15.93 billion gallons from the previous proposal of 15.21 billion. The 2014 target remains significant in 2015 because it affects efforts by refiners to comply with the standard.

The agency stood by its previous stance on the upward limit of biofuel use, known in the industry as the “blend wall.” It cited “practical constraints” on the supply of higher ethanol blends to the vehicles that can use them.

The new volumes represent “ambitious” growth for the renewable fuels industry while going a long way towards meeting Congress’ goals, Janet McCabe, acting assistant administrator for EPA’s Office of Air and Radiation, said.

“We’re balancing two dynamics: Congress’ clear intent to address climate change and increase energy security, and real-world limitations that have slowed advancement of these goals,” she said in a call with reporters.

‘Giant step’ toward litigation

For U.S. oil refiners, like Tesoro Corp., and industry lobby groups including the American Petroleum Institute and American Fuel and Petrochemical Manufacturers, which have fought hard for lower requirements, the plan went too far.

Tesoro signaled a lengthy legal fight may be in the cards before the new quotas are finalized later this year.

The proposal is a “giant step” toward protracted and complex litigation, said Stephen Brown, vice president and counsel of Tesoro, in a statement.

Proponents of biofuel were also dissatisfied. Ethanol and advanced biofuels producers like Poet LLC and industry groups such as the Renewable Fuels Association and Biotechnology Industry Organization said the EPA’s proposed volumes do not go far enough.

Growth Energy, which represents ethanol producers, said the proposals need “significant improvement.”

Boost for soyoil futures

The market for blending credits was brisk after the news, with prices for ethanol falling while biodiesel prices rose.

Higher-than-expected targets for biodiesel, coupled with higher export taxes on Argentina biodiesel, propped up soyoil futures at the Chicago Board of Trade on Friday morning.

Soyoil futures were up nearly four per cent to a roughly two-week high, on pace for their biggest daily gains in three weeks.

Reaction in corn futures were muted, with prices a few cents lower, hovering above their seven-month low reached earlier this week.

“The actual numbers presented an opportunity for the bean oil to be bought against the ethanol,” Mike Zuzolo, analyst at Global Commodities Analytics in Kansas. “The announcement reignited the bean-corn spread trade.”

Chris Prentice reports on the biofuels sector for Reuters from New York City. Additional reporting for Reuters by Michael Hirtzer in Chicago.

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