Biofuels companies are mostly higher even as prices for U.S. renewable fuel credits fall to more than one-year lows, extending yesterday's slide on news of a government freeze that added to uncertainty over the Renewable Fuel Standards program.
The Trump administration said it is delaying various EPA regulations, including implementation of 2017 biofuels requirements announced in November, which has exacerbated uncertainty as Trump seeks to install leaders who have criticized the program.
Renewable Identification Numbers used by oil companies to meet RFS requirements fell to $0.60 yesterday and as low as $0.48 today before recovering to $0.55.
Biofuels producers are mostly higher after Scott Pruitt, Pres.-elect Trump's nominee to lead the Environmental Protection Agency, said in today's confirmation hearing that he intends to honor the Congressional intent and timetables of the U.S. Renewable Fuel Standard.
The policy requires the EPA set annual requirements for use of ethanol and biodiesel in transportation fuels, and has become a battleground between the oil and corn industries.
The EPA today issued final regulations requiring that the amount of ethanol and other biofuels that must be blended into the U.S. fuel supply must increase by 6% next year.
Since the result is a significant gain over the 4% the EPA recommended in an earlier draft proposal, it is a victory for ethanol makers and a defeat for oil companies that say using more biofuels in gasoline and diesel is costly and unachievable.
The EPA set the 2017 target for total renewable fuel use at 19.28B gallons, higher than the initial proposal for 18.8B gallons as well as this year's 18.1B gallon requirement; the new mandate includes 15B gallons for conventional biofuel, which is mostly corn-based ethanol, vs. 14.5B gallons last year.
Tesoro (NYSE:TSO) exec Stephen Brown says the plan is "unworkable" as it forces the use of biofuels beyond the blend wall and that it highlights the need for a legislative overhaul of the program.
The American Fuel and Petrochemical Manufacturers trade group is petitioning the EPA to change the way the agency enforces the U.S. biofuel mandate, shifting the responsibility of program compliance with distributors who blend gasoline with ethanol for delivery to filling stations, not with refiners who make the fuels.
The AFPM and other oil and gas groups have long been opposed to the Renewable Fuel Standard, which sets the amounts of biofuels such as ethanol that must be blended into U.S. gasoline and diesel supplies annually, arguing the mandates are costly for refiners and do not reflect actual gasoline demand, which has not risen as fast as lawmakers originally envisioned.
Renewable fuel credits have surged 32% in the past two months, even as crude oil prices have dropped; this year, U.S. refiners will pay $1.8B for the RIN credits, adding to the pain of the lowest summer profit margins in five years.
The EPA proposes raising the amount of ethanol refineries must blend into the U.S. gasoline supply in 2017, but the amount is still well short of a target set by federal law.
The agency is calling for 18.8B gallons of ethanol and other biofuels to be blended into the fuel supply next year 2017, up 4% from the 18.11B gallons set for this year but far below the 24B gallons targeted in a 2007 law.
The proposal reflects oil companies’ concerns that the Renewable Fuel Standard is pushing them beyond the “blend wall” where targets force them to mix a higher proportion of ethanol into fuel than the 10% level approved for use in all cars and trucks.
However, “the EPA continues to very slowly edge the market above the 10 percent blend wall, which we view as part of a concerted effort to incentivize consumption of higher blends over time without risking market disruption,” says FBR Capital analyst Benjamin Salisbury.
The EPA is expected to issue a final rule by year-end, following a public comment period.
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