U.S. biofuel rules seek compromise, but industries vow fight
By Chris Prentice NEW YORK (Reuters) - U.S. regulators on Friday unveiled much delayed biofuel targets that sought a middle ground for the nation's contentious renewable fuels policy, but the plan triggered challenges and threats of legal action from two of the biggest industries, oil and corn. The Environmental Protection Agency (EPA) raised its previous targets for the amount of biofuels to be mixed into motor fuel for the three years to 2016. As expected, the proposed goal was short of the aggressive targets set by Congress in a 2007 law. The 2014 goal was an increase from a previous proposal, angering the oil industry which opposes more blending. But the biofuel target was lower than most market experts had expected, upsetting the powerful corn lobby. Separately, the government pledged some $100 million in grants to help outfit filling stations to pump biofuel blends using more corn-based ethanol, which makes up the vast majority of the U.S. renewable fuel supply. Some fuels also use biomass-based diesel, largely made from vegetable oils, or cellulosic fuel, made from plant waste. BEHIND SCHEDULE The EPA proposal was a year and a half behind schedule and followed years of uncertainty over the Renewable Fuel Standard (RFS). The policy, a bedrock of two administrations, is meant to reduce U.S. dependence on foreign oil and utilize cleaner, domestic energy sources. The new volumes represent "ambitious" growth for the renewable fuels industry and go a long way toward meeting goals set by Congress, said Janet McCabe, Acting Assistant Administrator for EPA's Office of Air and Radiation. "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. The EPA maintained its stance that use of ethanol in motor fuels has for now hit the "blend wall", the saturation point beyond which it cannot go without significant infrastructure changes. The rules will be open to public comment until July 27, and EPA plans to finalize details by November. Analysts at ClearView Energy Partners predicted a fresh wave of lobbying and possibly legal action. Companies and industry groups said they would lobby Congress and consider lawsuits. BOOST FOR BIODIESEL 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. The proposal also revised the 2014 target up to 15.93 billion gallons, in line with actual consumption last year and up from the previous proposal of 15.21 billion. The retroactive target for 2014 remains significant because it affects efforts by refiners to comply with the standard. In the immediate term, the new goals were seen as easy to reach for oil companies and importers, the parties obligated to prove compliance with the fuels. This would put further pressure on prices of ethanol blending credits. A boost in targets for biodiesel, a much smaller market than ethanol, helped briefly push soyoil futures up almost 5 percent to the highest prices in four months. Corn futures were muted, with prices a few cents lower. 'GIANT STEP' TOWARD LITIGATION The target was too high for U.S. refiners like Tesoro Corp and oil industry lobby groups including the American Petroleum Institute (API) and American Fuel & Petrochemical Manufacturers (AFPM) which have sued the EPA over the delays to issuing rules. Tesoro signaled a lengthy legal fight may be in the cards. Stephen Brown, vice president and counsel of Tesoro, called the proposal a "giant step" toward protracted and complex litigation. Proponents of biofuel including ethanol producers like Poet LLC and industry groups like the Growth Energy and the Renewable Fuels Association said that while the volumes are in the right direction, they do not go far enough. (Additional reporting from Michael Hirtzer in Chicago; Editing by Dave Gregorio and Nick Zieminski)
