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Valero seeks to make rack sellers responsible for US biofuel mandate compliance

US refiner Valero is resuming its campaign to change the way the Renewable Fuel Standard is administered, formally asking the Obama administration late Monday to shift the responsibility for complying with the contentious US biofuel mandate to rack sellers.

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Such a change, Valero said in a petition for a rule-making to the US Environmental Protection Agency, would lessen the financial burden of compliance with the RFS on refiners, while promoting greater consumption of renewable fuels, as the program intends.

"Moving the point of obligation -- a simple definitional change to the rule -- will allow greater market penetration of renewable fuels and may be the single most effective reform of the RFS program," Valero said in a fact sheet on its proposal.

Valero, the largest independent US refiner, in February filed two petitions with the US Court of Appeals for the District of Columbia seeking the same change, saying that it could be a win-win for their industry and biofuels producers, who are often at odds over the RFS.

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Under the RFS, which requires an annually increasing amount of biofuels to be blended into the US transportation fuel pool, refiners are obliged to obtain credits, called RINs, that are generated for every gallon of biofuels produced, either by blending the biofuels themselves or by buying the credits on the open market.

Refiners, particularly those without blending capabilities, have long complained that the cost of complying with the mandate is an unfair burden, particularly when US consumers have not demonstrated sufficient demand for ethanol blends above 10%.

Biofuels makers have accused refiners of refusing to invest in blending capacity to incorporate higher ethanol blends and have said the cost of RINs is designed to incentivize such investments.

Valero, along with Monroe Energy and other independent refiners, has lobbied the EPA several times over the last two years to make the change in the point of compliance, but so far the agency has not budged.

An EPA spokesperson who asked not to be named said the agency "just received the request and [is] reviewing it."

REFINERS SPLIT OVER PROPOSAL

Valero said that making rack sellers -- rather than refiners and importers -- responsible for complying with the RFS would create a more level playing field.

As it stands, rack sellers are not motivated to invest in additional renewable fuel blending infrastructure because they lack compliance obligations, the refiner said. Meanwhile, refiners without blending operations lack the ability to ensure compliance through blending, Valero added.

"Valero's suggested action would eliminate the market distortions and disincentives that constrain renewable fuel consumption," it said. "Redefining 'obligated party' within the RFS program would significantly improve the program without radically restructuring the transportation fuel market."

But not all refiners are behind the proposed change.

One refinery lobbyist opposed to Valero's petition said many in the industry see it as a distraction from the overall goal of reforming or repealing the RFS, which they view as fundamentally flawed.

Moreover, the blender and retailer industry, which is dead set against assuming responsibility for RFS compliance, maintains significant political clout, given how widespread its members are, the source said.

"There are more important RFS reform items to get done than shifting point of obligation," the lobbyist told S&P Global Platts.

Biofuels industry sources are likewise divided, with some insisting that the RFS is working fine in its existing format and others saying they were indifferent to the proposal.

--Herman Wang, herman.wang@spglobal.com --Edited by Jonathan Dart, jonathan.dart@spglobal