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US EPA proposes cuts to 2020 biofuel mandate, with plans to raise blending in 2022

Highlights

Cuts 2020 biofuel mandate by 15% to 17.13 billion gallons

Would require blending of 18.52 billion gallons in 2021

Further increases mandate to 20.77 billion gallons in 2022

The US Environmental Protection Agency Dec. 7 proposed easing biofuel blending requirements for US refiners in 2020 and 2021 while raising the amount of renewable fuel refiners would have to mix with gasoline and diesel in 2022.

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The long-awaited proposal tied to EPA's Renewable Fuel Standard program makes cuts to the 2020 renewable volume obligations (RVOs) set in a 2019 final rule, keeps the overall blending mandate for 2021 below the previously set 2020 levels, and then proposes the highest total volumes to date for 2022.

Specifically, the proposal cuts the 2020 biofuel mandate to 17.13 billion gallons from 20.09 billion gallons, and would require refiners to blend 18.52 billion gallons of renewable fuel in 2021 and 20.77 billion gallons in 2022.

EPA also proposes to lower the 2020 advanced biofuel mandate to 4.63 billion gallons from 5.09 billion gallons, and would set the 2021 advanced biofuel mandate at 5.2 billion gallons, up 12% from revised 2020 mandate; and puts the 2022 advanced biofuel mandate at 5.77 billion gallons, up 11% from 2021 figure.

EPA annually reviews biofuel blending targets set by Congress and generally issues a rule setting RVOs in line with market conditions, but the Trump administration left office without issuing such a rule. EPA under President Joe Biden extended compliance deadlines for the 2019 and 2020 RVOs while it promulgated the new standards and amended its small refinery exemption (SRE) policy.

"Despite multiple challenging dynamics affecting the RFS program in recent years, EPA remains committed to the growth of biofuels in America as a critical strategy to secure a clean, zero-carbon energy future," EPA Administrator Michael Regan said in a statement. "This package of actions will enable us to get the RFS program back in growth mode by setting ambitious levels for 2022, and by reinforcing the foundation of the program so that it's rooted in science and the law."

An agency press release highlighted that the proposed RVO for 2022 is more than 3.5 billion gallons higher than the amount of renewable fuel used in 2020, and added that the Biden administration was ready "to reset and strengthen the RFS program following years of mismanagement by the previous administration and disruptions to the fuels market stemming from the COVID-19 pandemic."

D6 ethanol RINs rally

The announcement caused RINs prices to jump in afternoon trade, with D6 ethanol RINs for 2021 climbing above $1/RIN, up from an assessment of 91.25 cents/RIN, which was up 1.5 cents on the day, according to S&P Global Platts assessments.

D6 RINS for 2021 fell to 75 cents/RIN earlier in the day in anticipation of the announcement.

RINs are tradable credits EPA issues to track production and use of alternative transportation fuels. For corn-based ethanol, one gallon of ethanol yields one RIN.

D4 2021 Biodiesel RINs, on the other hand, were assessed at $1.385/RIN, 75 points lower on the day.

Reactions from ethanol advocates were mixed, while the American Fuel & Petrochemical Manufacturers criticized the EPA decision.

The Renewable Fuels Association and ethanol group Growth Energy called out the EPA for what they deemed an unprecedented and possibly illegal move to retroactively reduce already-finalized 2020 RFS requirements, but also pointed to aspects of the proposal as a welcome step in the right direction for ethanol producers and farmers.

RFA President and CEO Geoff Cooper, for instance, applauded EPA's plan to deny 65 pending applications for SREs.

"However, today's proposals do not quite get us all the way there, and more work is needed to ensure the RFS drives maximum growth in the production and use of low-carbon renewable fuels," he said.

The AFPM took issue with the 2022 proposal, which it said in a statement "would needlessly increase already record-breaking RFS compliance costs which, in turn, will raise the cost of producing gasoline and diesel for U.S. consumers."

"EPA's proposal will make matters worse, depleting the RIN bank by ignoring fuel market realities, proposing an extra 500 million gallons over the next two years and inflating the advanced biofuel mandate—without concern for feedstock challenges or the capacity to produce those fuels here at home," AFPM President and CEO Chet Thompson said.

"Potentially making matters even worse is EPA's plan to disregard the Supreme Court and eliminate Congress' small refinery relief program," he said.

SRE policy

Refineries with a capacity of less than 75,000 b/d may apply for waivers to the RFS if meeting the biofuel blending requirements would create disproportionate financial hardship. EPA in February hinted at a planned reversal in policy on SREs but returned to the drawing board after the Supreme Court ruled that small refineries could apply for exemptions without having to have applications in for contiguous years if they could prove the RFS caused them hardship.

With a better handle on the approach its SRE policy will take under the courts' direction, EPA updated its interpretation of its Clean Air Act authority pertaining to SREs and provided analysis of RFS costs and market dynamics that it found warranted denial of the SRE applications at issue.

Given that the proposed SRE action is a change from previous EPA practice, the agency initiated a public notice-and-comment process to get comments from the refineries and other stakeholders.