EXCLUSIVE Biden Administration Mulls Big Cuts to Biofuel Mandates in Win for Oil Industry -Document

September 22, 2021

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by Stephanie Kelly and Jarrett Renshaw (Reuters) The administration of U.S. President Joe Biden is considering big cuts to the nation's biofuel blending requirements, according to a document seen by Reuters, a move triggered by a broad decline in gasoline demand during the coronavirus pandemic.

If adopted, the proposal would be a win for the oil industry, most notably PBF Energy (PBF.N) and CVR Energy (CVI.N), which argues biofuel blending is costly.

The cuts would anger ethanol producers such as Archer-Daniels-Midland Co (ADM.N) and the nation's corn farmers who produce the raw ingredients for ethanol - by far the most widely used biofuel.

After Reuters reported the news, credits used to prove compliance with the requirements, called RINs , fell to 92 cents each, down from $1.07 in the previous session, traders said.

Biden's Environmental Protection Agency, which administers the nation's biofuel policy, would reduce blending mandates for 2020 and 2021 to about 17.1 billion gallons and 18.6 billion gallons, respectively, the document showed. That would be lower than a level of 20.1 billion gallons that had been finalized for 2020 before the coronavirus pandemic.

The agency also would set the level for 2022 at about 20.8 billion gallons, the document showed.

The EPA is setting the 2020 and 2021 mandates retroactively.

Ethanol would take the biggest hit.

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Biofuel advocates fumed over the news.

"If these rumors are true, this would be backpaddling on the president's commitments (to) uphold the RFS," said Growth Energy Chief Executive Emily Skor. "It's hard to imagine any justification for the administration to make such a move."

Randy Feenstra, a Republican representative from Iowa, the nation's top corn-producing state, denounced the proposal.

"I'll fight this tooth-and-nail," he wrote on Twitter. READ MORE

Grassley Comments on Reported RFS Cuts, Vilsack Defends Administration’s ‘Stable’ Approach to Blending Targets (AgWeb; includes AUDIO)

Biden plans biofuel cut that could ease pressure on oil refiners (Bloomberg/Farm Progress)

Biofuel blending targets could include big volume cuts (Agri-Pulse)

House Republicans Urge Biden to Uphold RFS (Energy.AgWired.com)

Supposed RFS Numbers Leak Moves Prices -- RFA Cites Proposed RFS Blend Volumes as 'Spoofing Attempt' (DTN Progressive Farmer)

RIN prices drop on questionable biofuel rule reports (Argus Media)

EPA to propose cuts to biofuel blending requirement: report (The Hill)

U.S. FARM & BIOFUEL LEADERS TO WHITE HOUSE: PULL EPA BACK FROM THE BRINK (Fuels America)

Groups Sound Alarm Over Proposed RFS Cuts (Energy. AgWired.com)

Leaked RFS Blending Volumes Point Toward Major Blow For Biofuel Sector (Inside EPA/Governors' Biofuels Coalition)

Lawmakers urge Biden to uphold the RFS (Ethanol Producer Magazine)

3 Oil Refiners to Gain as EPA Considers a Blending Requirement Cut (Yahoo! Finance)

BIOFUELS PRESSURE RISING ON VOLUMES (Politico's Morning Energy)

Biden Eyes Biofuel Cut (RigZone)

BIOFUELS GROUP CONCERNED AFTER RUMORED LOW RVOS (Brownfield Ag News)

Farm, biofuel leaders urge Biden to pull EPA back from the brink (Ethanol Producer Magazine/Fuels America)

U.S. Farm & Biofuel Leaders to White House: Pull EPA Back From the Brink (Farm Bureau)

Renewable Fuels Association gives their reaction to leaked cuts to biofuel requirements (RFD TV)

Hey Biden, ethanol good for rural U.S (Kearney Hub)

U.S. Democratic lawmakers urge Biden not to reduce biofuel mandates (Reuters)

Biofuels Sector Worries Over EPA’s Reported RFS Blending Cuts (Inside EPA/Governnors' Biofuels Coalition)

GRASSLEY ON RVO RUMORS: “WORST WEEK IN WASHINGTON FOR ETHANOL EVER” IF TRUE (Brownfield Ag News; includes AUDIO)

Renewable Fuels Association gives their reaction to leaked cuts to biofuel requirements (RFD TV; includes VIDEO)

IRFA urges Biden not to walk away from ethanol (Ethanol Producer Magazine)

U.S. ENERGY SECRETARY DOESN’T EXPECT LOWER RVO LEVELS (Brownfield Ag News; includes AUDIO)

NCGA's Edgington Eyes Big Ag Issues: National Corn Growers Watching Biden Administration on Biofuels, Tax, Trade Policy (DTN Progressive Farmer)

Excerpt from AgWeb: AgriTalk host Chip Flory pressed Agriculture Secretary Tom Vilsack on the subject Wednesday, asking if rumors the final EPA numbers would be released Friday, Sept. 24. Vilsack said while he didn’t know timing, EPA would release the numbers when the agency is ready.

“I don't know what the numbers will be,” Vilsack told Flory. “What I do know is that that it's fair to say that there were some significant disruptions during 20 and 21, as a result of the pandemic, certainly during 20 [we saw] significant disruptions. And the impact that the pandemic had on numbers, you know, the administrator would know, the EPA would know. But at the end of day, I'm going to look for ways in which we a USDA can provide help and assistance. That's why we are prepared to provide $700 million of assistance now and additional resources above and beyond that, for infrastructure to expand the capacity to get higher blends out there to consumers. We're going to continue to do what we can't USDA to support this industry.”

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“When Biden was campaigning in Iowa, he supported ethanol,” Grassley (Senator Chuck Grassley (R-IA)) said on AgriTalk. “I've had good conversations with the EPA director on it. And I thought they were favorable to it. And I don't know the rationale behind it, but it could have something to do with their promoting of electric vehicles. It surely can’t have anything to do with their caving in to big oil, because they don't like fossil fuels at all.”

Making the Case for Stability with RFS Release

While no reports have been confirmed, Vilsack pointed out that no matter what is released by the Biden Administration, he says one thing is certain: it will provide stable numbers that won’t waiver to carveouts for small refinery exemptions and other possible requests, taking a slam at the Trump Administration’s track record over four years. READ MORE

Excerpt from Energy.AgWired.com: U.S. Representative Rodney Davis (R-IL) and a group of House Republicans, including House Biofuels Caucus co-chairs Adrian Smith (R-NE) and Dusty Johnson (R-SD), are urging President Biden to keep his promise on upholding the Renewable Fuel Standard (RFS).

Recent reports indicate the Biden Administration is taking steps to weaken Renewable Volume Obligations (RVOs) which would reduce the demand for biofuels, an action President Biden strongly condemned under the Trump Administration.

“If your Administration makes the unprecedented move to reopen the finalized 2020 RVO, and strip the demand for billions of gallons, the industry will certainly be devastated,” said the members. “As you stated, “Lip service won’t make up for nearly four years of retroactive damage that’s decimated our trade economy and forced ethanol plants to shutter.” If these rumors are correct, demand for over 5 billion gallons of renewable, clean fuels will be lost.” READ MORE

Excerpt from Yahoo! Finance: We are presenting three refining stocks that should be on investors’ radar as these could probably gain following the adoption of the proposal. Each of the stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Valero Energy Corporation VLO, having operating interests in 15 petroleum refineries in the United States, Canada and the United Kingdom, gained 3.2% yesterday on the news. The company is also likely to generate strong cashflows on the back of rising gasoline demand since coronavirus vaccines are being rolled out at a massive scale. Over the past seven days, the stock has seen upward earnings estimate revisions for 2021.

PBF Energy Inc. PBF gained 10.8% yesterday on the news. In the United States, the company is among the largest independent petroleum refiners. Improving fuel demand is also aiding the stock. In 2021, the company is likely to see bottom-line growth of 54.9%.

Phillips 66 PSX is among the largest refiners in the world and gained 4.2% on the news. It is also being aided by improving fuel demand. In the past seven days, the stock has seen upward earnings estimate revisions for 2021. READ MORE

Excerpt from Inside EPA: Under the RFS, established under the Clean Air Act, refiners and importers of fuel must blend increasing volumes of biofuel into the fuel supply each year.

However, responding to the reduction in overall fuel demand spurred by the COVID-19 pandemic, EPA has been expected by many observers to reduce blending volumes using its waiver authorities.

According to the document seen by Inside EPA, Reuters and other news outlets, the “implied” conventional corn ethanol blending volume would be lower than some had anticipated. There is no explicit corn ethanol volume, but the bulk of the overarching total renewable fuel requirement is still satisfied by corn ethanol, at an implied 15 billion gallons (bn gal).

The document cites “conventional renewable fuel” at 12.5 bn gal for 2020 — a retroactive cut from the final 2020 level of 15 bn gal — and the proposed 2021 volume at 13.453 bn gal, with the 2022 level at 14.096 bn gal, of which 13.788 bn gal would be ethanol, and the remainder renewable diesel.

The overall total renewable fuel volume would be set at 17.129 bn gal in 2020, 18.628 bn gal in 2021 and 20.765 bn gal in 2022. This compares to a current 2020 total volume of 20.09 bn gal, marking a steep retroactive cut.

Advanced biofuel, which must achieve a greater greenhouse gas reduction than corn ethanol, would be set at 4.63 bn gal, a reduction from the final 2020 volume of 5.09 bn gal, rising to 5.175 bn gal in 2021 and 5.765 bn gal in 2022.

Cellulosic biofuel, also required to achieve a much greater GHG cut than corn ethanol, would be set at 0.505 bn gal in 2020, down from 0.590 bn gal in the final volume for 2020. In 2021, this would rise to 0.621 bn gal, then 0.765 bn gal in 2022.

So far, EPA has not confirmed the leaked numbers. An agency spokesperson did not respond to a request for comment by press time.

EPA faces a statutory deadline of Nov. 30 to finalize the proposal for 2022, but it is likely to miss this target as the proposed rule remains under White House Office of Management and Budget (OMB) review and may yet change. EPA must take public comment on the proposal before finalizing it.

The proposed volumes for 2021 are already seriously overdue, having missed a Nov. 30, 2020, deadline for finalization.

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But the proposals, if accurate, would be a boon for refiners seeking to reduce their RFS compliance costs. Merchant refiners that do not blend their own biofuels must purchase compliance credits, known as renewable identification numbers (RINs), from others in order to comply. Refining sector sources have recently warned that due to reduced fuel demand, the supply of available RINs could be exhausted within months, perhaps even forcing refiners to “ration” fuel. READ MORE

Excerpt from Politico's Morning Energy: BIOFUELS PRESSURE RISING ON VOLUMES: News of the Biden administration’s impending proposal on biofuel blending requirements for compliance years 2020-2022 is already animating ethanol backers on Capitol Hill. Illinois Sen. Tammy Duckworth told ME on Thursday the rumored levels are "far too low," especially given that the 15 billion gallons sought by ethanol backers are already a minimum. "We're going to have some conversations," Duckworth added, particularly with White House national climate adviser Gina McCarthy.

Iowa Republican Sen. Joni Ernst called the rumored drop "absolutely ridiculous" and opposed the decision to retroactively revisit the 2020 standard. "This is the administration that came through Iowa touting their support for renewable fuels, and it was just an all-out lie," Ernst said. "Shame on President Biden." The sentiment was echoed by a joint statement Thursday from farming and biofuels groups, including the Renewable Fuels Association and American Farm Bureau Federation that said the yet-to-be-released plan would “brazenly violate the promises that President Biden made to farmers, green voters, and his own allies in Congress." READ MORE

Excerpt from Reuters: Lawmakers including Senator Amy Klobuchar from Minnesota and Representative Cheri Bustos from Illinois said in the letter that they have strong reservations about the administration's potential moves to cut billions of gallons of biofuel volumes out of the requirements for the years 2020 to 2022.

"This action would directly undermine your commitment to address climate change and restore integrity to the Renewable Fuel Standard (RFS)," the letter read.

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The delay in announcing proposed mandates has caused some to speculate that the administration is hoping to avoid any intra-party conflicts before voting on the infrastructure and social spending packages.

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Republican and Democratic lawmakers from Pennsylvania sent separate letters earlier this month to Biden, urging his administration reform the RFS to help independent U.S. refiners. READ MORE

Excerpt from Brownfield Ag News: U.S. Energy Secretary Jennifer Granholm tells Brownfield Renewable Volume Obligations under the Renewable Fuel Standard won’t be set below recent levels.

“No, I don’t think so,” Granholm said. “There’s going to be a need for greater not fewer.”

Granholm said biofuels will be receiving increased support through tax credits and the RFS.

And she said the recent announcement of the administration’s goal to make all aviation fuel sustainable means producing 35 billion gallons of Sustainable Aviation Fuel a year by 2050.

“We’re going to have to build our domestic production capacity for SAF, including more than 200 new biofuel refineries,” Granholm said. “Including as well, perhaps, converting existing refineries to be able to accommodate the great demand that there will be for those fuels.”

While the RVOs and biofuels tax credits are still being negotiated, Granholm said the President supports the efforts. READ MORE