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Valero Presses EPA for RFS Change

Submitted by on June 14, 2016 – 11:27 amNo Comment

(Argus Media)  US Environmental Protection Agency administrators should shift the burden of US biofuel blending mandates closer to retail stations, US independent refiner Valero said today.

The company, one of the largest US producers of both gasoline and ethanol, petitioned EPA to consider making rack-level sellers — rather than refiners or importers — responsible for ensuring that rising volumes of biofuels blend into the US transportation fuel supply each year under the Renewable Fuel Standard.

Moving the obligation closer to the retail sales level would improve competition for biofuels and reduce the risk of fraud or speculation in the market for credits used to prove compliance to federal regulators each year, Valero said in its petition.

“All this and more can be achieved without radically restructuring the transportation fuel market, which has been trending away from vertical integration,” the company said in its filing.

Valero and other US refiners have adopted a merchant refining model, spinning off blending and retail businesses to focus on manufacturing. This distance means that such companies cannot effectively compel changes needed to supply more biofuels, which leaves such companies vulnerable to decisions by rack-level businesses that more directly supply retailers, Valero argued.

US independent refiners HollyFrontier and CVR Energy made similar calls to change the point of obligation during public testimony last week on blending mandates proposed for next year. Both refiners lack retail businesses.

Tesoro, Marathon Petroleum and Phillips 66 all operate retail components.

Biofuels groups reached late Monday could not immediately comment on the filing. The fuels trade group Petroleum Marketers Association of America said the effort would hurt marketers and reduce competition.

The petition filed today seeks a new rule making separate from that process, focused specifically on the point of obligation. Valero made similar arguments in a protest of last year’s compliance mandates still awaiting hearings in the District of Columbia Court of Appeals.  READ MORE and MORE (Platts)

 

Excerpt from Platts:  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.  READ MORE

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