Biden weighing cuts to 2022 ethanol blending mandate proposal -sources

Alto Ingredients

12/01/2022 21:39

(Adds comment from EPA in paragraph 6)
    By Jarrett Renshaw and Stephanie Kelly
    Jan 12 (Reuters) - The Biden administration is considering
lowering the 2022 ethanol blending mandate below the proposed 15
billion gallons amid backlash from the oil refining lobby and
unions arguing the shrinking U.S. ethanol industry can no longer
support the target, according to two sources familiar with the
administration’s thinking. 
    U.S. President Joe Biden vowed to bring some normalcy back
to laws requiring refiners to blend biofuels like corn-based
ethanol into the nation’s gasoline pool after his predecessor,
Donald Trump, took unprecedented steps to relieve refiners from
the requirement. 
    But Biden is finding it difficult to live up to his promise.
The COVID-19 pandemic has dampened fuel consumption and
triggered a handful of ethanol plant shutdowns. Higher
regulatory costs have refiners threatening to close refineries
and shed high-paying union jobs. 
    In December, the Environmental Protection Agency issued a
long-awaited biofuel blending mandate proposal that cut ethanol
requirements for 2020 and 2021 but restored them to 15 billion
gallons for 2022. Farmers and biofuel producers criticized the
rollbacks but welcomed the restoration this year.
    But, in recent weeks, administration officials have
considered rolling back the 15 billion gallon mandate when the
final rule is issued later this year, the two sources told
Reuters. 
    "EPA remains committed to the growth of biofuels in
America," said Nick Conger, an EPA spokesperson. "We look
forward to reviewing the robust comments that we receive from
all stakeholders before finalizing our rulemaking later this
year."
    The administration had initially planned to set the 2022
ethanol mandate at 14.1 billion gallons, Reuters previously
reported https://www.reuters.com/business/energy/exclusive-us-epa-considering-cuts-biofuel-blending-obligations-2020-2021-2022-2021-09-22,
 but went with 15 billion gallons under pressure from Farm-Belt
Democrats like Senator Tammy Duckworth of Illinois.
    “The White House is caught between a rock and a hard place.
On one hand, they want to support the agricultural and biofuel
industry, but they have been bombarded by unions and refiners
who say there’s not enough ethanol and they are listening,” said
one of the sources familiar with the discussions. 
    Under the Renewable Fuel Standard, refiners must blend
biofuels like ethanol into their fuel pool or buy tradable
credits, known as RINs, from refiners who do. Merchant refiners
like PBF Energy  PBF.N  and Monroe Energy have long complained
that the cost of purchasing RINs threatens their plants.
    While cuts to the 2020 and 2021 ethanol mandate briefly
lowered RIN costs, they have since rebounded. RINs are trading
about 50% higher from the around 80 cents after the mandates
were announced in December.
    After Reuters reported the news on Wednesday, RIN prices
fell about 6% to $1.20 each  RIN-D6-US . Margins to produce
gasoline  RBc1-CLc1  fell to an intraday low of $17 per barrel,
before recovering. 
    Mike Burnside, Policy Analyst at the American Fuel &
Petrochemical Manufacturers, a leading refining trade group,
told the EPA during a hearing on the blending mandate proposal
that its 2022 targets are out of step with demand.
    "EIA (the Energy Information Administration) projects that
gasoline consumption in 2022 will be below 2019 demand, so it is
unreasonable to propose 15 billion gallons for conventional
biofuel in 2022 as if the pandemic never happened and we are
back to normal," Burnside said. 
       
    ETHANOL PLANTS SHUT
    The U.S. ethanol industry has seen a number of facilities
shut down in the last few years, and the industry had to deal
with reduced fuel demand because of the coronavirus pandemic.
There were 197 U.S. ethanol plants at the beginning of 2021,
down from 201 a year earlier, EIA data showed. 
    Some ethanol companies have strayed from production of the
corn-based fuel.
    For instance, a company formerly known as Pacific Ethanol
Inc said in 2020 it would change its name to reflect its focus
on specialty alcohols used in beverages and sanitizers instead
of fuel. It is now Alto Ingredients Inc  ALTO.O .  urn:newsml:reuters.com:*:nL1N2HH1VM
    "I don't see anyone running to invest more," said Ed Hirs,
who teaches energy economics at the University of Houston. 
    Still, the ethanol industry enjoyed higher margins and
increased production in the later half of 2021. 
    In November, margins to produce ethanol in the Corn Belt
 ETH-CB-REF  increased to $1.82 per gallon, the highest since
2014, Refinitiv Eikon data showed. They have since fallen to
about 37 cents per gallon. 
    U.S. ethanol production in October rose to the most since
2017, according to the EIA.
    "The administration has indicated blending requirements will
remain strong and at 15 billion gallons for 2022, and we have
every expectation that they will deliver on that promise," said
Growth Energy Chief Executive Emily Skor, in response to the
news on Wednesday.

 (Reporting By Jarrett Renshaw and Stephanie Kelly, Editing by
Chizu Nomiyama and Marguerita Choy)
 ((jarrett.renshaw@thomsonreuters.com; (646) 223-6193;))