Explanation: What are the challenges of the US law on biofuel blends in 2022 and beyond

Gas pump choices including ethanol or no ethanol are seen in Des Moines, Iowa, USA on January 29, 2020. REUTERS / Brian Snyder

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NEW YORK, Jan.11 (Reuters) – The US biofuels blending program known as the Renewable Fuel Standard (RFS) could experience its most transformative year yet in 2022, as the Biden administration faces decisions to reset laws that mandate the blending of renewable fuels in the United States.

The program was designed to force certain volumes of renewable fuels to replace or reduce petroleum-based fuels. Oil refiners, who are required to blend the billions of gallons of biofuels into their fuel blend, say the program is too expensive and needs to be curbed, while corn growers and biofuel producers love the standards because they helped build a billion gallon multi-market for their products.

WHAT IS RFS?

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Congress created the RFS in 2005 and expanded the program in 2007. It is administered by the Environmental Protection Agency (EPA).

At the start of the program, Congress set annual renewable fuel volume targets for the program through 2022. Currently, the volume required for 2022 is approximately 21 billion gallons.

Refiners who don’t blend biofuels can buy tradable credits, called RINs, from those who do to show they are complying with mandates.

Some petroleum refiners have been exempted from the requirements in previous years because they have been able to prove financial harm, in so-called small refinery exemptions.

WHAT HAPPENS IN 2022?

This year, the EPA will have to decide on the next phase of the program in coordination with the Ministry of Energy and the Ministry of Agriculture.

The EPA plans to propose requirements from 2023 in May this year, with a final rule coming in December.

WHAT DO STAKEHOLDERS WANT FROM THE NEW REQUIREMENTS?

Corn growers and biofuel producers want the EPA to increase the required blending volumes of renewable fuels, said Scott Irwin, professor of agricultural and consumer economics at the University of Illinois.

Meanwhile, merchant refiners say the costs of the program are too high and threaten jobs and businesses at smaller refineries.

“The crude oil refining side wants to give the RFS a permanent discount so that biofuel growth should essentially be determined by the market rather than by mandates,” Irwin said.

WHAT ARE THE BIDEN ADMINISTRATION PLANS?

It is too early to say how the administration will approach the finalization of its proposals. However, several factors may come into play.

Oil prices and gasoline costs for U.S. motorists hit multi-year highs last year, and with the midterm elections approaching, the administration fears it will hamper oil production and petroleum based fuel.

However, the White House has set ambitious goals to reduce carbon dioxide emissions and fight climate change. The RFS could be a key tool in this fight for the future, by encouraging the production of renewable fuels. The White House must weigh the interests of refining unions, farmers and consumers.

IS THERE ANYTHING ELSE IN THE GAME IN ADDITION TO THE MANDATES?

There is some uncertainty as to what exactly the RFS program might include in 2023 and beyond.

The EPA plans to make electric vehicle power generation eligible for renewable fuel credits, a senior official told Reuters in December, after the White House asked the agency to study how the use of Renewable fuels to power electric vehicle charging could generate tradable credits. Read more

The move could boost the US electric vehicle industry, which only accounts for about 2% of the US vehicle fleet.

It is also unclear how the program will incorporate exemptions for small refineries in the future. The EPA recently proposed the denial of 65 pending exemption requests, but the action is not final. Read more

Some have speculated that the program will focus less on corn-based ethanol, the most widely used biofuel and a key lobbying force in the industry, and instead on advanced biofuels such as renewable diesel, made from vegetable oils or animal fats.

“I don’t think there is any doubt that the future trajectory will be weighted towards advanced biofuels,” Irwin said. “What’s going to be interesting to see in the reset is how the advancements over the classics are handled.”

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Report by Stéphanie Kelly

Our Standards: Thomson Reuters Trust Principles.

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