The Environmental Protection Agency (EPA) recently issued its 2017 targets for renewable fuels. Specifically, the agency announced volume requirements for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel under its renewable fuel standards (RFS) program. Under these blended fuel targets, the total volume of renewable fuel would increase by 6 percent, an increase that would meet the congressional target for conventional renewable fuel and exceed (by double) the minimum congressional target for biomass-based diesel.

These increases surprised industry officials, drawing criticism from the oil industry and support from major ethanol producers. The controversy surrounds the use of renewable identification numbers (RINs), which oil refiners use to demonstrate their compliance with the EPA’s annual volume requirements. Upon a refiner’s compliance, it may sell excess RINs to noncompliant refiners, but as the volume requirements for blended fuel increase, oil refiners lose more market share to ethanol producers. Additionally, the market price of RINs has steadily increased, causing smaller refineries to face bankruptcy as a result of compliance.

The new volume requirements place the incoming presidential administration in a difficult situation. President-elect Donald Trump supported RFS during his campaign, obtaining significant electoral support from biofuel advocates in the Midwest. Renewable fuels are also largely American-made, which experts say will appeal to Trump’s administration. In September, however, Trump listed the RINs trading program among regulations to eliminate. That decision closely followed statements from Carl Icahn, an billionaire oil investor and Trump supporter, that the RINs market is “rigged” and has become “the mother of all short squeezes.” Trump has not officially responded to EPA’s announcement, so time will tell how the incoming administration will address the 2017 volume requirements.

 

Thomas Johnson

 

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