U.S. President Donald Trump has tentatively approved a plan to increase the amount of biofuels that oil refiners are required to blend each year to compensate for exemptions handed out to small refiners by the Environmental Protection Agency, two sources familiar with the matter said.
The plan is intended to address a major source of anger in U.S. farm country as Trump seeks to hold favor in the Midwest ahead of next year’s election, but it is likely to upset the oil industry, another important political constituency, underscoring the pitfalls of U.S. biofuel policy.
Under the plan, the U.S. EPA will calculate a three-year rolling average of total biofuels gallons exempted from the mandates under its Small Refinery Exemption program and add that figure to its annual biofuel blending quotas each year, the sources said. For 2020, that figure would be 1.35 billion gallons, according to a Reuters calculation.
That would come in addition to a tentative agreement to boost next year’s blending volumes by 1 billion gallons, including 500 million gallons for conventional biofuels like corn-based ethanol and 500 million gallons for advanced biofuels like biodiesel, the sources said.
A court in 2016 ruled that the Obama administration illegally lowered the mandate by 500 million gallons, and part of the current proposed addition would satisfy the decision.
As a result, if the Trump administration followed through on the plan, next year’s total blending mandate would come out to about 22.4 billion gallons, from just over 20 billion in the EPA’s current proposal, according to the Reuters calculation.
The EPA has until the end of November to finalize its 2020 biofuel volumes mandates.
Under the Renewable Fuel Standard, oil refiners are required to blend increasing volumes of biofuels like corn-based ethanol into their fuel each year, to help farmers and reduce imports, but small refining facilities in financial straits can seek waivers.
Trump inserted himself into negotiations between the rival oil and corn industries after his administration recently granted 31 oil refiners exemptions to their blending requirements, infuriating corn farmers and ethanol producers who say the program undermines demand for ethanol at a time the industry is already suffering from a loss of foreign markets.
He and senior administration officials have held a series of meetings with biofuel company officials, chief executives from Marathon Petroleum Corp and Valero Energy Corp, and lawmakers from key farm states including the Republican senators Joni Ernst and Chuck Grassley.
Trump was expected to meet with senators representing oil-producing states on Monday to continue discussions on the issue, sources said.
It was unclear if Trump would secure the backing of the oil industry for the plan without granting it any concessions.
One idea that Trump discussed during the meeting with Marathon and Valero last week to help refiners was to potentially cap the price of blending credits refiners must earn or purchase to comply with the RFS, sources familiar with the matter said.
Senators including Pennsylvania's Pat Toomey and Texas's Ted Cruz sent a letter to Trump on Thursday, asking any increase to biofuel volumes be accompanied by safeguards against higher credit prices.
(Reporting by Jarrett Renshaw and Stephanie Kelly; editing by Richard Valdmanis and Nick Zieminski)