(Bloomberg) -- Surging gasoline and food costs are weighing on the Biden administration as it prepares to set mandates for the use of renewable fuels.
Even under normal circumstances, the annual biofuel quota-setting exercise is fraught, forcing both Republican and Democratic presidents to navigate oft-competing refining and rural interests. This year, the challenge is intensified by climbing inflation, war-strained supplies of vegetable oils used to make green diesel and record-high gasoline prices that threaten the US economic recovery.
“With gas prices high and with commodities around the world high, there’s a massive amount of political attention on this program,” said Advanced Biofuels Association President Mike McAdams, who has worked on the Renewable Fuel Standard since before its creation in 2005. “Never in the history of this program has there been this confluence of sensitivity around it.”
The Environmental Protection Agency is on track to unveil this year’s final biofuel-blending requirements late next week -- by a June 3 deadline established under a legal settlement with ethanol advocates. White House officials have been weighing a draft plan for weeks and have held a flurry of meetings with companies making ethanol, gasoline and renewable diesel as they prepare the final quotas.
But key decisions about the final targets still have not been made, according to two people familiar with the matter who asked not to be named describing internal deliberations. The stall reflects the high level of political sensitivity around the issue, as the White House looks for ways to tamp down gasoline and food prices.
EPA Administrator Michael Regan acknowledged the struggle in a Senate hearing earlier this month. “I’m trying to stay on the right side of the law,” he said, but also be “sensitive to the prices that we’re facing now” and “the burdens of just average, everyday people.”
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Under the 17-year-old law, fuel importers and refiners are required to blend alternative fuels into diesel and gasoline. Congress laid out blending targets through 2022, but lawmakers tasked the EPA with setting specific annual volume-based quotas.
Biden administration officials have deliberated for months over how to set 2022 targets that are high enough to encourage greater use of biofuels without stoking excessive demand for soybeans, corn and other crops used for food and livestock feed. The EPA also is preparing to issue long-delayed quotas for 2021 that will essentially track actual consumption and retroactively lower previously established targets for 2020, partly to adjust for pandemic-battered fuel demand that year.
Refiners have lobbied the administration to pare the final quota for 2022, arguing that a reduction from the 20.77 billion gallons the EPA proposed in December would ease industry compliance costs that get passed on to motorists at the pump. A coalition of unions and independent oil refiners has amplified the pitch with a television ad airing in Washington, D.C. and other key markets that argues President Joe Biden “can cut up to 30 cents off every gallon you pump, by fixing the federal Renewable Fuel Standard.”
Some oil refiners have also told the White House that higher quotas risk exacerbating lofty prices for corn, soybeans, palm oil and sugar, which are increasingly processed into biofuels worldwide. A commodities rally that began two years ago has already made everything from animal feed and cooking oil to taco shells and chocolate more expensive.
In the US, a growing number of oil refiners have unveiled plans to produce renewable diesel from soybean oil and similar ingredients. Food processors warned the EPA in January that supply-chain “chaos” and food inflation would worsen without an ease in proposed biofuel-blending requirements.
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Because the Renewable Fuel Standard was meant to help bolster rural America as well as diversify the nation’s energy supply, it has long had a protected status in Washington.
“Now that very thing makes it vulnerable because there are actually end users of food -- and not just producers of food -- who are affected by the policy,” said Kevin Book, managing director of ClearView Energy Partners. The debate “raises the question of whether or not we’re going to be putting sunflower oil in our tanks when it should be going into the food supply.”
Renewable fuel makers argue any quota reduction would be misguided -- and would undercut expected biodiesel and renewable diesel production. Ethanol is cheaper than gasoline, though gallon-for-gallon it contains less energy.
“If you are reducing the volume of renewable fuel added to the fuel supply, that is going to push pump prices higher,” said Geoff Cooper, chief executive of the Renewable Fuels Association. “And at same time you wouldn’t get any noticeable benefit on food prices.”
Clean Fuels Alliance America, which represents US makers of renewable diesel, biodiesel and sustainable aviation fuel, says the products help balance demand, ensuring soybean farmers don’t take a loss on crops or cut food production. Soybeans are processed into oil that’s used for both biofuels and food, as well as meal that’s fed to poultry, swine and cattle. And because the biofuels add value to used cooking oils and discarded animal fats, which are prized ingredients for making green diesel, they also help reduce the cost of food production, according to the trade group.
The Biden administration already issued emergency waivers allowing widespread summertime sales of a higher ethanol blend known as E15, casting the shift as a way to ease fuel costs, even though it is only offered at about 2,600 filling stations nationwide. But ethanol prices are only part of the political equation.
“It’s not particularly relevant to the average family at the dinner table what the price of ethanol is, but they do think about the price of gasoline and they do think about how much money they have left at the end of the month,” Book said. And “for the most fragile households in America, it isn’t the pump price that matters, but the price of bread.”
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