U.S. EPA proposes higher 2019 biofuels mandate in line with expectations

(Reuters) - The U.S. Environmental Protection Agency proposed setting a blending mandate of 19.88 billion gallons for 2019 under the Renewable Fuel Standard (RFS), 3 percent higher from this year's and in line with expectations.

The agency also said it is considering a number of measures to bring some transparency to the compliance credit market and decided against forcing large refiners to blend extra volumes to compensate for the hardship waiver exemptions for small refineries.

The EPA's decision against reallocating exempt volumes drew a wave of criticism from biofuel groups and their legislative backers in Congress, but was applauded by the oil industry - the latest sign in the growing divide between the rival groups.

The blending mandate would be up 3 percent from a 2018 requirement of 19.29 billion gallons and identical to figures that Reuters and other news outlets reported last week.

The EPA proposal would leave the target for conventional biofuel, mostly corn-based ethanol, at 15 billion gallons, the agency said.

The agency proposed an advanced fuel requirement at 4.88 billion gallons for 2019 and a biodiesel mandate of 2.43 billion gallons for 2020. It proposed a cellulosic mandate of 381 million gallons for next year.

"I’ve traveled to numerous states and heard firsthand about the importance of the RFS to farmers and local communities across the country,” EPA chief Scott Pruitt said in a statement accompanying the release.

Mike McAdams, president of the Advanced Biofuels Association, said the EPA proposal recognizes gains in the production of next-generation alternatives to corn-based ethanol. He said additional facilities are coming online and the higher targets will help ensure markets for the new gallons.

Each year, the EPA must set annual requirements for the volume of renewable fuels that oil refiners and other fuel companies must blend with their petroleum-based products. The 2005 policy has been a source of contention between powerful corn and oil lobbies in Washington.

The agency also has the power to exempt smaller refineries from the blending requirements.

The EPA, under Pruitt, has roughly tripled the number of exemptions granted to small refiners, angering Midwest farmers and their legislative backers who say he is effectively lowering the mandate unless he forces larger refiners to make up the difference.

Exemptions representing some 2.25 million gallons worth of biofuel were granted for 2017 and 2016, according to the EPA proposal. That includes waivers covering 1.46 million RINs in 2017, the EPA said.

Pruitt was considering a plan to shift the burden to larger refineries but the plan was scrapped after an outcry from the oil industry.

“The ethanol number isn’t worth the paper it’s written on so long as Scott Pruitt is granting small refinery exemptions left and right," said Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw.

The American Petroleum Institute's Downstream Group Director Frank Macchiarola said the EPA made the right call in not reallocating the waived volumes but called on the agency to embrace much needed reforms.

"The agency’s latest proposal for 2019 is yet another example – in fact it’s an annual example of a broken government program that needs a comprehensive legislative solution that includes the sunset of the program,” Macchiarola said.

The deadline to issue the finalized rule is Nov. 30. (Reporting by Chris Prentice and Jarrett Renshaw in New York Editing by Tom Brown and Marguerita Choy)