Biden proposes overhaul of U.S. biofuel law to boost EV makers

The Biden administration is opening the door to a sweeping rewrite of the 17-year-old U.S. biofuel mandate, including a plan to encourage use of renewable natural gas to power electric vehicles, which could benefit Tesla and other automakers.

An Environmental Protection Agency proposal released Thursday invites public feedback on an array of changes to the Renewable Fuel Standard, initially designed in 2005 to push more ethanol, biodiesel and other plant-based alternatives into vehicles. The proposal may spur an overhaul that could shift the program from one narrowly focused on gasoline, diesel and other liquid fuels to an initiative broadly aimed at decarbonizing transportation.

The EPA will also seek public feedback on the best way to promote next-generation low-carbon biofuels, while protecting American oil refining assets after a wave of pandemic-spurred closures and the Russian invasion of Ukraine underscored the strategic importance of these facilities.

The measure “will set the stage for further growth and development of low-carbon biofuels in the coming years,” the EPA says in its proposal. During the transition, “maintaining stable fuel supplies and refining assets will continue to be important to achieving our nation’s energy and economic goals as well as providing consistent investments in a skilled and growing workforce.”

The agency is proposing to raise the amount of biofuel that must be mixed into gasoline and diesel over the next three years to as much as 22.68 billion gallons in 2025, up from this year’s 20.87 billion gallons. Under the measure, conventional ethanol may be used to fulfill as much as 15.25 billion gallons. But that exceeds what oil refiners call the “blend wall,” or the 10% ceiling on the amount that can be blended into the most commonly available E10 gasoline.

The EPA is asking the public for feedback on whether it should actually set the conventional renewable fuel requirement below the blend wall. It also wants public comment on how the quota plan will affect the “continued viability of domestic oil refining assets,” including so-called merchant refiners with limited blending facilities that can’t easily generate compliance credits.

Energy Secretary Jennifer Granholm cast the proposal as a way to “drive forward fuel innovations while balancing the need to maintain and strengthen critical domestic refining capacity, and support the union workers who operate these facilities.”

Nevertheless, the measure drew criticism from biofuel supporters and oil refining advocates alike.

Soybean and corn futures fell in Chicago, with soy oil sliding as much as 6.3%, the biggest decline since early July. The proposed EPA volumes for crop-based fuels came in below market expectations, StoneX risk management consultant Matt Campbell said. “The market is not taking the news well,” Campbell added, particularly for soybean oil, since “requirements were well short of trade estimates.”

The proposal was also a blow to oil refining champions, who said it would increase the industry’s compliance costs, undermining the economics of some operations. Senator Chris Coons, a Democrat from Delaware, called the proposed quotas “unachievable” and said they foster uncertainty for skilled union workers.

“The cost of complying with the Renewable Fuel Standard is at a record high because the volumes don’t align with what our country can actually produce and consume,” Coons added in an emailed statement.

Refiners prove they have fulfilled annual blending quotas by relinquishing tradeable credits known as “renewable identification numbers” or RINs, which are generated with each gallon of biofuel.

Under a court settlement, the EPA is obligated to finalize the biofuel quotas by June 14 next year. A senior administration official said public feedback could determine the shape of the final rule, prompting the EPA to revise initially proposed blending requirements or even revisit past policy decisions tied to RIN holding thresholds, disclosure requirements and market liquidity.

The EPA would also create an eRIN credit awarded when electricity from certain renewable sources – such as natural gas harvested from landfills and at farms – is used as fuel to power EVs. Under the proposal, that credit could be divided between EV makers and generators of biogas-powered electricity.

As designed, the eRIN plan would add another incentive for automakers to produce electric vehicles, building on tax support in the just-enacted Inflation Reduction Act and other air pollution policies. But the advantage for companies such as Ford Motor Co. and General Motors Co. would come at the expense of the owners and operators of charging stations and other stakeholders.

The plan is likely to set off furious lobbying as charging station operators, biogas producers and utilities vie for a bigger piece of the eRIN credit.

The eRIN concept has drawn criticism from some environmentalists and congressional Democrats who say it would subsidize large industrial livestock operations and could eventually promote the use of wood biomass to generate power, despite debate about the practice’s sustainability.

Biodiesel producers also are likely to be disappointed by proposed quotas, which would offer only a modest boost over the current 2.76-billion-gallon requirement, despite a predicted surge in demand and new production capacity next year.