The move could provide immediate relief to oil refiners that have to comply with the blending requirements. It also is likely to drag the Biden administration further into a clash between oil refiners and the biofuels industry over the requirements.

Under the U.S. Renewable Fuel Standard program, oil refiners must blend billions of gallons of biofuels into the nation’s fuel mix, or buy tradeable credits, known as RINs, from those that do.

Farmers and biofuel producers argue that reducing mandates harms demand for their products, though refiners reject that claim and say the costs of the program puts blue-collar refinery jobs at risk.

The EPA confirmed Thursday it had sent the biofuel blending proposal to the White House’s Office of Management and Budget (OMB).

“The proposal aims to get the (Renewable Fuel Standard) program back on track while addressing challenges stemming from decisions made under the prior administration,” an EPA spokesperson said in a statement.

The agency was also expected to recommend to the White House reducing mandates for 2021, while boosting mandates for 2022 above the previous two years, Reuters reported last week, citing sources.

The agency did not provide details on the proposal or confirm Reuters’ reporting.

Lowering mandates retroactively for 2020 could benefit in particular merchant refiners such as PBF Energy and Delta Air Lines’ Monroe Energy, which slowed or halted purchases of renewable fuel credits this year as they lobbied the Biden administration for regulatory relief.

Those refiners and others had amassed earlier this year a more than US$1 billion shortfall in the credits they need to comply with the mandates, an apparent bet that the Biden administration would let them off the hook or that the credit prices would fall.

The deadline for refiners to prove compliance with the 2020 requirements was extended in April to Jan. 31, 2022. Reducing the mandates would help refiners who have outstanding obligations for that compliance year.

— Reporting for Reuters by Stephanie Kelly and Jarrett Renshaw.

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The justices overturned a lower court decision that had faulted the U.S. Environmental Protection Agency for giving refineries in Wyoming, Utah and Oklahoma extensions on waivers from renewable fuel standard (RFS) requirements under a law called the Clean Air Act even though the companies’ prior exemptions had expired.

The extensions at issue were given to units of HollyFrontier Corp and CVR Energy.

The 6-3 ruling, authored by conservative Justice Neil Gorsuch, compared these extensions to ones granted in everyday life such as to a student wanting more time to complete a term paper even though the deadline has passed or a business contract whose term had expired.

“It is entirely natural — and consistent with ordinary usage — to seek an ‘extension’ of time even after some time lapse,” Gorsuch said.

In a dissent, conservative Justice Amy Coney Barrett, joined by liberal justices Sonia Sotomayor and Elena Kagan, faulted the ruling’s interpretation of the word “extend.” The “EPA cannot ‘extend’ an exemption that a refinery no longer has,” Barrett wrote.

President Joe Biden’s administration has been considering ways to provide relief to U.S. oil refiners from biofuel blending mandates.

The case reflected a long-running dispute between the oil and corn industries. The legal battle focused on changes made in 2005 and 2007 to the Clean Air Act to require biofuel quotas in U.S. gasoline and diesel products — intended to reduce dependence on foreign oil and support fossil fuel alternatives.

Under the program, refiners must blend billions of gallons of biofuels such as ethanol into their fuel or buy compliance credits, known as RINs, from those that do.

U.S. renewable fuel credits fell on the news, trading at $1.55 each, down from $1.65 each on Thursday (all figures US$). U.S. gasoline and diesel futures plunged about three per cent immediately following the news, but later eased losses.

States backing the refineries included Wyoming. Those backing biofuels included Iowa. Both sides cited economic threats to their rural economies posed by the litigation.

HollyFrontier Corp said in a statement, “We are pleased that our longstanding arguments were today validated by the Supreme Court.” HollyFrontier urged the EPA to “immediately take action to make the RFS a workable program for U.S. refiners and consumers.”

American Fuel and Petrochemical Manufacturers president Chet Thompson said the renewable fuel standard “is hurting consumers and jeopardizing the viability of refineries across the country, as well as the jobs and communities they support.”

Biofuel and corn producer groups that challenged the waivers, including the Renewable Fuels Association and the National Corn Growers Association, said in a statement they were “extremely disappointed in this unfortunate decision from the Supreme Court.”

Noting that because the lower court had faulted the EPA’s decision on other grounds as well, the groups said they were optimistic that Biden’s administration and the EPA would “take a far more judicious and responsible approach to the refinery exemption program than their predecessors did.”

Renewable fuel groups said that an increase in waivers during former president Donald Trump’s administration had undercut the demand for their products by billions of dollars.

Small refineries were exempt until 2011 to account for any “disproportionate economic hardship” they would endure by complying with volume requirements for ethanol and other biofuels. But the EPA was allowed to extend those exemptions for certain periods.

At issue in the case was whether the EPA impermissibly exempted units of HollyFrontier and CVR in 2017 and 2018 when they had not received continuous prior extensions of an initial exemption.

The Denver-based 10th U.S. Circuit Court of Appeals last year found that the EPA had exceeded its authority “because there was nothing for the agency to ‘extend.'”

— Reporting for Reuters by Andrew Chung in New York; additional reporting by Stephanie Kelly.

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U.S. President Donald Trump’s Environmental Protection Agency (EPA) is requesting comment on the potential general waiver for the 2019 and 2020 compliance years and also is proposing a new rule that would remove or alter the labeling for retail gasoline that contains higher ethanol blends, according to notices to be published to the Federal Register on Tuesday.

The proposal for a general waiver could open the door to a contentious debate between the oil and biofuel industries just as Trump leaves the White House.

It is unclear whether the next EPA under President-elect Joe Biden, who takes the oath of office next Wednesday, similarly would consider the requests for a general waiver, as the comment period on the requests ends after Trump will have already left office. Both the EPA and Biden’s transition team did not respond to requests for comment by the time of publication.

While the waiver would save the refining industry money at a time of low fuel demand, biofuels advocates harshly oppose the idea, arguing it risks hurting farmers by undermining demand for products such as corn-based ethanol.

In its notice, the EPA said that it had received requests for a general waiver from both refineries and from the governors of several states hosting them.

“These petitions argue that recent events warrant EPA exercising its general waiver authority on the basis of severe economic harm,” it said.

Biofuel groups criticized EPA’s decision to consider the petitions.

“It cannot succeed because EPA has no authority to waive RFS (Renewable Fuel Standard) volumes unless the petitioners show that the RFS itself is the cause of the ‘severe economic harm’ to a state, region, or the nation,” said Renewable Fuels Association president Geoff Cooper.

The biofuel industry, however, supports a labeling change for high ethanol blends of gasoline because it believes current labels that warn of potential engine complications from ethanol can discourage consumption.

Oil industry groups vowed to challenge that proposal.

“We are deeply concerned about the administration’s reckless proposal to deprive consumers of basic information concerning their engine’s compatibility with fuels they purchase,” said a statement from groups including the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers.

Under U.S. law, refiners have to blend billions of gallons of biofuels into their fuel mix or buy tradable credits from those that do. Those credits traded on Friday at 84 U.S. cents each, down from 90 the previous session, traders said.

Earlier this week, the EPA signaled it would not act on a slew of pending individual waiver requests submitted by refining facilities because of pending litigation.

In the same document, the agency said it was also proposing to further extend the deadlines for oil refiners to prove compliance with the RFS for both the 2019 and 2020 years.

The EPA’s moves this week follow a year of suppressed demand and weak margins for oil refiners and ethanol producers because of the COVID-19 pandemic.

— Stephanie Kelly reports on the U.S. energy and biofuel sectors for Reuters from New York.

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The decision came after appeals by refining companies that argued the 10th Circuit Court’s decision last year had improperly deprived them of a method to avoid financial hardship granted by Congress.

Under the U.S. Renewable Fuel Standard, refiners must blend billions of gallons of corn-based ethanol and other biofuels into their fuel or buy credits from those that do — a law meant to help farmers and reduce dependence on foreign oil.

But small facilities under financial stress can also seek waivers from the obligation, and the Trump administration has dramatically ramped up the number of such exemptions granted to the industry — angering biofuel producers that claim the waivers undercut demand for their products.

After a challenge from biofuel industry groups, the 10th Circuit ruled last January that the U.S. Environmental Protection Agency can only grant the so-called Small Refinery Exemptions to facilities that have received them continuously each year since 2010. That decision cast doubt over the entire waiver program, since most of the refineries securing waivers in recent years have not secured them continuously.

“We are disappointed in the Supreme Court’s decision to review the case but will continue to vigorously pursue a resolution to the damage that small refinery exemptions do to the biodiesel industry,” said Kurt Kovarik, spokesman for the National Biodiesel Board.

The Fueling American Jobs Coalition, which advocates on behalf of refiners, cheered the Supreme Court’s decision, saying the review comes at an “urgent time” for refiners battered by the economic downturn.

The court is expected to hear the case in April, and a ruling could take several months.

— Reporting for Reuters by Stephanie Kelly; writing by Richard Valdmanis.

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Under federal law, the EPA must finalize its decision on the annual biofuel blending volume requirements it imposes on the refining industry for the next year by Nov. 30. The agency did not respond to requests for comment.

“At this point, it likely makes more sense to let the new administration handle the 2021 RVO (renewable volume obligations) rulemaking process entirely,” said Geoff Cooper, the president of the Renewable Fuels Association, one of the nation’s biggest biofuel industry groups.

Growth Energy, another U.S. biofuel industry association, said it intends to file a lawsuit to force the Trump administration’s EPA to act “immediately.”

The American Fuel and Petrochemical Manufacturers, a top refinery industry association, said it hoped the EPA will “soon provide certainty” to its members.

Under the U.S. Renewable Fuel Standard, refiners must blend billions of gallons of ethanol and other biofuels into their fuel pool, or buy credits from those that do — a policy that has created a huge market for corn-based ethanol but which the oil industry loathes.

While the Trump administration has mainly hit its deadlines for setting specific biofuel volumes mandates under the RFS, the process this year has been complicated by the economic fallout of the coronavirus pandemic.

Slumping fuel consumption has led refiners to argue for lower volume mandates to match demand, and biofuels producers to argue that doing so would only hurt them more.

The EPA has also left unaddressed a number of other questions that will likely need to be dealt with by the incoming Biden administration, including requests from oil industry advocates for the EPA to ease 2020 compliance because of the impact of the pandemic, and requests from the biofuel industry for the agency to ditch a waiver program it argued has illegally eroded demand for ethanol.

The oil industry says that the waivers hurt ethanol demand.

— Stephanie Kelly reports on the U.S. energy and biofuel sectors for Reuters from New York.

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Reuters had reported last week that U.S. President Donald Trump, under the advice of his allies in the Midwest, ordered his Environmental Protection Agency to deny the waivers because they had become a lightning rod of controversy in the Farm Belt, an important political constituency.

“This decision follows President Trump’s promise to promote domestic biofuel production, support our nation’s farmers, and in turn strengthen our energy independence,” said EPA administrator Andrew Wheeler in a statement announcing the agency was denying 54 applications that the Department of Energy had reviewed.

Refiners say the waivers are crucial for reducing regulatory costs for small fuel producers and keeping them in business, but the corn lobby argues the exemptions undermine demand for corn-based ethanol at a time farmers are already suffering from the impacts of a trade war with China.

RFS compliance

Under the U.S. Renewable Fuel Standard (RFS), refiners must blend some 15 billion gallons (57 billion litres) of ethanol into their gasoline each year or buy tradable credits from those that do. Small refiners have also been able to seek an exemption if they can prove financial harm from the requirements.

The Trump administration has roughly quadrupled the number of exemptions given out to refiners in a trend that had angered the biofuel industry.

In January, an appeals court handling a case initiated by the biofuel industry cast a cloud of doubt over the EPA’s waiver program, ruling that waivers granted to small refineries after 2010 should only be approved as extensions. Most recipients of waivers in recent years have not continuously received them.

That triggered a wave of requests for retroactive relief by refiners seeking to comply with the court decision. Since March, 17 small refineries in 14 states submitted 68 petitions, Wheeler said in a memo. The Department of Energy, which advises EPA on the waiver requests, had transmitted its findings on 54 of the petitions.

“(T)hese small refineries did not demonstrate disproportionate economic hardship from compliance with the RFS program for those RFS compliance years,” Wheeler said.

It is unclear what will happen to refining facilities that had benefited from waivers in recent years that are non-compliant with the court’s ruling. But sources told Reuters the administration may seek to offer them another form of financial relief to compensate.

It was also not immediately clear how this would affect 28 pending waiver applications for 2019 and three pending applications for 2020.

The Trump administration’s decision on Monday is a major victory for biofuel advocates in the long-standing battle between the deep-pocketed Corn and Oil lobbies.

“This is outstanding news for biofuels producers, farmers, and RFS integrity,” said Iowa Renewable Fuels Association executive director Monte Shaw. “With gap year waivers denied, the number of refiners eligible to even apply for — let alone receive — an RFS exemption going forward is reduced to single digits.”

Some in the oil industry criticized the decision. “EPA has turned a blind eye to merchant refineries and their workers in key battleground states like Pennsylvania, Ohio and Texas,” said the Fueling American Jobs Coalition, a group that includes union workers and independent refiners.

Trump over the weekend also tweeted that he would allow states to permit fuel retailers to use their current pumps to sell gasoline with higher blends of ethanol, or E15, a move that could help lift ethanol sales.

“Today’s announcements will help provide more certainty to our biofuel producers, who have for too-long been yanked around by the EPA, and help increase access to E15, which drives up demand for corn and ethanol,” said Iowa Senator Joni Ernst.

— Reporting for Reuters by Stephanie Kelly in New York.

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The decision could undermine President Donald Trump’s support among farmers, an important constituency in the November 2020 election. Some U.S. farmers have already been hurt by the United States’ prolonged trade war with China.

“The administration is moving forward to finalize the 2020 RVO (renewable volume obligations) in line with the agreement that the President made this fall,” White House spokesman Judd Deere said.

Deere confirmed he was talking about a proposal unveiled by the U.S. Environmental Protection Agency in October, which was intended to compensate the biofuel industry for the administration’s expanded use of refinery waivers, but which the industry has largely panned as insufficient.

Under the U.S. Renewable Fuel Standard, oil refiners are required to blend some 15 billion gallons of corn-based ethanol into their gasoline every year, but small facilities can be exempted if compliance would hurt them financially.

The Trump administration’s EPA has roughly quadrupled the number of the so-called Small Refinery Exemptions, something corn farmers and biofuel producers say has deeply undercut demand for ethanol.

The oil industry says the waivers are needed to preserve blue-collar refining jobs and disagrees with the claim that the waivers destroy demand.

The EPA plan, devised after weeks of negotiations with both the oil and biofuel industries to resolve the issue, would raise the biofuels volumes that some refineries must blend in 2020 based on U.S. Energy Department recommendations for volumes that should be exempted.

Biofuel interests wanted the regulation to be based on volumes that have actually been waived, since the EPA has routinely waived more blending volumes than the DOE has recommended.

On Tuesday, more than 1,700 farmers and biofuel advocates sent a letter to Trump, criticizing EPA’s proposal and asking him to directly intervene in the debate.

By then, the decision had already been reached. White House economic adviser Larry Kudlow told the Iowa Corn Growers Association during a meeting in Washington on Tuesday that the administration was sticking with the EPA’s proposal, two sources familiar with the matter said.

The plan is expected to be finalized by Friday, one source said. The final rule for 2020 blending requirements is already past its end-November deadline.

“EPA has reviewed all comments received during the comment period from the public and we plan to finalize the rule this winter,” EPA spokesman Michael Abboud said.

Support across key Midwestern states helped propel Trump to the presidency in 2016, a trend he is hoping to replicate in next year’s election.

But some farmers have threatened to withdraw support because of his administration’s handling of biofuel policy.

The biofuels news, however, comes amid progress in the United States’ trade war with China, a dispute that has been especially damaging to U.S. farmers.

It also comes as Congress readies a vote on the nation’s new trade pact with Mexico and Canada, an agreement also expected to boost farmers’ fortunes.

Renewable fuel (D6) credits for 2019 traded at 12.75 U.S. cents each on Wednesday, down from 13.25 in the previous session, traders said.

— Reporting for Reuters by Stephanie Kelly in New York and Jarrett Renshaw in Philadelphia.

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Corn and soybean farmers have been angered by the U.S. Environmental Protection Agency’s decision to greatly expand the number of exemptions given to smaller refiners from blending biofuels into the nation’s gasoline pool. They argue the expansion undercuts demand.

In response, the Trump administration has been negotiating for several months to find a way to boost demand for biofuels to satisfy farmers and rural voters. However, the proposed rule, issued in a supplemental notice by the EPA, was met with harsh criticism because it bases the biofuels volumes required for blending on U.S. Energy Department estimates — rather than actual exemptions.

“Only 11 days after President Trump’s landmark announcement, the EPA proposal reneges on the core principal of the deal,” said Iowa Renewable Fuels Association executive director Monte Shaw. “Instead of standing by President Trump’s transparent and accountable deal, EPA is proposing to use heretofore secret DOE recommendations that EPA doesn’t have to follow.”

The refining industry is required by law to blend ethanol and other biofuels into the nation’s gasoline under the nation’s Renewable Fuel Standard (RFS). As part of the RFS, EPA can exempt small refineries if they prove compliance would cause disproportionate economic hardship.

Facilities owned by oil majors Exxon Mobil and Chevron are among those to secure recent exemptions. Farmers who supported Trump heavily in his 2016 campaign have been frustrated with this, along with the ongoing U.S.-China trade war.

Trump promised in early October to boost demand for fuels like ethanol. During the negotiations, it appeared the biofuels industry had won a concession that would require refiners who are not exempt from the rules to blend the additional gallons of ethanol and other fuels that smaller facilities did not.

The proposed plan would calculate the volume of biofuels U.S. refiners have to blend by using a three-year average of exempted gallons as recommended by the Department of Energy, the EPA said.

“The supplemental notice contains a never-before-discussed proposal to estimate small refinery exemptions, with no assurance that the estimate will come close to actual exemptions,” the National Biodiesel Board said in a statement.

Oil companies were not happy either. They have consistently resisted measures to expand the biofuels market, which they view as a competitor. Refiners complain that the requirements under the RFS cost them greatly, and that having refiners make up for those who are granted exemptions would be an additional harm.

“There is simply no logic in forcing complying refineries to bear the burden of decisions outside of their control,” said Frank Macchiarola, vice-president of downstream and industry operations at industry group the American Petroleum Institute.

The EPA, in its supplemental notice, acknowledged there is uncertainty in projecting exempted volumes for 2020.

The plan would not change proposed volumes for 2020 and 2021, EPA said. In July, the EPA called for the refining industry to add 20.04 billion gallons of biofuels, including 15 billion gallons of ethanol, into fuel in 2020.

— Stephanie Kelly reports on the U.S. energy sector for Reuters from New York City.

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The plan is intended to address a major source of anger in U.S. farm country as Trump seeks to hold favour 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 one billion gallons, including 500 million gallons for conventional biofuels like corn-based ethanol and 500 million gallons for advanced biofuels such as 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 and Valero Energy, 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 for Reuters by Jarrett Renshaw and Stephanie Kelly.

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Clashes between farmers and the oil industry over biofuel policy have posed a challenge for Trump, who is counting on the support of both constituencies in next year’s presidential election.

U.S. farmers and ethanol producers have ramped up pressure on Trump over the past few weeks to quickly take steps to boost ethanol demand. The oil industry has struck back, saying such moves would increase costs for refiners and could cost manufacturing jobs.

“The Farmers are going to be so happy when they see what we are doing for Ethanol, not even including the E-15, year around, which is already done,” Trump said on Twitter. “It will be a giant package, get ready! At the same time I was able to save the small refineries from certain closing. Great for all!”

Trump did not offer details on what the “giant package” would contain. The E15 mentioned by Trump is a higher-ethanol blend of gasoline.

The U.S. Renewable Fuel Standard requires refiners to blend biofuels like ethanol into their fuel, but allows the U.S. Environmental Protection Agency to grant waivers to financially troubled small facilities.

The EPA announced this month a decision to grant 31 such waivers to refineries, a level the corn lobby called excessive, saying it would undermine biofuel demand.

Corn growers and ethanol producers met this week in Nebraska, with both groups voicing dissatisfaction with the Trump administration, in the first major gathering of industry leaders since the waiver announcement. They urged a policy proposal that would redistribute waived volumes from the exemptions going forward.

If implemented by the administration, the move would help reinvigorate wavering support from some in the sector for Trump, they said.

“What the association wants going forward is to put teeth back into the RFS,” said Kathy Bergren, director of public policy and renewable fuels for the National Corn Growers Association.

Kerry Knuth, chief executive of Knuth Farms in Mead, Nebraska, said he has at times been frustrated by the president and his administration’s actions. Knuth supported Trump in the 2016 election.

“There’s nothing we can do is the worst thing,” said Knuth, whose farm grows corn, soybeans and wheat. “Nobody even cares about us out here. It’s all about big industry.”

Trump last week directed Agriculture Secretary Sonny Perdue, EPA chief Andrew Wheeler and White House advisers to come up with a solution that would boost biofuel demand in the wake of the EPA waiver decision. Among the proposals was to ramp up biofuel blending quotas slightly, but there has been disagreement over when to apply the increase, sources said.

Perdue said on Wednesday he also proposed strengthening U.S. infrastructure to allow more widespread use of E15. The Trump administration in June lifted a summertime ban on E15 use that had been imposed by the administration of Democratic former President Barack Obama to combat smog.

‘Misguided’

The oil industry, which dislikes the biofuel mandates because they cut into its market share, has said it would oppose any efforts to further bolster ethanol.

On Thursday, Chet Thompson, CEO of American Fuel and Petrochemical Manufacturers, the largest U.S. oil refining association, said any reallocation and raising of biofuel blending quotas would be “bad policy and unlawful.”

Thompson warned in a conference call that this would “raise the cost of compliance for refiners and raise the cost of fuel for consumers.” He dismissed farmers’ argument that waivers hurt biofuel demand, citing data from the U.S. Energy Information Administration showing ethanol consumption for the first five months of 2019 at its highest since at least 2010. The mandate was put in place in 2005.

“We hope to be able to convince the president to change tack … He is being misinformed, he is being misguided by some of his closest advisers,” he said, adding that if persuasion fails, the industry will not refrain from court action.

On Wednesday, the chief executives of three major refiners — Valero Energy, Marathon Oil and Flint Hills Resources — wrote a letter to Trump, saying waivers did not cause a reduction in ethanol demand and they were also not the reason the biofuels industry was in dire straits.

“We urge you to prevent other changes to the RFS that would threaten the viability of our Nation’s refineries,” they said.

— Reporting for Reuters by David Alexander and Humeyra Pamuk in Washington and Stephanie Kelly in South Sioux City, Nebraska; writing by Richard Valdmanis.

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