US EPA keeps all options open in biofuel reallocation proposal

By Jarrett Renshaw

Sept 16 (Reuters) - The U.S. Environmental Protection Agency on Tuesday issued a proposal for reallocating to large refineries the biofuel blending obligations waived under the Small Refinery Exemption (SRE) program, offering two primary options of 50% and 100%.

Additionally, the agency said it will ask for comment on other potential volumes, such as 25%, 75% or none at all.

The proposal's failure to narrow down potential options is destined to extend the latest clash between Big Oil and Big Farm over the issue, as both industries vie for influence over U.S. energy and agricultural policy.

Biofuel groups want full reallocation to ensure the small refinery waivers do not dent demand for products like corn-based ethanol, while refiners oppose reallocation citing costs.

Industry officials from both sectors called the EPA proposal a "punt" and said the 45-day comment period will be crucial. "With every option on the table, we didn’t get much clarity today," said one of the officials, who asked not to be named criticizing the agency.

The U.S. Renewable Fuel Standard requires refiners to blend billions of gallons of biofuels into the country's fuel pool each year or buy credits called RINs from those who do.

But it also allows smaller refiners to apply for waivers under the SRE program if they can show the requirements would cause them financial hardship.

The EPA in August cleared a backlog of more than 170 SRE requests dating back to 2016 — a sweeping move that required it to come up with the plan to account for waived obligations.

The EPA was only required to come up with a plan to reallocate exempted gallons dating back to 2023, however, because RINs generated for previous years have already expired.

The EPA proposal said 2.18 billion RINs worth of blending obligations will have been exempted from 2023 through 2025.

"We support EPA’s proposed option to fully reallocate 2023-2025 SREs and believe such an approach will ensure intended levels of renewable fuel consumption are maintained over the long-term," said Geoff Cooper, head of the Renewable Fuels Association biofuel trade group.