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Trump Administration tells oil and Biofuels groups that they must develop a new biofuel policy

According to four sources familiar with the issue, the U.S. administration of President Donald Trump has asked the oil and biofuels industry to reach an agreement on the next phase in the country's biofuels policies to avoid the political conflicts that marked his first tenure.

Big Oil and Farm Belt biofuels producers are competitors who have been fighting for a share of the U.S. multi-billion dollar gasoline market. The two have fought repeatedly over the details of the U.S. Renewable Fuel Standard. This program requires that billions of gallons corn-based ethanol, and other biofuels be blended in the nation's fuel supply.

Sources, which include Will Hupman API's Vice President of Downstream Policy and three other sources who did not want to be identified, say that the White House directive led to at least two bilateral meeting, including the one held last week by American Petroleum Institute.

According to Hupman and other sources, at that meeting representatives discussed topics such as the future volume of biofuel blend mandates, the exemptions for smaller refiners and the biofuel tax policies.

Trump's administration could adopt any agreement that is reached between these two powerful industries.

Hupman said that it is easier for the Trump administration to reach a conclusion if they hear from groups who have traditionally been on opposite sides.

Blending Volumes and Waivers

The U.S. Environmental Protection Agency, which is responsible for the RFS, has been preparing new blend mandates that will govern volume over the next two or three years. They are also preparing the multi-billion dollar compliance credit market.

Three sources confirmed that the group had already agreed to raise the mandate of renewable diesel and biodiesel by a significant amount from the current level of 3,35 billion gallons. The biofuel industry claims this is far below the production capacity.

Three sources confirmed that the range of volumes discussed was 4.75 billion to 5.5 billion gallons. Some wanted higher volumes by 2026, while others wanted a gradual increase.

Sources said that the blending mandates for gasoline and ethanol have been capped at 15 billion gallons. The parties also saw little room for growth due to the stagnant demand for gasoline.

Sources said that the groups were divided over the small refinery exemptions from the RFS. This was one of the most controversial issues.

In Trump's initial administration, the EPA granted a record-breaking number of exemptions. This allowed small refiners to avoid their blending obligations and triggered political backlash among his Republican allies from the Farm Belt, who claimed that it was punishing farmers.

The former president Joe Biden tried to eliminate the exemptions. This triggered legal challenges which reached the U.S. Supreme Court in this month. EPA is currently considering several exemption requests.

Sources said that the groups were divided over whether the administration would force other refiners, who are exempted from blending, to compensate for the volume. This position is opposed by the U.S. Refining Industry.

A second important issue that was discussed during the meeting last week was the fate a new credit for biomass-based fuels created under the Biden Administration, but which was not finalized. The 45Z program replaced the $1 per gallon blenders' credit with a system that rewards fuel producers according to their carbon intensity.

Trump and Republicans are yet to say whether they will move forward with 45Z.

Sources say that some at the meeting, such as the National Association of Truck Stop Operators (NATSO), supported a return to blenders tax credit. Others wanted to support a new 45Z credit.

One attendee said, "There was no consensus except for a consensus that we should keep talking."

According to Hupman, the discussions marked a new stage of cooperation between Farm Belt and Big Oil.

He said that the gap between industries has widened over the past few years, as major refiners such as Marathon Petroleum and Valero invested in biofuel production.

Hupman said that "Our companies have evolved along with the fuels industry." We have realized that the RFS will be around for a long time and want to ensure it works as intended. (Reporting and editing by Richard Chang; Jarrett Renshaw)

(source: Reuters)