OREANDA-NEWS. October 02, 2017. US independent refiners seized on protectionist themes and two key biofuel industry victories this year to argue regulators must reduce federally mandated blending of renewable fuels.

Refiners framed a US-first pitch to slash more than 1bn USG — almost 7pc — of total proposed biofuel mandates in comments submitted to regulators last month. The arguments combined President Donald Trump's protectionist campaign pledges with National Biodiesel Board arguments against Argentinean and Indonesian imports and an appellate court's instructions requested by renewable fuel groups on how the Environmental Protection Agency (EPA) should define the US supply of renewable fuels.

Those ideas appeared early this week in an EPA notice contemplating cuts to next year's mandates to account for the biodiesel trade case. The agency was also taking comment on whether to allow exports of US renewable fuels to generate credits needed to comply with the mandates, a spokesman said yesterday.

The combination could increase supply for those credits, called renewable identification numbers (RINs), while slashing demands. RIN prices fell by almost 20pc over four days of trading this week.

The Renewable Fuel Standard requires transportation fuel refiners, importers and certain other companies to each year ensure minimum volumes of renewable fuels enter the US gasoline and diesel supplies. EPA issues requirements for cellulosic, biodiesel, advanced and total biofuels. Obligated parties prove compliance by buying or collecting RINs representing each blended gallon.

The agency in July proposed a total requirement of 19.24bn USG of biofuels, and for the first time reduced advanced biofuel requirements because of a lack of cellulosic fuel.

Merchant refiners, which do not operate upstream, retail or fuel blending businesses vital to the program, sought more sweeping reductions to the mandates — something the industry does every year. But refiners for the first time zeroed in on the role of imported fuels in meeting the standard in an appeal to Trump declarations of support for US producers of those fuels.

Obligated parties need imported renewable fuels, especially biodiesel and renewable diesel, to satisfy their requirements. Using the Renewable Fuel Standard (RFS) as a barrier to imports could trigger international trade cases and increase costs for companies needing to comply with the program by depriving supply.

But limiting the "domestic supply" EPA considers when setting mandates each year to US-produced fuels would drop blending requirements without overtly harming producers Trump repeatedly pledged to support. Excising imported fuel would reduce "domestic supply" by roughly 1.3bn RINs.

"We believe that the intent of Congress when the statute was passed was to decrease the dependence of the United States on imported crude oil and fuels," Marathon Petroleum vice president of supply Michael Palmer said in submitted comments. "Inclusion of imported volumes of biofuels when setting the yearly obligations violates this premise of the statute."

EPA confirmed it could also, for the first time, allow US-produced biofuels exported for use as fuel overseas to generate RINs, a change that could add at least 800mn RINs based on exports so far this year.

The combination shifts focus to domestic biofuel production and away from past refining industry complaints about feasible US consumption. But the effect would leave domestic and foreign producers competing for smaller mandated shares of the US fuel market. Prices for RINs, conceived in part to encourage US biofuel blending, would continue to fall under shrinking demand and rising supply.

Renewable fuels groups seeking to expand market share both domestically and abroad quickly denounced the focus on domestic production this week. Congress intended the US to use more renewable fuels, not merely produce them, the industry argued. The refiner proposals both harmed domestic producers and risked the ire of the World Trade Organization, warned Bob Dinneen, chief executive of the Renewable Fuels Association.

"Rather, all this would do is artificially increase the RINs available for compliance purposes and discourage investment in the infrastructure and technology to continue to grow the market," Dinneen said.

Refiners including Valero, PBF Energy, CVR Refining and Monroe Energy cited instructions from the District of Columbia Court of Appeals that EPA must only consider the renewable fuels available in the US when defining supply for the purpose of the program. The court included imported biofuels as an example of that supply and rejected an EPA attempt to match supply to what the US fuel system could reasonably distribute and customers could consume.