Stephanie Kelly and Jarrett Renshaw

(Reuters) – The Biden administration is considering lowering the 2022 ethanol blending mandate below the proposed 15 billion gallons amid backlash from the oil refining lobby and unions arguing the shrinking U.S. ethanol industry can no longer support the target, according to two sources familiar with the administration’s thinking.

U.S. President Joe Biden vowed to bring some normalcy back to laws requiring refiners to blend biofuels like corn-based ethanol into the nation’s gasoline pool after his predecessor, Donald Trump, took unprecedented steps to relieve refiners from the requirement.

Biden, however, is having trouble living up to the promise. A few ethanol plant shut-downs have resulted from the COVID-19 pandemic, which has lowered fuel consumption. Refiners are threatening to shut down refineries as a result of higher regulatory costs. They also plan on laying off union workers who earn high wages.

December saw the Environmental Protection Agency issue a much-anticipated biofuel blend mandate proposal. This proposed cut 2020 and 2021 ethanol requirements, while restoring them to 2022’s 15 billion gallons. Although criticised by biofuel producers and farmers, the rollbacks have been welcomed.

According to two sources, officials in administration have been discussing the possibility of lowering the 15-billion gallon limit when the final rule will be issued later this year.

The administration had initially planned to set the 2022 ethanol mandate at 14.1 billion gallons, Reuters previously reported https://www.reuters.com/business/energy/exclusive-us-epa-considering-cuts-biofuel-blending-obligations-2020-2021-2022-2021-09-22, but went with 15 billion gallons under pressure from Farm-Belt Democrats like Senator Tammy Duckworth of Illinois.

“The White House is caught between a rock and a hard place. On one hand, they want to support the agricultural and biofuel industry, but they have been bombarded by unions and refiners who say there’s not enough ethanol and they are listening,” said one of the sources familiar with the discussions.

The EPA did not respond to our request for comment.

The Renewable Fuel Standard requires that refiners either mix biofuels such as ethanol in their fuel pool, or purchase tradable credit, also known as RINs from other refiners. PBF Energy (NYSE) and Monroe Energy are long complaining that their plants may be threatened by the high cost of RINs.

Although RIN prices were initially lower after the mandates for 2020 and 2021 were cut, these have now rebounded. From around 80 cents in December, the mandates had been announced and RINs now trade at around $1.27 each.

Mike Burnside, Policy Analyst at the American Fuel & Petrochemical Manufacturers, a leading refining trade group, told the EPA during a hearing on the blending mandate proposal that its 2022 targets are out of step with demand.

Burnside stated that EIA (the Energy Information Administration), projects that gasoline consumption will fall below 2019 demand in 2022. Therefore, it would be unreasonable to suggest 15 billion gallons of conventional biofuel for 2022. It is as though the pandemic has never occurred and everything is normal.

ETHANOL PLANTATIONS SHUT

In the United States, ethanol production has experienced a lot of closures in recent years. The industry also had to cope with the reduced demand for fuel due to the pandemic coronavirus. EIA data shows that the number of U.S.ethanol plants was 197 at 2021’s beginning, compared to 201 one year prior.

Some companies that produce ethanol have stopped producing the corn-based fuel.

A company that was once known as Pacific Ethanol (NASDAQ:) Inc stated that it will change its name in 2020 to better reflect the company’s focus on specialty alcohols for beverages and sanitizers, rather than fuel. Alto Ingredients Inc.

Ed Hirs of the University of Houston, who teaches energy economy at the University of Houston, said that “I don’t see anybody running to invest more.”

However, the ethanol sector still enjoyed better margins and higher production during the second half of 2021.

Refinitiv Eikon data revealed that November saw margins for ethanol production in the Corn Belt rise to $1.82 per gallon. This was the highest level since 2014. They are now at 37 cents per gallons.

The EIA reported that U.S. ethanol production increased to their highest point since 2017 in October.