Lawmakers Draft Fuel Rules in Possible Hit to Some Refiners

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(Bloomberg) — US lawmakers are preparing to advance a plan that promises to expand the market for corn-based ethanol while scaling back exemptions for oil refineries that don’t use enough of it.

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The legislation seeks to tackle two issues, allowing year-round nationwide sales of higher-ethanol E15 gasoline, while also limiting what small refineries qualify for exemptions from annual biofuel-blending standards, according to a draft seen by Bloomberg.

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The move comes as both the oil and agriculture sectors have been anxiously awaiting the Trump administration’s finalization of biofuel-blending quotas, which have been delayed, leaving uncertainty over how companies will be impacted.

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An Environmental Protection Agency proposal last year would reallocate biofuel-blending quotas, effectively shifting waived requirements from exempted refiners to others that hadn’t won the relief. Separately, pollution limits have long curbed summertime sales of higher-ethanol E15 gasoline, a benefit for some oil refiners that comes at the expense of corn and ethanol producers. 

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The legislation aims to address both issues at once. Lawmakers working on the proposal include senators from top corn producing states, according to people familiar with the matter. Supporters are working to tack the measure on to must-pass spending legislation that could advance within weeks, the people said.

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Existing federal law allows small refineries to be granted exemptions from annual biofuel-blending mandates if they demonstrate “disproportionate economic hardship.” 

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However, the draft proposal would limit exemption only to companies that process fewer than 75,000 barrels of crude oil a day across all their facilities. The current requirement extends eligibility to refineries processing 75,000 barrels per day or less — no matter the parent company’s size. It would also prohibit reallocation, where bigger refineries are forced to compensate for the waivers given to smaller facilities, like the EPA has already proposed.

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The upshot is that only a few companies — the smallest — would benefit, cutting out firms like Cenovus Energy Inc., Delek US Holdings Inc. and others that have received waivers in the past. 

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“The current proposal unfortunately harms small refineries, which are economic engines in their communities, providing transportation fuels, asphalt and other products to American consumers while delivering high-paying jobs and supporting local business,” Eric Zimpfer, head of downstream at Cenovus Energy, said in an emailed statement.

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Critics of the exemption program say it has allowed some large companies to unfairly receive waivers for small facilities — even when they don’t need them to be financially viable.

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The attorneys general of Iowa and Nebraska co-wrote a letter in October to the EPA, the US attorney general, the energy secretary and the chairman of the SEC, calling into question the integrity of the Renewable Fuel Standard program, which sets blending mandates for biofuels. The letter said companies with strong financial performance are using the program for further financial gain, rather than to help keep them afloat.