US ethanol producers brace for biofuel mandate fight in Congress

Wed Apr 10, 2013 4:44pm EDT

* Ethanol advocates to meet with members of Congress

* Lawmakers introduce bill essentially ending ethanol mandate

* Trade group says refiner problems "self made"

By Ayesha Rascoe

WASHINGTON, April 10 (Reuters) - U.S. ethanol producers are taking their case for protecting the nation's biofuel mandate directly to lawmakers this week, as the latest Congressional push to revamp federal renewable fuel targets kicks off on Wednesday.

Growth Energy, a pro-ethanol trade group, said producers from Illinois, Colorado, Iowa and other Midwestern states would meet with their representatives in Congress to parry what they called a "desperate" attempt by oil companies to stamp out renewable fuel use.

They plan to reiterate to lawmakers their arguments that the ethanol mandate has helped to reduce U.S. dependence on foreign oil.

"When we educate policy makers, they get it," Growth Energy Chief Executive Tom Buis told reporters.

The clash over the future of the Renewable Fuel Standard, which requires rising volumes of biofuels - chiefly ethanol made from corn - to be blended into U.S. gasoline and diesel supplies, has intensified in recent weeks as refiners warned the mandate could push up costs at the pump.

REFORMING THE RFS

Congressman Bob Goodlatte of Virginia on Wednesday introduced legislation that would essentially eliminate the RFS in order, he said, "to help protect consumers, producers, and the American economy."

Goodlatte and fellow Republican Steve Womack of Arkansas was joined by Democrats Jim Costa of California and Peter Welch of Vermont and other lawmakers.

The legislation would eliminate corn-based ethanol targets, which make up the vast majority of the biofuel mandate. It would also cap the amount of ethanol that can be blended into gasoline at 10 percent, while requiring the government to set targets for cellulosic ethanol use at levels of actual production.

Refiners have been required to buy credits for cellulosic biofuels, made from sources such as grasses, wood chips and agricultural waste, even though the fuel has not been commercially available.

The lawmakers backing the bill said the renewable fuel mandate has raised corn prices, pushing up food prices and hurting livestock producers.

"The debate is over," Costa said at a press conference. "The RFS, as we know it, is not sustainable and it's not good for American long term energy needs."

Goodlatte said he believes support for changing the mandate is growing and that this effort may succeed where prior measures have stumbled.

ROCKY RIN MARKET

Prices for biofuel credits spiked earlier this year, rising from a penny a gallon in December to more than a dollar in March. Refiners are required to buy the credits, known as RINs, to comply with the federal mandate.

Oil companies blame the RIN price spike on slumping demand and other factors that have pushed refiners toward a point when the law will require the use of more ethanol than can be physically blended into the fuel supply at the 10 percent per gallon level they prefer.

Refiners refer to this problem as the "blend wall."

Ethanol supporters blame the credit cost volatility on refiners' opposition to allowing higher ethanol blends at the gasoline pump. "Any problems that the refiners are having with the blend wall are self made," Buis said.

The U.S. Environmental Protection Agency has authorized use of up to 15 percent ethanol in gasoline for cars built since the 2001 model year, or about two-thirds of vehicles on the road.

Refiners say the higher blend could damage older vehicles, and gasoline station operators and oil refiners have voiced concerns they could be held liable if engines are damaged.

The renewable fuel debate has divided lawmakers along regional lines, with lawmakers from grain producing states such as Iowa and Illinois strongly supporting the mandate.

So far, these lawmakers have been able to fend off attempts to pare down or rescind the fuel targets, including similar bills introduced by Goodlatte during the last Congress.

Buis expressed confidence that Congress would keep the mandate intact. "We think we have the support to stop this," Buis said. (Reporting by Ayesha Rascoe; editing by Ros Krasny and Phil Berlowitz)