WASHINGTON (Reuters) - Corn ethanol would get a larger share of the U.S. gasoline market under a government proposal on Thursday while ranchers, environmentalists and the oil industry aim to kill the renewable fuels mandate altogether.
The Obama administration proposed a 9 percent increase in the so-called renewable fuels standard from 2012, in line with a 2007 law. Half of the 1.35 billion-gallon increase would go to corn ethanol and half to "advanced" biofuels that produce half the greenhouse gases of first-generation ethanol.
Overall, biofuels would be allotted 16.5 billion gallons of the fuel market for cars and light trucks. The mandate reaches 36 billion gallons in 2022, with half of the mandate going to new-generation biofuels.
Last fall, the administration denied a request from several governors from livestock and oil-producing states for a partial or total waiver of the requirement to use ethanol. Corn prices soared during the drought as ethanol makers, livestock producers, and grain exporters competed for a smaller supply.
"We're girding for a fight," said Bob Dinneen of the ethanol trade group Renewable Fuels Association. He said a campaign against the biofuel mandate already was under way.
There will be a 45-day comment period on the latest proposal after which the Environmental Protection Agency will issue a final ruling.
As part of its proposal, the EPA put the mandate for advanced biofuels at 2.75 billion gallons, including 14 million gallons of cellulosic biofuels, made from grass, shrub and trees.
The cellulosic target "is a reasonable representation of expected production," EPA said was in line with an appellate court decision last week that ruled against an unrealistically high production target.
EPA set its biodiesel target for this year at 1.28 billion gallons in an earlier, separate action.
Traders said Brazilian ethanol, made from sugar cane, and domestic biodiesel would compete to fill the advanced biofuels mandate. Biodiesel counts as an advanced biofuel.
In addition, EPA proposed a new voluntary program to assure the validity of Renewable Identification Numbers, known as RINs. Fuel companies can use RINs, each representing a gallon of biofuel, to meet the renewable fuel mandate.
Fraudulent RINs have been a problem in the biodiesel industry. EPA said it worked with the biofuels industry in developing its RINs proposal.
U.S. ethanol production fell during the second half of 2012 in the face of high corn prices, the drought-shortened crop and weaker demand for gasoline, the Energy Department said on Thursday. And ethanol prices in 2012 were down 8 percent from 2011's average.
The slump continued into this year. Ethanol production in the week ending on January 25 was the lowest in two years and the four-week average pointed to ethanol production of 12.2 billion gallons this year, far below the mandate of 13.6 billion gallons.
"There's not a market. We're trying to build demand," said Dinneen of the RFA.
Three dozen ethanol plants, with 15 percent of industry capacity, were closed as of Tuesday. Analysts said comparatively low demand for gasoline meant limited demand for ethanol too.
Ethanol is a farm-state favorite, where it is embraced as a home-grown antidote for oil imports and a job-creating industry for rural America. About 40 percent of the corn crop is used in distilling ethanol.
Foes ranging from environmentalists to livestock producers and the oil industry want to end the mandate. They say it encourages soil erosion and pesticide runoff from farms and, by driving up the cost of livestock feed, affects beef, pork and chicken meat prices in grocery stores.
Reporting by Charles Abbott; Editing by Bob Burgdorfer