U.S. EPA proposes higher biofuel blending volumes, EV program

(Reuters) - The U.S. Environmental Protection Agency proposed increases in the amount of ethanol and other biofuels oil refiners must blend into their fuel over the next three years.

The agency is also proposing incorporating electricity made from renewable biomass and used for electric vehicle into the program for the first time.

The agency's long-awaited proposal will call for overall blending mandates of 20.82 B gallons in 2023, 21.87 B gallons in 2024 and 22.68 B gallons in 2025.

In a win for the ethanol industry, volumes of conventional biofuels like corn-based ethanol will be set at 15 B gallons or higher - specifically 15 B in 2023 and 15.25 B each in 2024 and 2025. There will be a supplemental 250 MM gallons added in 2023 to compensate for volumes that were not blended in previous years.

The biofuel industry has also gotten a boost from the Inflation Reduction Act, which was passed by Democrats in August and provides significant subsidies to the biodiesel and sustainable jet fuel industries in the form of lucrative tax credits to encourage production. Refiners like Marathon Petroleum Corp and PBF Energy Inc have converted units at their refineries to produce renewable diesel to take advantage of growing demand and government subsidies.

The Biden administration is boosting federal biofuel mandates in a bet that the IRA bill will spur additional production.

Reuters previously reported the volumes on Wednesday, citing sources.

Under the Renewable Fuel Standard (RFS), oil refiners are required to blend billions of gallons of biofuels into the nation's fuel mix, or buy tradeable credits from those that do.

While Congress set out specific goals through 2022, the law expands the EPA's authority for 2023 and beyond to change the way the RFS is administered. Starting next year, the agency has leeway to set multi-year mandates and make other changes.

The EPA's biofuel mandate for the current year is 20.88 B gallons, which includes the annual volume requirement plus a supplement of 250 million gallons.

Advanced biofuel blending volume mandates in the EPA proposal will be set at 5.82 B gallons in 2023, 6.62 B gallons in 2024 and 7.43 B gallons in 2025.

So-called D3 credit volumes will grow from 720 MM in 2023 to 2.13 B by 2025.

The Renewable Fuels Association, a biofuels trade group, welcomed the proposal.

"By including three years' worth of RFS volumes, EPA's proposed rule will finally provide certainty and stability for the entire supply chain," RFA President and CEO Geoff Cooper said. "EPA's proposed rule solidifies a role for the Renewable Fuel Standard in future efforts to reduce carbon emissions and enhance our nation's energy security."

Renewable fuel credits traded on Thursday between $1.65 and $1.70 each, down from as high as $1.84 the previous session, traders said.

(Reporting by Stephanie Kelly and Jarrett Renshaw; Editing by Chizu Nomiyama and Mark Porter)

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