Action by EPA on biofuels could head off legislation: lawmaker

By Ayesha Rascoe

WASHINGTON (Reuters) - As the United States gets closer to being unable to meet federal biofuel targets, a regulatory adjustment would lessen the need for legislation to change the nation's renewable fuel policy, said a lawmaker who is examining the future of the ethanol program.

Representative John Shimkus, a Republican from Illinois and head of a House Energy and Commerce subcommittee, said the timing and substance of the Environmental Protection Agency's 2014 biofuel proposal could make legislative reform of the Renewable Fuel Standard moot.

Shimkus said he expects a decision on whether legislation will be introduced to be reached by the year-end.

"If they were more realistic with the numbers, they could be really helpful," Shimkus told reporters on Tuesday at a Platts Energy Podium.

Shimkus is one of four Republicans designated by committee chairman Fred Upton to lead a push for possible legislative fixes for the biofuel mandate, which is unpopular with oil refiners and many legislators from oil-producing states.

The mandate was created by a 2005 comprehensive energy bill aimed at reducing the nation's oil dependence.

The White House's Office of Management and Budget is reviewing the agency's proposal for how much ethanol and other biofuels will need to be blended into the U.S. gasoline and diesel supplies in 2014.

The EPA has signaled it will propose cuts to 2014 requirements set by the federal law, in particular to address shortfalls in the production of advanced biofuels.

Last updated in 2007, the mandate requires increasing amounts of biofuels to be blended into U.S. gasoline and diesel supplies each year through 2022.

Tepid gasoline demand has placed the nation on the verge of hitting the so-called blend wall, the point at which the law will require the use of more ethanol than can be blended into gasoline supplies at the 10 percent per gallon level that now dominates U.S. fueling infrastructure.

Lawmakers have been weighing possible reforms to the renewable fuel law, which is administered by the EPA, as refiners complain that the targets are too high and could raise gasoline prices or even lead to a fuel shortage if left intact.

Biofuel backers have argued that the EPA has the authority to lower the federal targets to address these concerns and that no legislative action is needed. Oil industry groups have called for a complete repeal of the law.

From a district with both oil companies and corn growers, Shimkus has called for groups on both sides of the issue to work toward a compromise. But Shimkus said on Tuesday he has seen no movement toward a middle ground.

Shimkus and his colleagues have met with Upton and fellow energy and commerce subcommittee chairman Ed Whitfield of Kentucky, but no broad principles have been agreed to.

One area where Shimkus said he hoped lawmakers could find some agreement was adding more transparency to the opaque biofuel credit market.

To comply with the federal biofuel program, gasoline and diesel producers must acquire the credits, either by actually blending biofuels into petroleum products or buying them in the open market.

Anticipation that the blend wall will be hit sent prices for the credits, known as RINs, soaring from a few cents in January to almost $1.50 in July. The credits were trading at around 54.5 cents each on Tuesday.

"RINs are really an accounting process and now they've turned into a speculative market," Shimkus said.

(Reporting by Ayesha Rascoe; editing by Ros Krasny and Leslie Adler)