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By Ayesha Rascoe and Patrick Rucker
WASHINGTON (Reuters) - With Congress split over the future of the U.S. biofuel mandate, the head of a powerful lobbying group working to dismantle the policy said on Tuesday he was willing to consider legislative options beyond a simple repeal of the law.
Jack Gerard, chief executive of the oil and gas lobbyists the American Petroleum Institute, said he believes lawmakers will act to lower biofuel use targets and added that API would weigh support for any pathway to reform.
The comments may signal a greater openness on the part of the API to try to reform the law, rather than scrap it entirely.
"We're happy to entertain any proposals that anybody wants to put forward and we'll come forward with some of our own," Gerard told Reuters in an interview.
In a wide-ranging discussion, Gerard also warned that the United States risks damaging its relationship with Canada because of the delay - now into its sixth year - in approving the Keystone XL pipeline from Alberta to the Gulf of Mexico.
API has been a leading opponent of the Renewable Fuel Standard, which calls for increasing amounts of biofuels to be blended into U.S. gasoline and diesel supplies.
Gerard did not specify what legislative proposals the group might put forward. A waiver request the group has already made would cap 2014 targets at 9.7 percent of the government's projected U.S. gasoline demand for the year.
Calling the biofuel statute "fundamentally flawed," the group has warned repeatedly that the targets outlined in the law are reaching a point when ethanol would have to be blended into gasoline at levels beyond the 10 percent level that dominates U.S. fueling infrastructure.
To avoid breaking through this so-called "blend wall" refiners will need to either cut back on production or export more fuel, leading to possible fuel shortages and higher prices at the pump, oil companies contend.
While still pressing for repeal, Gerard said he would be willing to work with anyone serious about "fixing" the law. Lawmakers on the House Energy and Commerce Committee have been weighing possible reforms. The law was last updated in 2007.
The issue has split lawmakers mostly along regional lines, with lawmakers from oil producing states backing repeal and those from corn growing regions reluctant to change the law.
Given that lawmakers on the House panel have said there is not enough support to completely overturn the law.
Last week a key congressman also cast doubt on whether legislation would be needed at all if the Environmental Protection Agency, which administers the mandate, lowers the targets for 2014, as it has hinted it will.
The White House's Office of Management and Budget is currently reviewing the agency's 2014 biofuel use proposal.
Gerard said he hopes the 2014 proposal will be released to the public within the next 30 days to help avoid the months-long delays that plagued the renewable fuel program for 2013.
RINS A SYMPTOM, NOT CURE
The approaching blend wall has roiled the market for biofuel credits that refiners use to comply with the mandate. Prices of the credits, known as RINs, spiked from a few cents in January to almost $1.50 in July. The credits were trading between 51 and 53 cents on Tuesday.
Senate Agriculture Committee chairwoman Debbie Stabenow on Tuesday asked the Commodity Futures Trading Commission to investigate whether any market manipulation was behind the spike in RIN prices this year.
Describing the RIN market as an "outgrowth of flawed policy," Gerard said lawmakers should not focus on the RIN market without addressing the overall mandate.
"It's a little like putting a band aid on cancer," Gerard said. "We believe we need to eradicate the cancer and that's the Renewable Fuel Standard."
KEYSTONE DAMAGING RELATIONS
Gerard also touched upon the fight over the Keystone pipeline, which would connect Canada's oil sands crude to U.S. Gulf Coast refiners.
Facing intense environmental opposition, the project has bounced around in regulatory and legislative limbo in the United States for five years and counting.
A major supporter of the pipeline, Gerard said the delay in approving the deal was damaging U.S. relations with Canada. He said Canadian officials were not only anxious, but "irritated" that the process has taken so long.
"It hurts the United States to continue to treat a partner the way we've treated Canada on the Keystone pipeline," Gerard said. "There are impacts and consequences to the bilateral relationship depending on how this issue comes out."
(Additional reporting by Timothy Gardner in Washington and Sabina Zawadzki in New York; editing by Ros Krasny and Andrew Hay)