Analysis: White House weighs inflation, farmers in new biofuel mandate

May 16 (Reuters) – The White House is expected to announce in the coming weeks the amount of biofuels such as corn ethanol that U.S. refiners must blend in fuel this year, a decision that will force the White House to fight consumer inflation and support the economy. There are trade-offs between growth. farmers of the country.

How the administration balances competing priorities could come into play in November’s midterm elections, as high consumer prices pose a political threat to President Joe Biden’s Democratic Party and voters in the Farm Strip remain a vital constituency.

The White House National Economic Council, led by Brian Deese, is collecting a slew of data to assess whether lower blending requirements for ethanol and renewable diesel could help curb food and fuel, according to two sources familiar with the process. Price increased.

In theory, cutting authorizations for advanced biofuels like ethanol and biodiesel could lower food costs by reducing demand for corn, soybeans and other staple crops that have become more scarce since Russia invaded Ukraine. The cuts could also ease pressure on oil prices by reducing blending compliance costs for some refiners.

But doing so would anger farmers and the biofuel industry, whose insistence that the annual blending mission is crucial to supporting their livelihoods.

White House officials are meeting with lobby groups representing oil and consumer goods giants, including the Food Manufacturing Alliance, the American Bakers Association, the American Petroleum Institute and the Renewable Fuels Association, as they weigh possible changes.

“Never in the program’s history have I seen so many issues that could affect the outcome. If there was a perfect storm, this is it,” said Michael McAdams, president of the Advanced Biofuels Association.

The Environmental Protection Agency submitted its proposal for a 2020-2022 biofuel quantity authorization to the White House for final review in late April. The proposal would retroactively reduce mandates for 2020 and 2021, but raise them again in 2022, three sources told Reuters. The EPA declined to comment.

Ethanol and high oil prices

The U.S. Renewable Fuels Standard, enacted in 2005, requires refiners to blend biofuels such as ethanol into fuel pools or to purchase credits from refiners that do so. The program has brought economic benefits to states like Iowa and Nebraska, but small refiners that have not yet invested in blending facilities say the cost of buying credit threatens their plants.

U.S. ethanol-related credits traded at more than $1.60 per transaction, the highest since August, while biomass-based credits traded at more than $1.80 per transaction, near the highest level since June. Ethanol credits traded as low as 8 cents in early 2020 and have remained at historically high levels since last year.

Economists said some of the cost of credit was passed on to consumers, leading to higher oil prices. Some refiners and their union supporters are encouraging the White House to reduce ethanol emissions to below 15 billion gallons by 2022 to reduce the cost of credit.

However, without the cost of compliance credits, adding ethanol to the nation’s fuel pool could actually lower the price at the pump by expanding the total amount of fuel available by using something cheaper than pure gasoline.

Earlier this year, the White House capitalized on this dynamic by announcing the lifting of a summer ban on the sale of high-ethanol gasoline blends, known as E15.

food and fuel

Corn-based ethanol accounts for the vast majority of blends under RFS. In 2022, the EPA proposal would require refiners to blend 15 billion gallons of ethanol and 5.77 billion gallons of advanced biofuels.

While ethanol demand has been stagnant in recent years, demand for advanced biofuels such as renewable diesel and sustainable jet fuel has surged as states such as California and Oregon adopted their own renewable fuel mandates. This has increased demand for oilseeds such as soybeans and rapeseed, which can be used as biofuel feedstocks and compete with other food crops for limited acreage.

Edible oils are used in everything from cakes, chocolate and frying oils to cosmetics, soaps and cleaning products.

Robb MacKie, president of the American Bakers Association, which includes companies such as Kroger Co. (KR.N) and Tasty Baking Company first raised concerns about the availability and prices of these products with the EPA last year, asking for a rollback of blending levels to 2020 levels.

Then Russia invaded Ukraine in February, making the problem worse.

Russia and Ukraine account for nearly one-third of global wheat and barley production and two-thirds of exports of sunflower oil for cooking. In addition, Indonesia recently banned the export of palm oil, cutting off more than half of the world’s supply.

Soybean futures have risen more than 20% so far this year to more than $16 a bushel, while corn futures have risen about 30% to more than $7.90 a bushel.

“The alarm bells are ringing, given what we’re going through,” McKee said.

Reporting by Jarrett Renshaw and Stephanie Kelly; Editing by Heather Timmons, Richard Valdmanis and Marguerita Choy

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