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EPA hikes US biofuel mandates in final rule

EPA surprised US biofuel traders with higher-than-expected binding blend obligations in its years-awaited finalized RVO mandates on Friday, hiking the stock prices of renewable fuel producers into the bargain. Total US biofuel consumption is now set to expand 11.2% next year across all renewable fuel categories relative to finalized 2014 requirements, although the final blend at the end of next year will still lag the 18.15bn gal originally written into the Clean Air Act for 2014 before EPA’s November 2013 proposal lopped nearly 3bn gal from the original target.

The final rule confirms hiked retroactive and forward looking biofuel blends from 2014 through 2016, with next year’s blend of biofuels up a particularly strong 10.4% across for all nested RIN categories at 18.11bn gal compared to the original May proposal of a 17.4bn gal blend. Across all three years covered by the final rule obligated biofuel consumption has been hiked by 1.69bn gal.

The higher mandates have pushed back 2015 compliance efforts across all nested RIN categories except D5, leaving corn ethanol producers the biggest winners relative to May’s proposal. D6 corn ethanol blending has received a 360mn gal retroactive boost for 2014, a 650mn gal lift for this year and another 500mn gal hike for 2016.

D4 biodiesel mandates meanwhile are relatively flat except for a 100mn gal lift for 2016. But next year’s 6% D5 hike after a slightly shrunken 2015 requirement signals better news for biodiesel producers. The 3.61bn gal of advanced biofuel which blenders will require next year compared to EPA’s May proposal for a 3.4bn gal blend only deepens supply chasm which biodiesel producers will be asked to fill using D5 fungible D4 RINs surplus to requirements in their own nested EPA category. D5 generators lagged final rule retirement requirements by some 25% in 2014. D5 producers had generated just 63.4% of the category’s finalized RIN requirement in 2015 through the end of October, compared to RIN generation rates of over 80% relative to requirements in the D4 and D6 RIN categories without any carryovers included in the calculations.

Tight Brazilian availability of sugar cane ethanol until the new crop starts to replenish production deep into the first half of next year will increase the D5 supply opportunity open to biodiesel producers. Any immediate shift from a $1/gal blenders’ credit to a producers’ credit as proposed this summer by US lawmakers would shift the advantage wholly to US biodiesel producers as sizeable inflows of Argentinian biodiesel and Singaporean renewable diesel struggle to compete with domestic incumbents’ tax advantage.

EPA gave a nod to the start of COP21 climate change negotiations in Paris in its statements surrounding the final rule.

“The final RFS is an important part of the Obama Administration’s strategy to take action on climate change by propelling the US toward a clean energy future,” EPA said in a statement. President Obama said earlier on Monday that the US is “committed” to tackling climate change.

“With today’s final rule, and as Congress intended, EPA is establishing volumes that go beyond historic levels and grow the amount of biofuel in the market over time. Our standards provide for ambitious, achievable growth,” said acting assistant administrator for EPA’s office of air and radiation.

MS – 30/11/2015

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