Thu Oct 31, 2013 7:00am EDT
By Cezary Podkul
NEW YORK Oct 30 (Reuters) - Biofuel and oil industry lobbyists have raced to the White House over the past two weeks in a last-ditch effort to sway controversial ethanol blending rules for next year, fueling talk of that a decision may be just a few weeks away.
The White House has hosted at least 17 meetings related to the rules since October 21, after the federal government reopened for business following a shutdown. Some 84 industry executives and lobbyists have visited, with about 70 percent of the attendees representing biofuel interests, a Reuters review of meeting records shows.
Participants in the meetings say Obama administration officials who are vetting the proposed renewable fuel rules have given no indication of which way they are leaning. But privately, some observers privy to the proceedings say the White House will likely support a leaked Environmental Protection Agency (EPA) proposal that would dramatically lower ethanol blending volumes
Both sides of the fiercely contested issue are hoping the agency will heed their warnings before making a final decision. The White House Office of Management and Budget (OMB) must vet the proposed rules and confer with other agencies before returning them to the EPA, so they could yet be changed during that process. The EPA must then release the draft rules publicly before finalizing them.
Although that date is likely months away, the leak of the EPA's draft proposal has complicated the matter, in effect giving an early, unexpected start for public comments.
The EPA document proposed backtracking on the so-called Renewable Fuel Standard, or RFS, by cutting the 2014 quota of corn-based ethanol fuel used in gasoline to 13 billion gallons, versus the 14.4 billion called for in the 2007 RFS law. The move set off a storm of criticism from biofuel backers.
"We said . . . 'it would be a capitulation to the oil industry' if the corn ethanol figure is lowered," said Roger Johnson, president of the National Farmers Union, who discussed the rules with the White House OMB last Friday.
Johnson said OMB officials gave nothing away. "They didn't say anything. They didn't even confirm that stuff that is being reported even is being considered," he said.
Yet some Washington insiders say the EPA's proposal seems likely to stand. In setting quotas for 2013, the agency had already hinted that refiners and blenders were reaching a limit in how much ethanol they can mix into the gasoline pool.
"It's pretty clear the stars are aligning for the EPA to make a major revision in how it implements the RFS," said Bob McNally, White House energy adviser to former President George W. Bush, who championed the 2007 law.
A spokesman for the OMB declined to comment. A spokeswoman for the EPA did not return a request for comment.
FARMERS VS. DRIVERS
The debate over mixing home-grown biofuels into the U.S. fuel supply has raged for years. But it is reaching a fever pitch this year as oil refiners say they can not inject more than the traditional 10 percent ethanol into gasoline without risking damage to most car engines on the road today.
After ethanol credits used to meet ethanol blending quotas spiked in price earlier this year due to fears of a shortage, the oil industry stepped up its argument that injecting more biofuels will drive up gasoline prices.
The politically potent message has resonated in Washington. In its leaked draft proposal, the EPA called refiners' 10 percent blending limitation an "important reality."
"I think they realized that there's a problem," said Charles Drevna, president of the American Fuel and Petrochemical Manufacturers, which represents oil refiners.
To drive the point home, refinery operators Philadelphia Energy Solutions, CVR Refining and PBF Energy, who collectively refine about 1 million barrels-per-day (bpd) of oil, met with the OMB last Tuesday, a meeting record shows.
They were joined by Delta Airlines, which owns a 185,000 bpd refinery in Pennsylvania that can not blend any biofuels with its fuel output. That puts the airline on the hook to buy credits to make up its blending shortfall -- at a cost of $66 million for the past two quarters, filings show.
Since the EPA proposal leak, ethanol blending credits deepened a months-long slide, falling to their lowest since late January after peaking at nearly $1.45 this July. They traded at 25 cents each on Wednesday.
'GUTTING' THE LAW
On the other side, biofuel groups that have billions at stake in the outcome of the rules say the EPA has no right to change the 2007 law, which has turned ethanol into a cottage industry across much of the U.S. corn-producing states, boosting incomes and creating jobs in rural areas.
Jeff Lautt, chief executive of South Dakota-based POET, one of the world's largest ethanol producers, warns that EPA's leaked proposal could push corn prices down by $1 a bushel or more.
"You would be sitting on the heels of a potential farm crisis," Lautt said. "It would be gutting the pure, core intention of the RFS."
POET made its point to the OMB in a meeting last Thursday. Other pro-biofuel groups, including the Advanced Ethanol Council, Renewable Fuels Association, Growth Energy and the Biotechnology Industry Organization also made their case to the OMB last week, according to records of the meetings.
At least three more meetings by biofuel backers took place this week, records show, and OMB will continue to schedule meetings in response to requests while it is still reviewing the EPA's rule. Anyone can request a meeting by submitting a simple request via the OMB website.
Judging by the flood of interest, the administration is likely to be equally busy once the rule is finalized.
"I guarantee you if there's this many people going there, this is going to end up in court," said one participant who declined to be named so he could speak freely about the meeting.
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