(Adds statement from American Petroleum Institute)
By Stephanie Kelly
NEW YORK, Oct 15 (Reuters) - The Trump administration, in an effort to mend fences with the powerful corn lobby, proposed a new formula on Tuesday to boost biofuels demand, but the proposal instead only provoked more consternation from the industry. Corn and soybean farmers have been angered by the U.S. Environmental Protection Agency's decision to greatly expand the number of exemptions given to smaller refiners from blending biofuels into the nation's gasoline pool. They argue the expansion undercuts demand.
In response, the Trump administration has been negotiating for several months to find a way to boost demand for biofuels to satisfy farmers and rural voters. However, the proposed rule, issued in a supplemental notice by the EPA, was met with harsh criticism because it bases the biofuels volumes required for blending on U.S. Energy Department estimates - rather than actual exemptions.
"Only 11 days after President Trump's landmark announcement, the EPA proposal reneges on the core principal of the deal," said Iowa Renewable Fuels Association Executive Director Monte Shaw. "Instead of standing by President Trump's transparent and accountable deal, EPA is proposing to use heretofore secret DOE recommendations that EPA doesn't have to follow."
The refining industry is required by law to blend ethanol and other biofuels into the nation's gasoline under the nation's Renewable Fuel Standard (RFS). As part of the RFS, EPA can exempt small refineries if they prove compliance would cause disproportionate economic hardship.
Facilities owned by oil majors Exxon Mobil Corp and Chevron Corp are among those to secure recent exemptions. Farmers who supported Trump heavily in his 2016 campaign have been frustrated with this, along with the ongoing U.S.-China trade war.
Trump promised in early October to boost demand for fuels like ethanol. During the negotiations, it appeared the biofuels industry had won a concession that would require refiners who are not exempt from the rules to blend the additional gallons of ethanol and other fuels that smaller facilities did not.
The proposed plan would calculate the volume of biofuels U.S. refiners have to blend by using a three-year average of exempted gallons as recommended by the Department of Energy, the Environmental Protection Agency said.
"The supplemental notice contains a never-before-discussed proposal to estimate small refinery exemptions, with no assurance that the estimate will come close to actual exemptions," the National Biodiesel Board said in a statement.
Oil companies were not happy either. They have consistently resisted measures to expand the biofuels market, which they view as a competitor. Refiners complain that the requirements under the RFS cost them greatly, and that having refiners make up for those who are granted exemptions would be an additional harm.
"There is simply no logic in forcing complying refineries to bear the burden of decisions outside of their control," said Frank Macchiarola, vice president of downstream and industry operations at industry group the American Petroleum Institute.
The EPA, in its supplemental notice, acknowledged there is uncertainty in projecting exempted volumes for 2020.
The plan would not change proposed volumes for 2020 and 2021, EPA said. In July, the EPA called for the refining industry to add 20.04 billion gallons of biofuels, including 15 billion gallons of ethanol, into fuel in 2020. (Reporting by Stephanie Kelly; Editing by Tom Brown and Lisa Shumaker)
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