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Trump administration asks Big Oil and Farm Belt to come to

a

consensus on biofuel policy

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Two meetings held so far, with consensus to seek higher

biomass-based diesel volumes

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Other key issues still under discussion

By Jarrett Renshaw

NEW YORK, March 27 (Reuters) -

U.S. President Donald Trump's administration has asked oil

and biofuels producers to hash out a deal on the next phase of

the nation's biofuels policy to avoid the kind of political

clashes that marked his first term, according to four people

familiar with the matter.

Big Oil and the Farm Belt's biofuels makers are traditional

competitors for share in the multibillion-dollar U.S. gasoline

market. They have repeatedly fought over details of the U.S.

Renewable Fuel Standard, a program that requires billions of

gallons of corn-based ethanol and other biofuels to be blended

into the country's fuel supply.

The White House directive has already yielded at least two

bilateral meetings, including one hosted last week by the

American Petroleum Institute, said the sources, who include Will

Hupman, API's vice president of downstream policy, and three

others who asked not to be named.

At that meeting, representatives discussed issues like the

size of future mandated biofuel blending volumes, exemptions for

small refiners, and biofuel tax policy, Hupman and the other

sources said.

Any agreement reached between the two powerful industries

could be adopted by the Trump administration.

"It makes it easier for (the Trump administration) to arrive

at whatever number they arrive at if they are hearing from

groups that have historically been at the opposite sides of

this," said Hupman.

BLENDING VOLUMES AND WAIVERS

Among the most important issues discussed, the U.S.

Environmental Protection Agency is preparing new blending

mandates under the RFS that will govern volumes for the next two

to three years, along with the program's multibillion-dollar

compliance credit market.

Three of the sources said the group has already agreed in

principle to ask that the EPA significantly raise the mandate

for renewable diesel and biodiesel from its current level of

3.35 billion gallons, which the biofuel industry says is far

below production capacity.

The range discussed was between 4.75 billion and 5.5 billion

gallons, with some wanting higher volumes in 2026 and others

pushing for a more gradual rise, the three sources said.

Blending mandates for ethanol, meanwhile, have capped out at

15 billion gallons, and the parties saw little growth prospect

due to plateauing demand for gasoline, the sources said.

The groups were also split over small refinery exemptions to

the RFS, one of the most controversial and divisive issues, the

sources said.

In Trump's first administration, the EPA approved a record

number of such exemptions, letting small refiners sidestep their

blending obligations, and triggering political backlash from his

Republican allies in the Farm Belt who said it punished farmers.

Former President Joe Biden sought to do away with the

exemptions, triggering legal challenges that reached the U.S.

Supreme Court earlier this month. Several exemption requests are

pending before the EPA.

The groups were split over whether the administration should

force other refiners to make up for any exempted blending

volumes, a position opposed by the U.S. refining industry, the

sources said.

Another crucial issue discussed at last week's meeting was

the fate of a new tax credit created for biomass-based diesel

under the Biden administration but was not finalized. The

program, known as 45Z, replaced a flat $1 per gallon blenders

credit and instead rewards producers based on the carbon

intensity of their fuels.

Trump and Republicans have not said whether they would move

forward with 45Z.

Some at the meeting, including the National Association of

Truck Stop Operators, or NATSO, backed a return to the blenders

credit while others wanted to support the new 45Z tax credit,

according to the sources.

"There was no consensus other than a consensus to keep

talking," said one attendee.

The discussions marked a new phase of cooperation between

the Farm Belt and Big Oil, according to Hupman.

He said the divide between the industries has softened in

recent years as major refiners like Marathon Petroleum ( MPC ) and

Valero have invested in biofuels production.

"Our companies have evolved as the fuels landscape has

evolved," said Hupman. "We have a realization that the RFS is

here to stay and we want to make sure it functions as

efficiently as intended."