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EPA proposal reduces tradable credits for imported

biofuels

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Oil industry warns of higher fuel costs, questions

proposal's

legality

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Proposal impacts bio-based diesel reliant on imports

By Stephanie Kelly and Jarrett Renshaw

NEW YORK, Aug 14 (Reuters) - A top U.S. oil trade group

on Thursday joined a chorus of complaints against a new

government proposal to slash incentives for biofuel imports,

testing the Trump administration's resolve to keep the policy in

the upcoming months.

The mounting criticism puts the White House in the position

of having to side with either farmers looking to prioritize

domestic supply, or refiners seeking cheaper feedstock - both

groups loyal to President Donald Trump.

At issue is a proposal from the Environmental Protection

Agency in June that would allocate only half as many tradable

renewable fuel credits to imported biofuels and biofuel

feedstocks as to domestic ones.

The shift, which could be finalized before the year's end,

has significant implications for bio-based diesel, which relies

on imports to meet federal mandates.

The U.S. Renewable Fuel Standard (RFS) requires refiners to

blend billions of gallons of biofuels into the fuel market, or

buy credits known as RINs from those that do to demonstrate

compliance with the program.

The Farm Belt, specifically soybean farmers, hailed the

proposed shift as a victory, arguing the RFS was always intended

to boost domestic production and that countries like China were

flooding the market with cheap supply.

But the oil industry argues the U.S. lacks enough feedstock

to meet the federal quotas without imports, tightening an

already stretched domestic market and driving prices higher.

"As proposed, it is unworkable and would have significant

harmful effects on the overall RFS program and could place

upward pressure on fuel costs," the American Petroleum Institute

said in a letter to the EPA on Thursday seen by Reuters, urging

the complete removal of the import proposal.

The API also questioned the legality of the proposal in

separate comments seen by Reuters, signaling the deep-pocketed

trade group could be prepared to go to court to challenge the

administration.

Refiners and farm groups were earlier this year unified on

bio-based diesel, with both arguing that federal quotas needed

to be higher. However, the shift on imports caught both

industries by surprise.

Even within trade groups, sentiment around the imports

proposal is divided.

"There is not consensus among our members on the proposal to

reduce the RIN value for fuels produced domestically from

foreign feedstock," Clean Fuels Alliance America, a biodiesel

group, said in comments submitted to the EPA.