By Chris Prentice, Jarrett Renshaw and David Shepardson
NEW YORK (Reuters) - The U.S. government on Wednesday proposed reducing the volumes of biofuel required to be used in gasoline and diesel in 2018, in a move that could mark the first step toward a broader overhaul to the controversial energy policy.
The U.S. Environmental Protection Agency (EPA) proposal marked a slight decline from current levels of biofuels required to be blended in gasoline and diesel and was over 20 percent below targets laid out in a 2007 law, the agency said in a statement.
The agency said it had begun preparations to reset future biofuel volume targets, a move likely to inflame tensions between the oil and corn industries.
The proposal marks the first plan for U.S. biofuels usage announced under President Donald Trump, who has promised to cut regulations on industry. The Renewable Fuel Standard (RFS) has become a battlefield between entrenched corn and oil interests. Petroleum companies say the biofuel targets are impossible to meet and add billions in costs. The law has been a boon to agriculture, supporting economies across the corn belt.
The plan would require companies to blend 19.24 billion gallons of renewable fuels in the country's fuel supply.
"We are proposing new volumes consistent with market realities focused on actual production and consumer demand while being cognizant of the challenges that exist in bringing advanced biofuels into the marketplace," EPA Administrator Scott Pruitt said in the statement.
The agency would keep the 2018 target for conventional ethanol at 15 billion gallons, unchanged from 2017 levels, and set the requirement for advanced biofuels, including cellulosic ethanol, at 4.24 billion gallons.
These latest volumes for the Renewable Fuel Standard (RFS) confirmed an earlier Reuters report for volumes well below the 26 billion gallons of renewable fuels outlined by Congress in 2007. The law was aimed at cutting U.S. oil imports and boosting the use of renewable fuels.
Pruitt directed several late changes in the proposal, including looking at whether the agency had authority to restrict imported biofuels, said two sources, who spoke on condition of anonymity.
The agency proposed setting the requirements for cellulosic fuel over 20 percent below the current year's levels at 238 million gallons and kept biomass-based diesel requirements at 2.1 billion gallons for 2019, unchanged from the levels set for 2018 under former President Barack Obama.
The fledgling cellulosic sector has been slower to develop than expected by lawmakers when they set up the program, stymied by regulatory delays and the economic downturn.
Prices of U.S. renewable fuel credits rose on the news, up 4 cents to trade 75 cents apiece. Biodiesel credits were up 3 cents at $1.145 each, traders said.
(Reporting by Chris Prentice, Jarrett Renshaw, David Shepardson; Additional reporting by Valerie Volcovici in Washington; Editing by G Crosse and Andrew Hay)