By Jarrett Renshaw
NEW YORK (Reuters) - The U.S. Environmental Protection Agency has backed off a series of proposed changes to the nation's biofuels policy after a massive backlash from corn-state lawmakers worried the moves would undercut ethanol demand, according to a letter from the agency to lawmakers seen by Reuters.
EPA Administrator Scott Pruitt said in the letter dated Oct. 19 that the agency will keep renewable fuel volume mandates for next year at or above proposed levels, reversing a previous move to open the door to cuts.
The move marks a big win for the biofuels industry and lawmakers from corn-states like Iowa, Nebraska and Illinois, while dealing a blow to merchant refiners like PBF Energy Inc and Valero Energy Corp who hoped the administration of President Donald Trump would help provide regulatory relief.
The letter could end uncertainty about the future of the U.S. Renewable Fuel Standard that has roiled commodity and energy markets for months. The program, which requires refineries to blend increasing amounts of ethanol and other biofuels into the nation's fuel supply or buy credits from those who do, appeared on the verge of a massive overhaul.
The most popular form of program credits hit two-month highs on Friday on the EPA news, traders said..
The so-called D6 credits sunk to 68 cents last month as EPA considered cost-cutting measures, but prices have rebounded in recent weeks and approached 90 cents on Friday, traders said.
Pruitt said the EPA would not pursue another idea floated by EPA leadership that would have allowed exported ethanol to be counted toward those volume quotas.
Pruitt also said the EPA did not believe a proposal to shift the biofuels blending obligation away from refiners was appropriate. That plan is backed by representatives of a handful of independent refining companies.
Those ideas would have eased the burden on some in the refining industry, who have argued that biofuels compete with petroleum, and that the blending responsibility costs them hundreds of millions of dollars a year.
But Midwestern lawmakers, including Republicans Charles Grassley and Joni Ernst, had vocally opposed all those ideas, calling them a betrayal of the administration's promises to support the corn belt. They were concerned the moves would undercut domestic demand for ethanol, a key industry in the region that has supported corn growers.
"It's a great day for Iowa and a great day for rural America. Administrator Pruitt should be commended for following through on President Trump's commitment to biofuels," Grassley said in a statement.
In the letter, Pruitt said the EPA was prepared to work with Congress to examine the possibility of a waiver that would allow the sale of E15 gasoline, containing 15 percent ethanol, year-round - something currently not permitted during the summer due to concerns about smog.
Renewable Fuels Association President and Chief Executive Bob Dinneen said in a response to the letter on Friday morning that the U.S. ethanol industry was "grateful for Administrator Pruitt's epiphany on the road to the RFS."
The program disproportionately hurts mid-sized refiners and mom-and-pop gas stations that are the backbone of the nation's energy infrastructure and needs to reformed, said Greg Blair, a spokesman for the Fueling American Jobs Coalition, a coalition of merchant refiners formed to seek changes in the program.
"If the administration follows the course set out in Administrator Pruitt's letter, manufacturing jobs in Pennsylvania, Ohio and other states - jobs President Trump promised to protect - will be at risk," Blair said.
(Reporting By Jarrett Renshaw; writing by Richard Valdmanis and Jarrett Renshaw; Editing by Bernadette Baum and Marguerita Choy)