NEW YORK, March 8 (Reuters) - Big oil and big corn are touting opposing studies released this week on proposed biofuels policy reforms under consideration by the Trump administration, part of an ongoing clash between the two sides over the future of the program.
Valero Energy Corp, a major oil refiner, funded a study by Charles River Associates that supports placing a cap on the price of biofuel blending credits under the U.S. Renewable Fuel Standard (RFS) - a change meant to help refiners that complain the RFS now costs them a fortune.
A rival report from Iowa State University, also released this week, said such a cap on credits would backfire by eroding U.S. demand for corn-based ethanol and potentially lowering corn prices, already under pressure from a supply glut. The corn industry did not directly fund the Iowa State study, but does provide funding to the university.
The studies are meant to inform the administration's deliberations on how, and if, to reform the RFS - which has become a major point of tension between two of President Donald Trump's most important constituencies.
The RFS requires oil refiners to blend increasing amounts of biofuels, mainly corn-based ethanol, into the fuel supply each year, or buy the renewable fuel credits, called RINs, from other companies that do the blending.
The regulation was introduced during the administration of President George W. Bush to help farmers, cut petroleum imports, and improve air quality. But a surge in the price of RINs in recent years has upset merchant refiners who say the policy now costs them hundreds of millions of dollars a year.
Trump waded deeply into the debate last week, urging representatives of both sides to accept a compromise deal that caps prices for the credits while also removing seasonal limits on high-ethanol blend gasolines to expand the biofuels market.
A cap would control costs for small refiners and help them stay afloat, said Brendan Williams, vice president of government relations for refining company PBF Energy.
The biofuels industry likes the idea of expanding high-ethanol blend gasoline sales, but has pushed back on the idea of a cap. "The RFS is a well-designed program," said Brooke Coleman, head of the Advanced Biofuels Business Council. "Part of the whole mechanism working is that the price of RINs may go up, and so you should go long on biofuels."
"It’s a strategy to kill the RFS and to kill the economic incentive to blend," said Coleman, referring to a 10-cent cap.
Trump has not pushed a particular price level for the proposed RIN price cap, but Republican Senator Ted Cruz of Texas - an advocate for the refining industry - has called for a limit of 10 cents per RIN, a fraction of their current value.
The Iowa State study said such a cap would translate to 4.6 percent less ethanol blending in 2018. And without an increase in exports, that would mean a drop in corn prices, too.
The Valero-funded study, on the other hand, said a price cap "could alleviate several of the most pressing issues with the RFS" while also continuing to incentivize investment in ethanol blending.
In January, refiner Philadelphia Energy Solutions blamed its bankruptcy on RINs. Bad deals and large investor payouts also played key roles in its collapse, Reuters reported.
On Wednesday, 150 biofuel manufacturers sent an open letter to Trump urging him to protect the program. The letter came as a delegation of refinery workers held meetings with lawmakers urging changes to the RFS. (Reporting by Ayenat Mersie Editing by Tom Brown)