By Ayesha Rascoe WASHINGTON, Aug 6 (Reuters) - The Obama administration said on Tuesday it would lower the target for how much renewable fuel, such as corn-based ethanol, would needed to be blended into gasoline in the United States in 2014, a move that could give oil refiners some relief on compliance costs. The Environmental Protection Agency also gave refiners more time to meet renewable fuel quotas in 2013. The Renewable Fuel Standard, passed by Congress and administered by the EPA, calls for increasing each year the amount of renewable fuel that is used in the United States until 2022. Last updated in 2007, the RFS has faced increasing scrutiny from lawmakers and others as the nation approaches the so-called blend wall - the point at which the mandate will require the use of more ethanol than can be blended into the fuel supply at 10 percent per gallon, the current standard. Targets are rising - from a projected 18.15 billion gallons in 2014 to 36 billion gallons in 2022. EPA on Tuesday said the blend wall would be hit in 2014. Just how much of a reprieve fuel markets will receive remains unclear. Details of the EPA's proposed 2014 targets are due some time in September. The overall goal for 2013 was left unchanged. Several refiners have recently cited the renewable fuel mandate as a drag on earnings. They have warned that rising targets for renewable fuel use is occurring at a time when U.S. gasoline usage is falling and could lead to shortages and higher prices at the pump for consumers. If the renewable fuel targets keep increasing and gasoline use falling, refiners could eventually be required to blend more than 10 percent ethanol into gasoline, something they are reluctant to do because of possible harm it could do to older automobiles. As a result, refiners may export more gasoline or produce less of it, either of which could reduce supplies. Response to the EPA's decision fell along predictable lines, with biofuel producers welcoming the agency's action but refiners said it did not go far enough to address what they term problems with the renewable fuel mandate. "It's a tepid half step in the right direction, and a clear signal to (the U.S. Congress) to please legislate in this area," said Stephen Brown, vice president for federal government affairs at independent U.S refiner Tesoro Corp. STAYING ON TRACK FOR 2013 More than eight months overdue, the final 2013 rule released on Tuesday will require a total of 16.55 billion gallons of biofuels to be blended into the nation's gasoline and diesel supplies this year, up from last year's target of 15.2 billion gallons. Refiners will have an extra four months to adhere to the 2013 targets, with the deadline extended to June 30, 2014. To comply with the federal biofuel program, gasoline and diesel producers must acquire the credits, either by blending biofuels into petroleum products or buying them in the open market. Anticipation of a fuel crunch has rocked the once obscure market for biofuel credits, known as RINs. Prices rose from a few cents in January to almost $1.50 in late July but have since subsided to less than $1.00. The volatile secondary market for RINs suggested traders were taking little relief on Tuesday in signs the EPA would relax next year's mandate, although some pundits declared the months of heightened price swings might be ending. "Higher RINs prices were a function of concern that there would not be enough RINs created in 2014 once the blendwall was reached; the EPA appears to have alleviated this risk," analysts at Goldman Sachs said in a research note. After dropping as much as 20 percent earlier in the day, prices for ethanol 2013 RINs pared losses following the EPA statement, trading at 89 cents versus around $1 a day ago. A handful of major independent refiners, including Valero Energy Corp, the country's biggest, and smaller merchants like CVR Refining expect to spend a total of over $1.5 billion on RIN costs this year, according to recent company statements. Calling Tuesday's EPA proposal a missed opportunity, the American Petroleum Institute agreed with Tesoro that legislative action is the solution. "Now it's up to Congress to exercise leadership and move quickly to end this dangerous mandate before it hurts consumers, damages vehicles, and harms our economy," said API president Jack Gerard in statement. Lawmakers on the House Energy and Commerce Committee are looking to craft legislation to reform the biofuel mandate and address blend wall issue, but calls to end the RFS seems remote given support for the renewable fuels industry. The Senate environment committee is also planning a hearing on the biofuel mandate, but its uncertain whether much action will happen on the mandate in the Democratic-controlled chamber.
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