The head of the Renewable Fuels Association (RFA) said it had been informed by President Donald Trump's administration that it would order a change to the U.S. biofuels program, lifting the responsibility for fuel blending off refiners.
Some oil refiners, including Valero Energy Corp., had long pushed the change, noting the structure of the country's biofuels program hits them with burdensome costs.
"We received a call from an official with the Trump administration, informing us that a pending executive order would change the point of obligation from refiners to position holders at the terminal," Renewable Fuels Association Chief Executive Officer Bob Dinneen said. "Despite our continued opposition to the move, we were told the executive order was not negotiable," he said.
This development would impact biofuels including biodiesel and ethanol. Analysts say this is impacting soybean oil the most because if implemented and not challenged in court, it would mean less imports.
Billionaire investor Carl Icahn and a biofuel lobby group reportedly provided a deal to the Trump administration for revamping the Renewable Fuel Standard that would give both parties a long-sought change to the regulation. The parties, including representatives of refiner Valero Energy Corp., presented the White House with a memorandum containing draft language it could use to direct the EPA to make the adjustments.
The three-part accord also would aim to curb imports of biodiesel from Argentina by ensuring domestic producers qualify for a currently expired tax credit. The tax credit is up for renewal.
For refiners, it would cut regulations, give a boost to refiners who pledged to hire workers and curb imports.
Under current law, refiners and importers are obligated to meet annual quotas for using biodiesel and ethanol. Refiners are affected unevenly by the mandates. Those that do not have infrastructure to blend in the biofuels themselves must buy credits known as renewable identification numbers, or RINs, to comply. Under the current program structure, some blenders that don’t actually refine fuels generate RINs every time they mix in a gallon of biofuel. They can then sell those compliance credits to refiners that need them to satisfy the law.
RINs for ethanol blending compliance in 2017 dropped 35 percent on the news and were trading as low as 30 cents on Tuesday morning. Corn futures have risen double-digits on the news.
"I was told in no uncertain term that the point of obligation was going to be moved, and I said I wanted to see one of our top agenda items moved,” Bob Dinneen, head of the Renewable Fuels Association said in a phone interview with Bloomberg. That waiver would “greatly expand the market opportunities for ethanol, and I think it is a darned good thing for our industry."
The refining company Icahn holds a majority stake in, CVR Energy Inc., spent $205.9 million on RINs last year, up 66 percent from year earlier, regulatory filings show. Changing the point of obligation could radically cut CVR’s costs.
Other ethanol producers say this will gut their industry, and say Trump is going back on his pledge to support them. This was a back-room ‘deal’ made by people who want out of their obligations under the Clean Air Act, and frankly, it’s not a surprise," POET LLC CEO Jeff Broin said in a statement. "Carl Icahn has long been a self-interested, vocal critic of the program."
But other RFA members are backing the change. "We are a L O N G way from implementation," said one contact in the corn industry. "There is considerable argument if this proposed E15 Volatility Waiver can be done Administratively or will require legislation. It will get done eventually either way, but legislation will take considerable longer."
The decision by RFA members to back the change, Irmen said, was "because it is going to come any way with Trump (really Icahn). We decided to support the decision in exchange for 'a promise of' a volatility waiver. E15 still has to be embraced by the retailers and the general public. What this announcement has done to RINS so far this morning isn’t helping in that regard."
The shift in obligation appears to be one that can be affected by regulations, suggesting this may take more than just the executive order. In November, EPA rejected a request to shift the of obligation.
In rejecting petitions to change the point of obligation, EPA said it was developed via rulemaking in 2010 based on the statutory direction in Section 211 of the Clean Air Act (CAA) to impose the renewable fuel obligation on “refineries, blenders and importers, as appropriate,” while also “prevent[ing] the imposition of redundant obligations.”
PERSPECTIVE: Welcome to the Trump administration, where you can deal to get changes you want.
The order would significantly alter the RFS so that oil refiners would no longer be responsible for meeting the EPA biofuels mandates, leaving that job instead to gasoline wholesalers who supply fuel to retail outlets. That move is likely to be worth hundreds of millions of dollars to CVR Energy, a company owned by Trump regulation czar Carl Icahn, as noted.
Reports also signal a possible waiver for E15 to be sold year-around.
The waiver Dinneen is talking about here is on the RVP (Ried Vapor Pressure) on E15. The RVP waiver for E15 would open more of the market to E15, with traders trying to figure out if it somehow “automatically” moves the standard ethanol from E10 to E15.
And perhaps other market-sensitive changes once the executive order language is issued.