EPA biofuel trading plan would hurt banks, truck stops
A TRUMP administration plan to impose trading restrictions on biofuel credits would slash revenue for big oil companies and truck stops like those owned by Warren Buffett, while forcing Wall Street banks out of the market.
The draft proposal, now being reviewed by White House officials and set to be formally released by the Environmental Protection Agency as soon as this week, aims to quell wild price swings in credits that refiners use to prove they have satisfied annual governmentmandated blending quotas for biofuels such as ethanol and biodiesel.
The plan was described by four people familiar with the document who asked not to be named discussing administration strategy. EPA spokesman John Konkus said the agency does “not comment on items under interagency review.”
President Donald Trump directed the EPA to develop the measure to aid some independent oil refiners as part of a political move that also helps agricultural communities by lifting summertime fuelling restrictions on ethanol, a corn-based competitor.
The draft asks for public comment on four major possible restrictions in trading and holding biofuel credits known as Renewable Identification Numbers, or RINs, according to the people familiar with the document.
The feedback is meant to guide a final EPA decision about which limits to adopt in the market billionaire Carl Icahn once blasted as “rigged.”
The prospect of sweeping changes to the thinly traded RINs market has unleashed fierce lobbying by refiners and integrated oil companies dueling over the idea. At stake: profits tied to a market worth US$18 billion in recent years, including a revenue stream for truck stops such as those owned by Buffett’s Berkshire Hathaway Inc.
Although the government created the RIN system to give refiners more flexibility in fulfilling US mandates to use biofuel, the credits that are created along with each gallon of ethanol and biodiesel are now traded as commodities, with swaps negotiated among companies, traders and brokers via email and instant messages.
Under current rules, refiners and importers have up to two years to submit RINs to the government as proof they have satisfied biofuel quotas, but credits can change hands many times before they are submitted to the EPA and therefore “retired.” Companies that fall short of blending requirements must buy RINs to make up the difference.
Two of the EPA’s options seek to promote steadier trading volumes, block companies from hoarding credits and discourage refiners from shorting the market, by forcing traders to shed holdings quarterly. Refiners and importers that are obligated to blend biofuel would have to retire 80 per cent of their obligation every quarter. Companies that don’t actually need to fulfill biofuel quotas – but generate or trade RINs anyway – would have to rid themselves of all of their credits quarterly.
The time limits could undercut some trading strategies, including refiners’ ability to short the market by betting RIN prices will fall and buying credits just before they are needed to prove compliance each March.
The EPA also plans to ask the public about imposing firm position limits or disclosure requirements meant to shine a spotlight on anyone with a large collection of RINs. Under the agency’s proposed two-part test, details would be revealed about companies holding at least three per cent of the total credit pool as well as more RINs than needed to meet 130 per cent of their individual biofuel quotas.
Another proposed provision would edge some traders out of the market by limiting the sale of credits to refiners and importers obligated to satisfy US biofuel mandates.