Biofuels bet costly to Icahn
Famed investor an adviser to the president, but taking a chance on federal change for blending credits isn’t paying off
BILLIONAIRE corporate raider Carl Icahn may serve as President Donald Trump’s special regulatory adviser, but the Sugar Land refiner he controls has lost an expensive bet that the administration would change rules on biofuel credits.
Under a 2007 law, refiners must blend renewable fuels like ethanol into U.S. gasoline. Refiners that don’t do the blending themselves must buy credits, on open markets or from other refiners. The prices can fluctuate wildly.
CVR Energy, of which Icahn owns about 80 percent, is one of the many small refiners that don’t blend ethanol with gasoline and must buy the biofuel credits. The company was banking that under Trump, the Environmental Protection Agency would make changes that would eliminate the requirement on refiners. Wall Street and other investors did, too, causing the cost of the credits to fall sharply in the beginning of the year.
Icahn, who took control of CVR in 2012 through a corporate takeover, said in March the company was delaying much of its credit purchases for the year, until deadlines in early 2018, according to
published reports.
“I’m not selling ’em, I’m not buying ’em,” Icahn told Bloomberg News. “Hey, this is what I do in the market. I’m taking a chance.”
But the EPA has shown no signs that it will change the blending requirements, deferring to a gridlocked Congress for now. The cost of credits has nearly tripled from the beginning of the year.
As a result, CVR is losing money because of the expensive credits, while much of the rest of the refining sector is bouncing back from a weak 2016. CVR, which operates two refineries, as well as a fertilizer business, reported a $10.5 million loss in the second quarter, after making a profit of $28.5 million during the same period a year ago.
The lack of progress in changing the rules has left CVR chief executive Jack Lipinski livid. Lipinski, in a recent conference call with analysts, said the credits are an “egregious tax,” spiking in price based on the whims of market traders. He criticized the EPA for “kicking the can down the road.”
CVR, which owns refineries in Kansas and Oklahoma, is among the many U.S. refiners that have taken aim at the biofuels credits. Unlike other commodities and securities, the credits are not sold on public exchanges, such as the New York Mercantile Exchange or New York Stock Exchange, but rather in private transactions that are vulnerable to manipulation by Wall Street banks and other speculators, refiners say.
The blending law was passed during the administration of George W. Bush as a way to decrease the country’s dependence on foreign oil in favor of home-grown ethanol and other biofuels. At the time, the prices of crude oil and gasoline were rising quickly, ultimately peaking above 140 a barrel and $4 a gallon. Changing the rule has been opposed by the powerful ethanol lobby, as well as fuel distributors that could be saddled with the blending requirement.
The losing bet on the biofuel blending credits was first reported on the website of CNBC, a cable network that focuses on business news.
Trump appointed Icahn as a “special adviser” in December to help him dismantle a host of “strangling regulations.” Democrats and other administration critics have raised concerns about Icahn’s role because of his extensive business holdings that are affected by regulations. The White House has dismissed the criticisms, noting that Icahn is not a federal employee and thus not subject to the financial and ethics disclosures that apply to high-level government posts.