Trading of ethanol credits may see limits
EPA chief says removing speculators from the market would reduces expenses for refineries related to blending of biofuels
WASHINGTON — EPA chief Scott Pruitt suggested Monday that the government might limit Wall Street’s ability to trade ethanol-blending tax credits as a way to lower costs for refineries.
Federal law requires refiners to blend gasoline with up to 10 percent ethanol but allows companies that don’t to meet their obligation by buying government-issued credits. But refiners claim that the market for credits is opaque, thinly traded and subject to manipulation by speculators who can send prices skyrocketing.
In a meeting with reporters at the Environmental Protection Agency’s headquarters, Pruitt suggested that removing speculators from the market for blending credits might be one way to help keep costs lower.
“There’s some things on the trading platform I think should happen no matter what,” he said. “There seems to be a hoarding of (credits), which inflates the price. Some have talked about limiting the participants who buy and sell, so you can get away from some of the speculation that’s taking place.”
The credits market is another front in the battle between oil and farm interests over federal rules that require the blending of ethanol, which is made from corn. The ethanol industry provides thousands of jobs in Midwest farm states, but oil states view ethanol’s growth as hurting one of their major industries and employers because more ethanol in gasoline ultimately means less oil.
The mandate also drives up costs for many refineries around Houston and along the Gulf Coast, a powerful economic driver for the region. The largest refinery on the East Coast cited ethanol mandates as factor in its recent bankruptcy filing.
The Trump administration is trying to broker a deal between
oil state Republicans like Sen. Ted Cruz, of Texas and corn state Republicans like Sen. Chuck Grassley, of Iowa, who have been at odds for months over the the future of federal ethanol and biofuel mandates. The mandates were adopted under the administration of George W. Bush as a way to reduce the nation’s dependence on foreign oil — before the U.S. production boom unleashed by hydraulic fracturing, or fracking.
In addition to limiting trading in the credits, known as Renewable Identification Numbers, or RINs, Pruitt also brought up the possibility of lifting an air pollution regulations that prevent the sale of fuels with higher concentrations of ethanol during the summertime.
“I told the folks in Iowa, if the law allows me to do it I’ll sign it tomorrow,” Pruitt said. “It doesn’t make sense to only be able to sell nine months out of the year.”
Pruitt’s seemingly off-the-cuff comments Monday drew praise from ethanol producers, which benefit from a functioning and fair market for blending credits.
“We are encouraged by the administrator’s comments,” said Bob Dinneen, president of the Renewable Fuels Association, a trade group representing ethanol producers. “We would be receptive to any proposals bringing more transparency and liquidity to the RIN market.”
Cruz has asked the Trump administration to place a cap on the price of RIN credits, to help refineries the senator argues are at risk from compliance costs that can run hundreds of millions of dollars a year.
That proposal has drawn fire from Grassley and other Midwestern politicians who argue Cruz is trying to decimate ethanol demand by reducing financial incentives for refineries to comply with the federal mandate.
Pruitt didn’t discuss the cap proposal but rather focused on the need to find a solution that would help both refineries and ethanol producers.
“These market challenges we have are real,” he said, adding that the president has a commitment to the ethanol mandate and ranching and farming communities. “But he doesn’t want refineries to shut down, either.”