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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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The Billionaires Battling It Out Over Biofuel

The United States Environmental Protection Agency has been under pressure from the Trump administration to put together a proposal for how they plan to overhaul the current system of biofuel credits trading, which has been denounced by many industry insiders as shady and volatile. The EPA has been working on a solution since last year, and has finally put together a draft proposal, which is currently being reviewed by White House officials and could be formally made public as soon as this week.

The problem with the current system for biofuel credits trading stems from the Renewable Identification Numbers (RINs) used to track government credits originally intended to give oil refiners and importers more flexibility for meeting their annual biofuel quotas--companies could either blend enough biofuel to meet the quota, or they could blend less and make up the difference by buying credits. The problem is that these RINs became a financial commodity and the market soon saw heavy involvement from Wall Street.

The financial sector’s involvement in the buying and selling of biofuels credits helped to cause massive ups and downs in pricing following any inkling of policy change coming out of the Washington DC. Further complicating the matter, there have also been widely publicized accusations of corruption in the RINs market, which some independent refiners say is plagued by speculation and manipulation, traders who abandon previously negotiated sales, fraudulent bids intended to artificially inflate prices, and more.

Related: Analysts: Permian Oil Output Set To Double By 2023

The EPA plan currently under review by the White House would cut Wall Street out of the biofuel credits market as well as make a large negative impact on revenue for big oil companies and truck stops. While the EPA itself has declined to comment on the details of the plan, as it is their policy to “not comment on items under interagency review”, four anonymous sources familiar with the content of the proposal described its nature to reporters for Bloomberg.

Cheaper Credits

(Click to enlarge)

According to Bloomberg’s reporting, the draft currently under review makes an appeal to the public for comment on four different proposed major restriction on trading and sitting on RINs. “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,” Bloomberg’s Erik Wasson and Justin Sink report. “Refiners and importers that are obligated to blend biofuel would have to retire 80 percent 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 EPA will allegedly take the public’s opinions on these proposed options into consideration when drafting their final decision on which reforms and restrictions to instate on the much-maligned current trading market.

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There are already several booming voices contributing to the public conversation around the biofuel credit reform, with fierce lobbying exploding under the shadow of the impending change. One of the most notable participants in the outcry is Carl Icahn, billionaire investor and prior special regulatory adviser to Trump. Icahn, who has loudly and publicly denounced the system as “rigged” has already saved nearly $200 million off of the dip in biofuel credit pricing in response to the upcoming reforms. CVR energy, of which Icahn is the majority owner, disclosed that they had been issued subpoenas in November 2017 concerning the federal investigation into the legality of Icahn’s efforts to influence biofuel policy while he was serving as a special regulatory adviser to Trump.

The other side of the debate is lined with deep pockets as well, with profits at stake worth a total of $18 billion over the last few years. An overhaul of the credits trading system would mean a big hit to the earnings of truck stops owned by industry moguls such as billionaire Warren Buffett’s Berkshire Hathaway Inc. While reform is imminent and all but a sure thing, we can be certain that an $18 billion market will not go gentle into the night.

By Haley Zaremba for Oilprice.com

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