Big RFS Change Imminent?

Point of obligation to move downstream in reported deal between Trump adviser Icahn, RFA

UPDATE: Since reporting this story, White House spokeswoman Kelly Love told Bloomberg “there was no executive order in the works dealing with ethanol.” Sources familiar with the reported agreement between the RFA and Trump adviser Carl Icahn tell the news source, however, they have presented the deal to the Trump administration for consideration.

WASHINGTON -- In a move that could have big implications for many of the convenience-store industry’s largest retailers and fuel blenders, President Trump is reportedly planning to sign an executive order directing the Environmental Protection Agency (EPA) to move the point of obligation—the party responsible for meeting biofuel blending quotas under the Renewable Fuel Standard (RFS)—downstream. Reports say the order could come as soon as today.

Merchant refiners such as Valero Energy Corp. and CVR Refining Inc. had petitioned the EPA to move the point of obligation downstream. As the current obligated parties under the RFS, refiners--in addition to importers--are required to meet certain blending quotas each year. If they fall short, they can buy Renewable Identification Numbers (RINs), or credits representing a gallon of biofuels blended into a gallon of gasoline or diesel.

Under pressure from rising RIN prices, petitioners had asked the EPA to move the point downstream to fuel blenders and distributors, who earn RINs that they can then sell to obligated parties. These include some of the industry's largest private-branded fuel retailers, such as Murphy USA and Casey's General Stores. Last November, the EPA proposed to deny the petitions, but it opened a 60-day comment period.

But now with President Trump in the White House, the dynamics around the matter have dramatically changed. Biofuels supporters were concerned when Trump named Carl Icahn, a majority owner of CVR Refining, as a special regulatory adviser. Icahn has been a loud critic of the RFS and proponent of moving the point of obligation. Now, word comes of a deal between Icahn and one of the biofuel industry’s largest associations that would get the ball rolling.

According to Bloomberg, representatives from Valero Energy and “other parties” have provided the White House with a memorandum containing draft language for an executive order that would direct the EPA to move the point of obligation. While as of press time Trump had not yet issued the order, sources told Bloomberg the memorandum “could be issued sometime soon.” 

The Renewable Fuels Association (RFA), Washington, D.C., agreed to support the move, in exchange for a pledge from the administration to support a waiver that would allow E15, the 15% ethanol blend, to be sold throughout the year. RFA CEO Bob Dineen explained his group’s thinking in a statement.

“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, a potentially small increase in the number of obligated parties, but one which would distribute the obligation more equitably,” said Dineen. “Despite our continued opposition to the move, we were told the executive order was not negotiable.”

RFA’s “top priority” is to give consumers year-round access to E15, Dineen said, “and we would like [the] Trump administration to help cut through the red tape on this unnecessary regulation.”

As news of the deal spread, RIN prices fell from about 47 cents down to as low as 30 cents on Feb. 28, Reuters reported. 

In a statement, SIGMA, Fairfax, Va., said that the president does not have the legal authority to change the point of obligation through an executive order. Rather, the EPA must start a new rulemaking under the Administrative Procedures Act, which in turn requires a new notice and comment period. The EPA would be obligated to take those comments into consideration in its decision, which anyone can challenge in court. The entire process could take several months to years to play out, sources told CSP Daily News.

Furthermore, the EPA had already concluded that it did not have the authority to grant a 1-pound waiver for E15; instead, that would require an act of Congress. (EPA restricts E15’s sale in the summer to flex-fuel vehicles only in most markets because of an ongoing issue with Reid Vapor Pressure regulations.)

“SIGMA remains opposed to moving the RFS point of obligation because it continues to believe that doing so will create havoc in the fuels market and will ultimately result in higher prices at the pump for consumers,” it stated.

Other biofuels groups and producers immediately blasted the planned move.

“If true, this proposal would eviscerate America’s progress under the RFS and impose indefensible costs on consumers,” said Emily Skor, CEO of ethanol industry group Growth Energy, in a statement.

“Neither RFA nor Carl Icahn have the authority to strike a ‘deal.’ Mr. Icahn does not work for the U.S. government; he owns CVR Refining, which would profit directly from this change,” she continued. “RFA does not represent a majority of the biofuels industry; RFA’s largest member is an oil refiner, which would also profit directly from such a change.”

Skor is referring to Valero Energy, which joined RFA in November 2016 even as it petitioned the EPA to move the point of obligation downstream. In addition to being the largest independent refiner in the United States, Valero is said to be the third-largest ethanol producer. 

She described Icahn’s pledged support for the RVP waiver as meaningless if the point of obligation is moved.

“Any assertion that this tradeoff would ‘greatly expand the market opportunities for ethanol’ is simply untrue,” she said. “An RVP waiver means little if retailers no longer have an incentive to sell higher ethanol blends.”

Jeff Broin, CEO of  Sioux Falls, S.D.-based POET LLC, one of the largest biofuels producers, also criticized the reported agreement between RFA and Icahn, describing it as “a bailout.”

“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,” said Broin in a statement. “Carl Icahn has long been a self-interested, vocal critic of the program. We have been expecting this from the RFA as they have casually backed away from their support since an oil refiner became their largest member.”

The biofuels industry has been working to expand access to E15 through its Prime the Pump program, he said, which provides retailers with grants to add the ethanol blend. “Our partner retailers have said time and again that changes to the point of obligation will stop that momentum,” he said.

In a recent opinion piece at political news site The Hill, Bryce Rawers, director of fuel procurement for Chronister Oil Co. dba Qik-n-EZ, Springfield, Ill., said that without an obligation, refiners would have no incentive to provide fossil-fuel products that blend with renewable fuels, because they compete directly. 

“The resulting shortfall in blending, and the burden on retailers in a setting where compliance is impossible, would result in chaos in the fuel markets, higher prices at the pumps and an end to the RFS,” he said.

The American Petroleum Institute (API), which opposes moving the point of obligation but supports RFS reform, released its own statement on the reports. "We'll comment on government decisions that are announced by the government, not speculation from a portion of a divided ethanol industry," the Washington, D.C.-based API said. "As for the broader question, moving the point of obligation is not real reform. We continue to urge the EPA administrator to uphold the agency's well-reasoned proposed decision to reject moving the point of obligation. We also continue to urge Congress to move quickly on passing legislation to fix the ethanol mandate."

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