Trump’s EPA to Reject Icahn-Backed Tweak to Biofuel Program

  • Icahn had backed bids to relieve refiners of compliance burden
  • Valero and other independent refiners formally sought change

Carl Icahn

Photographer: Victor J. Blue/Bloomberg

The Trump administration is set to deal a blow to billionaire investor and presidential adviser Carl Icahn by rejecting his bid to relieve refiners of a burden to satisfy U.S. biofuel mandates, according to people briefed on the move.

The Environmental Protection Agency is preparing to formally deny requests by Valero Energy Corp., Icahn’s CVR Energy Inc. and other oil companies to shift the compliance burden for using ethanol and other biofuels away from refiners, moving it to fuel blenders and other entities instead. The people asked not to be identified discussing the policy action before it was announced, possibly before the end of this week.

The EPA proposed rejecting the change last November under former President Barack Obama. But analysts had raised the prospect of a reversal amid pressure from Icahn, who serves as an unpaid special regulatory adviser to President Donald Trump

Current law obligates refiners and importers to meet annual quotas for using biodiesel and traditional renewable fuel such as ethanol. Refiners are affected unevenly by the mandates; those that don’t have infrastructure to blend in the biofuels themselves must instead buy credits to comply. 

As a result of this setup, Icahn has complained that the current program structure is "rigged" as it forces some refiners to buy those credits, known as "renewable identification numbers."

Those so-called RINs are produced with each physical gallon of biofuel but are separated from the physical commodity once it is blended into motor vehicle fuel.

Critics say the program structure is vulnerable to abuse and has been exploited by fraudsters who pretended to produce biofuel and then sold fake credits. Supporters of the change to the point of obligation also said it would help tamp down volatility in the market.

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But some biofuel producers, including South Dakota-based POET LLC, have warned that any major structural shift would inject uncertainty into a $15 billion credits market. Rob Walther, POET’s vice president of federal advocacy, said keeping the current program structure would be "a huge win for the biofuels industry."

"Changes to the point of obligation would create market confusion, raise fuel prices and remove incentives for offering cleaner-burning biofuel blends to consumers across the country," Walther said by email.

Icahn wasn’t immediately available for comment, a spokeswoman said.

CVR Energy fell 3 percent to $19.00 a share at 2:08 p.m. in New York. Valero Energy Corp., the largest independent U.S. oil refiner, was nearly unchanged at $68.47.

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RINs tracking 2017 ethanol consumption were unchanged at 86.5 cents apiece. Prices have nearly tripled since they traded at 30 cents at the end of February, data compiled by Bloomberg show. Biodiesel RINs rose 1.9 percent to $1.07 apiece. Prices for that variety have increased 53 percent since February.

The move follows a U.S. federal court ruling against the government’s 2016 slate of biofuel quotas and could intensify pressure on refiners, said Benjamin Salisbury, an analyst with FBR Capital Markets & Co., in a research note to clients.

"The decision will leave the burden to purchase RINs to comply with the ethanol mandate at the refiner level and follows previous headwinds from the D.C. Court ruling on July 28 that could require refiners to make up a 500 million gallon compliance shortfall from 2016," Salisbury said.

A host of independent refiners with limited fuel blending infrastructure had formally asked the EPA to make the change, including Delta Air Lines Inc.’s Monroe Energy, Alon Refining Krotz Springs Inc. and HollyFrontier Corp. The American Fuel and Petrochemical Manufacturers trade group also formally requested the shift.

But the American Petroleum Institute -- which represents some of the world’s largest oil companies, including Exxon Mobil Corp., BP Plc and Royal Dutch Shell Plc -- opposed the move. It also has been fought by some fuel retailers that have made money selling the compliance credits they generate when mixing ethanol into gasoline, such as Murphy USA Inc. and Casey’s General Stores Inc.

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