Billionaire investor Carl Icahn and the leading U.S. biofuel trade group provided a deal to the Trump administration for revamping the Renewable Fuel Standard that would give both parties a long-sought change to the regulation, according to people familiar with the agreement.
The parties, including representatives of refiner Valero Energy Corp., presented the White House with a memorandum containing draft language it could use to direct the Environmental Protection Agency to make the adjustments. A presidential memorandum could be issued sometime soon, according to the people, who declined to be identified discussing ongoing negotiations.
Prices for biofuel credits plunged 35 percent on the news while futures contracts for corn, the raw material used to manufacture ethanol, surged.
As majority owner of refiner CVR Energy Inc., Icahn has pushed to shift the burden for complying with the biofuel quotas from refiners to fuel blenders. Icahn, who is also a special regulatory adviser to President Donald Trump, and other refiners have now won agreement from a major ethanol trade group to support shifting the point of obligation, as it’s known within the industry.
The Renewable Fuels Association had just this month filed comments with the EPA opposing the move. But now it has agreed to back the change in return for a pledge for a waiver allowing gasoline blends containing 15 percent ethanol -- called E15 -- to be sold year-round in U.S. markets.
"I was told in no uncertain term that the point of obligation was going to be moved, and I said I wanted to see one of our top agenda items moved,” Bob Dinneen, head of the Renewable Fuels Association said in a phone interview. That waiver ensuring year-round access to E15 would “greatly expand the market opportunities for ethanol, and I think it is a darned good thing for our industry."
In a statement emailed later, Dinneen stressed that the group was "told the executive order was not negotiable."
Under current law, refiners and importers are obligated to meet annual quotas for using biodiesel and ethanol. Refiners are affected unevenly by the mandates. Those that do not have infrastructure to blend in the biofuels themselves must buy credits known as renewable identification numbers, or RINs, to comply. Under the current program structure, some blenders that don’t actually refine fuels generate RINs every time they mix in a gallon of biofuel. They can then sell those compliance credits to refiners that need them to satisfy the law.
RINs tracking ethanol blending compliance in 2017 dropped 35 percent on the news and were trading as low as 30 cents on Tuesday morning. Corn futures jumped as much as 4.9 percent.
The Renewable Fuels Association’s support could help win backing from corn growers and Midwest voters who helped elect Trump last year. Trump made inroads in the U.S. Corn Belt proclaiming his support for the ethanol industry. But he has also made it a top priority to eliminate regulations and fight imports. This deal would do both.
Shifting the biofuel compliance burden also is important to another key Trump constituency: laborers in Pennsylvania who supported him at the ballot box last November. Advocates of the change, including the United Steelworkers union, argue that some Northeast refineries are imperiled by the current approach.
The three-part accord also aims to curb imports of biodiesel from Argentina by ensuring domestic producers qualify for a currently expired tax credit. That would require action from Congress, where the tax credit is up for renewal.
San Antonio-based Valero, and two other refiners -- HollyFrontier Corp. and Delta Air Lines Inc.’s Monroe Energy LLC -- had petitioned the EPA to shift the obligation away from refiners to blenders. The EPA under the Obama administration proposed rejecting that.
Valero, one of the four biggest U.S. biofuel producers, joined the Renewable Fuels Association last November. In a statement, the company said it would welcome any efforts by the Trump administration "to negotiate an acceptable compromise."
"Changing the RFS point of obligation is critical to protecting fuel manufacturing jobs, small-business retailers, energy security and U.S. consumers," Valero said.
Critics say the change would introduce more uncertainty into the marketplace, by forcing companies that have never had to participate actively in the program to comply with the mandates. Growth Energy, a separate group of biofuel supporters, including producers POET LLC and Green Plains Inc., blasted the agreement.
"I assure you this is no deal for anyone but Carl Icahn," Emily Skor, CEO of Growth Energy, said in an emailed statement. "This would gut the RFS and violate the president’s commitment to the policy."
POET CEO Jeff Broin derided the agreement as a "back-room deal made by people who want out of their obligations."
The American Petroleum Institute also has battled the administrative change, arguing that it would detract from broader attempts to overhaul the Renewable Fuel Standard in Congress.
In a letter to the Renewable Fuels Association this month, Trump highlighted that regulations are hurting ethanol producers.
(Updates with RINs and corn prices in ninth paragraph.)
--With assistance from Laura Blewitt
To contact the reporters on this story: Jennifer A. Dlouhy in Washington at email@example.com, Mario Parker in Chicago at firstname.lastname@example.org.
To contact the editors responsible for this story: Jon Morgan at email@example.com, Simon Casey at firstname.lastname@example.org, Mark Drajem
©2017 Bloomberg L.P.