Ethanol Advocates Worry RIN Reform Proposals Will Derail E15 Expansion

Source: By Jordan Godwin, OPIS • Posted: Wednesday, April 3, 2019

YPSILANTI, Mich. — With about two months to go before the start of the summer driving season, ethanol advocates are growing increasingly worried that EPA’s decision to combine in the same proposed rulemaking changes to how Renewable Identification Number (RIN) credits are trading and a volatility waiver for E15 could threaten the agency’s ability to lift summertime restrictions on the sale of the higher ethanol blend by June 1.

At EPA’s public hearing here on Friday, a number of Renewable Fuel Standard (RFS) stakeholders expressed opposition to the agency’s proposed changes to RINs trading. Iowa Gov. Kim Reynolds, a Republican, even urged the Trump administration to break off the RIN reform package into a separate rulemaking, cautioning that the changes would undermine any boost provided by an E15 waiver.

“If the EPA wants to meet the president’s pledge to remove barriers for higher ethanol blends, it must restore some symmetry to any RIN market reforms between the buyers and the sellers and between the obligated parties and retailers,” Reynolds said. “If finalized as proposed, this draft rule would simply replace a regulatory barrier for E15 with an economic barrier.

“That was not what I or Iowans across my state heard the president promise.”

Nebraska Gov. Pete Ricketts, also a Republican, similarly urged EPA not to finalize its proposed RIN reforms in submitted comments to the hearing.

EPA earlier this year rejected calls from several ethanol groups that it break off proposed changes to how RINs are bought and sold from the RVP issue. The groups argued that combining both would unnecessarily complicate the waiver and jeopardize the agency’s ability to issue a final rule before June 1 when sales of the higher E15 ethanol blends are prohibited in many parts of the country without a Reid Vapor Pressure (RVP) waiver.

Growth Energy CEO Emily Skor said that from the outset of the rulemaking process, her group’s members agreed that it would make sense to split the proposals into two rulemakings, but that EPA made it very clear that they were given a “very firm direction” from the White House that the E15 expansion and the RIN reform proposals must go hand in hand.

The White House, which spent much of last year working on an ultimately unsuccessful effort to broker a deal that would address the concerns of the biofuels and merchant refining industries, said it would allow year-round E15 sales, but only if they were linked with changes sought by independent refiners in how RINs are bought and sold.

On the possibility of EPA pausing the RIN reform proposals, one source on Monday said he thinks there’s a “60/40 chance” the agency scraps the contentious part of the rulemaking because “they won’t have a prayer in federal court.” The source added that EPA can still likely get E15 done in time for this summer by splitting the rulemaking but added that the E15 waiver will also likely be decided in court.

“We want this rule to get across the finish line, but we want it to be defensible because we know it’s heading to court,” Skor said. “A lot of our energy these past several months has been pulling together the support and expertise and legal rational to have engaging conversations with EPA and provide any support and analysis that we can to make sure that when the rule is finalized, it’s got the right rationale and justification it’s going to need to stand up in court.”

In her testimony at Friday’s hearing, Skor didn’t elaborate much on Growth’s stance on RIN reform proposals, due in part to the strict three-minute time limit, but said her group plans to provide detailed analysis of how the proposals could be problematic. Skor said the primary concern is that the proposed changes are tilted too heavily in favor of refiners who purchase RINs for RFS compliance rather than pursue expanded blending of biofuels.

EPA is accepting public comments on the proposals until April 29. It will then have roughly a month to weigh public comments and draft a final rule for White House review and approval.

EPA said in its proposals released last month that the RIN changes would prohibit certain parties from being able to purchase separated RINs, require public disclosure when RIN holdings exceed specified thresholds, limit the length of time a non-obligated party can hold credits and increase the compliance frequency of the program to quarterly from annually.

The agency said it “takes claims of RIN market manipulation seriously and although we have yet to see data-based evidence of such behavior, the potential for market manipulation is a concern.”

Iowa Renewable Fuels Association Executive Director Monte Shaw pointed out in his testimony on Friday that EPA admitted that it has no evidence of RIN market manipulation, “Yet, this proposal wouldmanipulate the RIN market into a grotesque caricature of itself.”

“If you adopt RIN procedures that eviscerate the value of RINs, as this proposal does, then you have eviscerated the incentive to expand the use of renewable fuels, which is the main purpose of the RFS,” Shaw said. “With no actual market manipulation to address, this proposal reeks of a backdoor attempt to simply rip the heart out of the RFS.”

Renewable Fuels Association (RFA) President and CEO Geoff Cooper said his group doesn’t believe any of the RIN reform concepts should be finalized, a sentiment echoed by many others from various biofuels groups including the National Biodiesel Board (NBB), American Coalition for Ethanol (ACE), the Advanced Biofuels Business Council (ABBC) and others of the more than 50 representatives who testified at the hearing.

Even oil industry representatives expressed opposition to the changes.

Frank Macchiarola, American Petroleum Institute (API) VP of downstream and industry operations, called the reforms a “solution in search of a problem.”

Macchiarola pointed out that EPA has access to every RINs transaction and a memorandum of understanding (MOU) with the U.S. Commodity Futures Trading Commission (CFTC) addressing potential market manipulation.

“Although RINs prices can be volatile, volatility alone is not an indicator of price manipulation or misbehavior,” Macchiarola said.

API’s members include refiners who have invested in RFS compliance and have expanded blending capacity to meet their renewable volume obligations (RVOs) under the law.

Among those offering support of EPA’s proposed RIN reforms were Frank Maisano of the Fueling American Jobs Coalition.

“The RIN market is plagued by anticompetitive behavior such as price manipulation, RIN hoarding, and speculation, as well as a lack of transparency and high transaction costs,” Maisano said. “Regulatory reform is needed to address these substantial market flaws because they contribute to the harm the RFS causes independent refiners, small gasoline retailers and consumers.”

Merchant refiners HollyFrontier and PBF as well as the American Fuel and Petrochemical Manufacturers (AFPM) also urged EPA to push the RIN reforms through.

“Of course, they want the reforms finalized because they’re the ones who wrote them and they’ll stand to gain the most from them,” one RINs trader said Monday morning. “This was clearly a Trump deal in search of a compromise where they got gamed.”