Oil industry ramps up resistance to Trump’s big ethanol plans

Source: By John Siciliano and Josh Siegel, Washington Examiner • Posted: Thursday, February 28, 2019

 The oil industry is ramping up its fight against President Trump’s forthcoming regulations to boost ethanol in the gasoline supply, calling them a bad deal for both the industry and consumers, while holding out the prospect of a legal fight.

“This proposal is a lose-lose for our industry, but more importantly it’s a lose-lose for consumers,” Frank Macchiarola, head of downstream operations at the American Petroleum Institute, told John in a Wednesday morning interview.

Macchiarola warned that if these ethanol-boosting regulations go forward, API would sue the government.

Macchiarola’s group, the largest oil lobby in the country, is gearing up to fight Trump’s forthcoming regulations geared to do two major things: Relax rules in order to allow higher 15-percent ethanol fuel blends, or E15, to be sold year round; and enact market reforms to try and fix problems in the ethanol credit, or RIN, trading market.

Trump directed Environmental Protection Agency acting chief Andrew Wheeler in the fall to pursue the rules.

The ethanol industry and corn farmers, for the most part, have praised the action, while the oil industry has opposed them.

In anticipation of the rules being rolled out soon, API issued a new report on Tuesday outlining the case that the RIN market changes are bad for business. They see the fuel harming vehicle engines and putting oil refiners on the hook for the damages.

The details of the study: The new API report says the actions EPA is directed to take to help increase RIN market transparency are unnecessary based on actions the agency has already taken in the last decade to do just that, Macchiarola said.

“No modifications should be made absent clear evidence that there is a problem to be fixed with respect to the RIN market rules,” concludes the report, done by consultants at Covington and Burling.

What is a RIN, anyway? RINs are Renewable Identification Number credits, which are used by refiners to show they are following the Environmental Protection Agency’s Renewable Fuel Standard mandate, which requires refiners to blend ethanol and other biofuels into the nation’s gasoline and diesel supplies.

The credits are generated when a gallon of renewable fuel is blended into gasoline, for example.

But the majority of refiners are not able to generate their own RINs, because of a lack of infrastructure, and are dependent on purchasing them from the major oil companies, like Exxon and BP, that possess the fuel blending infrastructure required to generate the credits. Because the RIN prices have risen wildly in recent years from pennies to over a dollar, the independent oil refiners have been paying more for the credits, which has been undermining their profits.

Congress has called on the EPA to address the issue in recent years, and the Commodity Futures Trading Commission has looked into whether the RIN market is manipulated, but the independent refiners have sought more radical fixes. They wanted the administration to change the fuel mandate such that they are no longer on the hook to blend ethanol. But that proposal was scrapped after a contentious battle.

Trump settled on directing the EPA to enact rules to show who possesses the greatest number of RINs, in an effort to make it more readily apparent who, or what, is causing RIN prices to rise and to control it.

Some refiners have said the high RIN prices have caused them to file for bankruptcy protections, because of the hundreds of millions of dollars in RIN costs they are saddled with each year.

But API thinks what EPA has been ordered to do by the president is premature, and could undermine the federal oversight that is already taking place.

Give EPA more time: Macchiarola thinks the administration should give EPA more time in implementing previous actions to track RIN credits, before enacting these reforms that “could “end up doing more harm than good,” he said.

The administration’s forthcoming rules would place limitations on the number of participants in the market, in addition to the number of positions participants are allowed to control in the market when it comes to the number of credits a company or bank can control.

API thinks this could have a “dampening effect” on the ethanol credit market, forcing companies to become more guarded, and less forthcoming about the credits they buy and trade.

A win for Iowa and ethanol producers: Meanwhile, the ethanol industry sees the regulation as a true win for their industry, which will open up the summer driver season — the largest fuel consuming months of the year —- to 15 percent ethanol fuel being sold. That in turn will require more corn to be processed, a win for the farmers, and more ethanol to be produced, a win for renewable fuels and Iowa voters. Iowa is the largest ethanol producer in the country, and Trump has promised its farmers he would not harm the EPA fuel mandate.

This could happen as soon as this week: Many fuel lobbyists anticipate the regulations being issued as soon as this week in order to make sure the rules become the law of the land by June 1.

“My understanding is there’s a push to get it done before driving season, or finalized before driving season, which would be around the Memorial Day time frame,” Macchiarola said. “Our anticipation is that we are going to have a proposal in the near term, very soon.”