Senator presses EPA over alleged ethanol credit market manipulation

Source: Amanda Peterka, E&E reporter • Posted: Monday, September 30, 2013

Iowa’s senior senator is pressing U.S. EPA for answers about steps the agency is taking to look into manipulation of the ethanol credit-trading system that was established under the renewable fuel standard.

In a letter Wednesday, Sen. Chuck Grassley (R-Iowa.) said he was concerned that financial institutions were manipulating the market for renewable identification numbers (RINs), or the credits associated with gallons of ethanol that are available for refiners to trade to meet their annual biofuel requirements.

Grassley, who has long been the ethanol industry’s champion in Congress, laid out a series of questions for EPA to answer on its activities regarding possible manipulation of the credits.

“It’s troubling that there appears to be no way to determine who is trading the credits, at what price, and at what volumes. It’s even more alarming that it’s impossible to know the extent of the involvement of financial or other speculators,” Grassley said. “It’s imperative, to maintain confidence that the pricing of RINs is based on market forces and not manipulation or excessive speculation, that EPA increase the transparency of the market.”

Since the beginning of this year, the price of a RIN has shot up from just a few cents to a peak of $1.44 in July and has settled in the 70-cent range. Refiners blame the spike on worries that they are reaching the technical limits of how much ethanol can be used in the marketplace, but biofuels supporters charge that speculation is playing a role.

Grassley is seeking information on EPA safeguards to protect against manipulation and hoarding of credits by individuals, what the agency is doing to make the market price and information about the trading of RINs better available to the public and whether the agency is considering third-party oversight of the market.

“The EPA needs to provide assurances that this market is functioning for its intended purpose, rather than acting as a profit mechanism for Wall Street banks and other financial institutions,” Grassley said.

The question of boosting transparency over the RIN market came into play last week on Capitol Hill when Rep. John Shimkus (R-Ill.), who is leading an effort in the House Energy and Commerce Committee to reform the standard, suggested that increasing transparency would help stem the myriad issues that opponents have with the mandate (E&E Daily, Sept. 18).

Biofuels groups say increased oversight would go a long way.

“We do support more transparency in the RIN trading program because there were some that tried to blame some of that RIN price increase on the ethanol industry,” Tom Buis, president of Growth Energy, said last week. “In fact, RINs are an opaque market that’s traded internally among the obligated parties.”

But refiners say the RIN price spike is just a symptom of greater problems with the renewable fuel standard, which this year requires refiners to blend 16.55 billion gallons of ethanol and advanced biofuel into motor fuel. Discussion of transparency, said American Fuel & Petrochemical Manufacturers Vice President of Advocacy Brendan Williams, is a distraction from those issues.

“The problem is that there’s just not enough RINs out there,” Williams said. “It’s a very, very complicated system, but it really just comes down to basic math.”