Shimkus promises ‘we’ll legislate’ on reforming RIN credits

Source: Marc Heller, E&E News reporter • Posted: Thursday, July 26, 2018

Renewable fuel credits may be the foundation of the nation’s biofuel blending law, but they’re also one of its biggest mysteries, witnesses told a House subcommittee yesterday.

The House Energy and Commerce Subcommittee on Environment took up the credits, called renewable identification numbers (RINs), as Chairman John Shimkus (R-Ill.) prepares to mark up renewable fuels legislation before the end of the year.

Among the top complaints the panel heard is that RINs are wrapped in secrecy, with limited information available about how prices are determined and who trades them — and scant regulation to give the markets transparency.

“Certainly, there is limited information that’s available,” said Brent Yacobucci, energy and minerals manager at the Congressional Research Service.

Thousands of companies comply with fuel requirements of the Clean Air Act, Yacobucci said, but analysts have a hard time figuring out which firms participating in the RIN market are independent third parties or subsidiaries of biofuel companies or oil companies, he said.

Companies that track and report prices for RINs are partly blind, as well, said Paul Niznik, senior consultant for Argus Media Inc.

Argus tracks prices based on sales reported by market participants, Niznik said. “Still, even at that level, we can’t have the understanding of the full volumes of the marketplace at any one given time that would be able to elucidate any issues on market manipulation.”

Prices for RINS have swung widely in recent years, from as low as pennies per credit to $1.40. The fluctuations have fed criticism both from ethanol supporters and critics that the system is too secretive and vulnerable to misuse.

Among other potential abuses is “spoofing,” said Rep. Paul Tonko of New York, the panel’s ranking Democrat, when traders initiate an order that they have no intention of completing, solely to affect market prices.

With little information about RIN markets made public, Tonko said, “this doesn’t sound very transparent to me.”

Some industry groups and lawmakers have called for oversight by the Commodity Futures Trading Commission. And although EPA has a memorandum of understanding with the CFTC to recommend ways to make the market more transparent, only EPA has authority over it.

Tonko asked participants if the CFTC would be the appropriate agency to regulate RINs; witnesses said they would defer to Congress on that point.

Fraud in the RINs market has decreased over time, said Sandra Dunphy, director of energy compliance services for Weaver and Tidwell LLP. But potential remains for abuse related to feedstocks and use of biofuel, she said.

Among other complications, she said, participants might seek RINs for fuel made with feedstocks that don’t qualify for the RFS. And they could seek credit as well for biofuel blends that have been loaded onto ocean vessels for export, even though regulations say RINs are supposed to be retired once fuel is exported.

Although more transparency appears likely to be part of any RFS rewrite, lawmakers haven’t fully latched onto other ideas such as a cap on RIN prices. Panelists said that idea — which Sen. Ted Cruz (R-Texas) has pursued — has merits and flaws, depending in part on where the limit is set.

Niznik said a price cap could undermine the RIN market, cutting off its ability to stimulate biofuel production.

But the level of a cap determines its effect, said Gabriel Lade, assistant professor of economics at Iowa State University. If the limit is set at a dime, he said, no one will use the highest-ethanol fuels such as E85. But a higher cap could stabilize markets, he said.

“It depends critically what the RINs cap is,” Lade said.

Prices for RINs depend on several influences, witnesses said, including the price of corn, the amount of ethanol dictated by EPA and, more recently, anticipation of federal policies.

When RIN prices spiked in recent years at $1.40, that coincided with high corn prices of $7 per bushel, said Corey Lavinsky, director of global biofuels for S&P Global Platts Analytics.

Corn prices have sunk to $3.25 per bushel lately, and RIN prices have fallen, as well, Lavinsky said.

In the last year, news about economic “hardship” waivers has affected the market, Dunphy said.

Shimkus said he called the hearing to gather information on RINs, which could help lawmakers craft legislation in the weeks ahead.

“We’ll legislate,” Shimkus said, adding that he expects to hear from stakeholders over the August recess and have a “good discussion” upon return in September. He said he expects to then move toward a markup.