Trump adviser Icahn faces conflict of interest scrutiny over biofuels

Source: By Gregory Meyer and Stephen Foley, Financial Times • Posted: Monday, January 30, 2017

Donald Trump’s election has doubled the value of an energy company owned by billionaire investor Carl Icahn, who was appointed special adviser to the president on regulatory reform.

CVR Energy shares have surged on the expectation that the new administration will ease environmental rules including a federal biofuel mandate criticised by Mr Icahn that costs CVR more than $200m a year.

Traders betting that the Trump administration will weaken the mandate have driven down prices for US ethanol credits that CVR and other refiners must purchase. The declines snowballed this week after the president imposed a freeze on new federal rules.

“It’s true that I would benefit as a refinery owner, but so would every refinery as well as the small gas station owners and as far as I’m concerned the public, because certain of these refineries can now stay alive,” Mr Icahn said in an interview.

By serving as an adviser without becoming a federal employee who would be required to separate himself from his investments, Mr Icahn has attracted scrutiny. His holdings span energy, railcars, finance and other regulated businesses. He helped the Trump team vet Scott Pruitt, who has been picked to run the Environmental Protection Agency, which oversees the biofuel mandate.

“The EPA, in far too many instances, has run amok,” Mr Icahn told the Financial Times: “Overregulation is the reason corporations are afraid to invest and as a result there’s a lack of good jobs and productivity in this country.”

“There’s a huge conflict of interest,” said Bruce Babcock, an energy economist at Iowa State University.

Norman Eisen, a former legal ethics adviser for Barack Obama, said Mr Icahn’s title, responsibilities and involvement in personnel choices make him a “de facto special government employee” subject to conflicts rules preventing work on matters relating to his investments.

The price of ethanol credits, known as Renewable Identification Numbers (Rins), has proven sensitive to news coming from the Trump team. They fell 8 per cent after Mr Pruitt was selected and another 6 per cent after Mr Icahn’s appointment. On Wednesday they plunged as low as 46 cents, down by more than half since December, according Oil Price Information Service.

“This is the Icahn-Pruitt-Trump trade,” said Tom Kloza, global head of energy analysis at Opis.

Mr Icahn’s general counsel, Jesse Lynn, called it “ludicrous” to suggest it was wrong for a businessman to offer advice on an industry he knew well. Mr Icahn will not take any actions that trigger government employee status and not be in a position to set policy, “merely to offer his suggestions,” Mr Lynn said.

The market value of CVR, 82 per cent owned by Mr Icahn, has increased by $1.1bn since the election to $2.2bn.

Congress passed the biofuel mandate in 2007 in an effort to wean the US from foreign oil. If refiners or importers cannot meet the target — set at 15bn gallons for corn ethanol this year — they must purchase Rins instead.

Mr Icahn has criticised the provision, arguing the Rins market was riddled with fraud and that integrated oil companies and large petrol station chains should be required to buy them, not refineries.

“Rins are the quintessential example of the absurdity of so many regulations the EPA has issued,” he said.

Under Mr Obama, the EPA looked set to deny petitions to shift the Rin obligation away from refiners, arguing it could increase the complexity of an already complicated programme. The agency faces a test of its position after being sued in a Texas federal court last week by Valero Energy, the world’s biggest independent oil refiner, over the issue.

In a confirmation hearing last week Mr Pruitt reassured senators that he would “make sure that the statute is upheld and enforced and not undermined”.

Some experts doubted the Trump administration will water down the mandate, not least because it would infuriate the Corn Belt farmers who helped seal his victory. “It would be shocking for the president to cross those voters,” said Scott Irwin, an economist at the University of Illinois.

But Barclays, in a research note, said it expected the new administration would cut required ethanol volumes and suggested ethanol Rins would drop further.