U.S. biofuels credits drop as EPA delay uncertainty grips market

Source: By Chris Prentice, Reuters • Posted: Thursday, January 26, 2017

Prices of paper credits used to meet U.S. biofuels standards dropped to over one-year lows on Wednesday, extending the previous day’s slide on news of a government freeze that heightened uncertainty over the program.

The U.S. Environmental Protection Agency (EPA) said in a notice this week that the federal agency is delaying implementation of 30 regulations finalized recently by the Obama administration. That included implementation of 2017 biofuels requirements, which sent prices of Renewable Identification Numbers (RINs) into a tailspin as traders bet on the possibility President Donald Trump’s administration may relax requirements.

In response, RINs hit their lowest prices since 2015 on Wednesday, according to data from the Oil Price Information Service.

“Unless you are dropping the mandates by a substantial amount, you are going to need RINs,” said Bruce Babcock, an economics professor with Iowa State University. “Someone is betting big time they won’t need those RINs this year.”

An EPA official on Wednesday said one of the agency’s first orders of business is briefing the Trump administration on the Renewable Fuel Standard (RFS) and upcoming deadlines for the program.

The implementation delay was seen by some in Washington as procedural, but has exacerbated the uncertainty over the RFS as Trump seeks to install leaders who have criticized the program.

Chris Grundler, director of EPA’s Office of Transportation and Air Quality, on Wednesday cited recent comments from Scott Pruitt, who has been nominated to lead the agency, that he plans to operate the program as intended by Congress, which in 2007 established annual volumes of biofuels required to be blended with gasoline and diesel.

The more than decade-old RFS program was designed to boost use of renewable fuels including ethanol and biodiesel to reduce dependence on foreign oil, cut greenhouse gas emissions and boost rural economies. It has been plagued by regulatory delays in years past and become a lobbying battlefield between oil and corn interests.

The agency typically needs to propose requirements for a given year in the spring prior to finalize them in order to meet a Nov. 30 deadline.

RINs, which are used by oil companies to meet the RFS requirements, dropped as low as 48 cents each on Wednesday before recovering to about 56 cents each later in the afternoon, brokers and traders said.

“God laughs at us when we predict oil prices or RIN prices,” Grundler said, when asked about the selloff in prices. “It is very early days.”

(Reporting by Chris Prentice in New York and David Shepardson in Washington; editing by G Crosse)