by Jennifer A. Dlouhy and Mario Parker
The Environmental Protection Agency is poised to jettison proposed trading restrictions on a $5.2 billion market for biofuel compliance credits in a coming rule, casting aside changes sought by independent refiners complaining of hoarding and wild price swings.
The EPA’s shift comes as the agency races to meet a May 31 rulemaking deadline amid pressure from large oil companies and fuel distributors that oppose the market overhaul. It was described by people familiar with the internal deliberations who asked not to be identified before a formal announcement.
The EPA had been considering numerous possible restrictions to the holding and trading of renewable identification numbers, or RINs -- the credits refiners use to prove they have fulfilled annual biofuel-blending quotas. But in a final rule set to be issued Friday, the EPA is set to make only a handful of modest changes, mostly aimed at boosting transparency.
The RINs modifications are bundled together in the same regulation as a measure that would allow sales of gasoline containing as much as 15% ethanol during the summer, which is meant to fulfill a promise President Donald Trump made to rural voters and corn farmers last fall. The EPA is racing to finalize the rule before June 1, when air pollution requirements kick in to block sales of that E15 gasoline in areas where smog is a problem.
Although the EPA is backing off aggressive reforms as part of that rule, agency officials will continue to evaluate other market changes that Trump ordered them to consider to prevent price manipulation. Future reforms would come on a different timetable and probably through separate rulemaking, said a person familiar with the effort who asked not to be named describing private deliberations.
In an emailed statement, the EPA stressed it was not abandoning market reforms. “EPA is not watering down or ‘jettisoning’ the reforms considered in its proposal,” the agency said. “EPA’s final action, which will be signed by the summer driving season, is consistent with the president’s direction last year and will help increase transparency and prevent price manipulation in the RIN market.”
The time crunch on the E15 regulation factored into EPA deliberations, making it harder to finalize complex changes to the RIN market, like the possible reforms the EPA outlined in March. The agency’s initial proposal would have imposed position limits meant to stamp out hoarding, forced most traders to sell credits quarterly, and largely limited trading to fuel exporters, importers and refiners. The EPA also envisioned more aggressive monitoring of the RIN market, including obtaining details about contract terms and disclosing traders with outsize positions.
Now, as the agency rushes to finalize the E15 rule, it is discarding the more aggressive, immediate changes in favor of modest, transparency-focused tweaks. The EPA is expected to preserve a disclosure requirement that would reveal details about companies that hold large positions -- both more than 3% of the credits needed nationwide in any given year and more than needed to satisfy 130% of their individual quotas.
The shift could benefit some large oil companies and fuel distributors that generate more credits than they need by blending biofuel such as corn-based ethanol into gasoline. Aggressive market changes could have limited their freedom to maneuver in the RIN market, such as by forcing them to regularly sell credits. Some oil companies and biofuel producers have urged the EPA to boost RIN trading transparency and boost agency monitoring of the RIN market to see if more aggressive action is warranted.
By backing off deeper changes in the coming rule, the EPA is set to disappoint to some independent oil refiners that have complained about volatile prices, credit hoarding and speculation.
The underlying E15 change could expand the U.S. market for corn-based ethanol, by allowing more stations to sell it during the peak summer driving season. EPA officials have steadfastly maintained they will issue the final E15 regulation in time -- before Saturday, June 1, when smog rules restrict its sale.
To contact the reporters on this story:
Jennifer A. Dlouhy in Washington at firstname.lastname@example.org;
Mario Parker in Chicago at email@example.com
To contact the editors responsible for this story:
Jon Morgan at firstname.lastname@example.org
© 2019 Bloomberg L.P.