March 17, 2017
by Zachary R. Mider and Jennifer A. Dlouhy
Carl Icahn, the billionaire investor and adviser to President Donald Trump, said he’s betting on a decline in the market for renewable-fuel credits that he’s urging the president to overhaul.
Icahn participates in the market through CVR Energy Inc., the oil refiner in which his Icahn Enterprises LP owns an 82% stake. CVR is required to buy the credits, known as renewable identification numbers, or RINs, when it makes gasoline. But Icahn said it’s delaying those purchases in a wager that prices will fall. In effect, he’s shorting the market.
“I’m not selling ’em, I’m not buying ’em,” the 81-year-old investor said in an interview at his New York office last week. “Hey, this is what I do in the market. I’m taking a chance.”
Suspicions that Icahn was speculating in the opaque RIN marketplace have been circulating for months. His critics deem it a conflict of interest because Icahn has sought to influence the Environmental Protection Agency’s policy as an unpaid Trump adviser on regulation, often in ways that cause price swings.
“It’s bothersome that one guy can control RIN markets like this,” said Brooke Coleman, executive director of the Advanced Biofuels Business Council, which opposes the policy change Icahn is pursuing.
The Bush-era law known as the Renewable Fuel Standard requires that billions of gallons of biofuel be added to the nation’s gasoline. Today, about 10% of U.S. motor fuel is made of corn, not oil. The EPA enforces this mandate by requiring refineries and importers to blend in ethanol and other biofuels, or buy RINs from those who do the blending.
CVR’s refineries in Kansas and Oklahoma rely mostly on buying RINs from others, and Icahn has said a recent spike in the price of credits is costing the company more than $200 million a year. Last year, he became an advocate of changing EPA rules so fuel blenders, rather than refiners, face the compliance burden. In industry jargon, he wants to shift the point of obligation.
Icahn’s campaign got a boost when Trump won the election last year, causing RIN prices to decline. They also dropped when Trump, with input from Icahn, selected Scott Pruitt to lead the EPA, and again when the president-elect announced Icahn’s special adviser role. Yet another decline came on Feb. 28, after Icahn conveyed a proposal to the White House to change the point of obligation and helped persuade an ethanol group to drop its opposition.
RINs tracking 2017 ethanol consumption targets cost about 36 cents apiece as of March 15, data compiled by Bloomberg show. By comparison they fetched 91 cents on Nov. 8, Election Day.
Oil Price Information Service, which publishes data and commentary on the RIN market, reported that CVR Energy took the rare step of selling large quantities of the credits on two occasions last year. The first took place in August, around the time Icahn wrote to the EPA demanding a change in the regulations, the service reported. Another came in December, when Pruitt’s selection was announced. Both reports cited unnamed RIN traders.
In the interview, Icahn declined to comment on those reports. His remarks about neither buying nor selling credits referred only to the current CVR strategy, not what the company did in the past, Icahn’s general counsel, Jesse Lynn, said in a subsequent email.
“There is nothing unusual or inappropriate about any RINs trading that may have been conducted by CVR,” Lynn wrote. “Carl Icahn at no point had the ability to influence EPA or White House policy with respect to RINs or the selection of the head of the EPA, but merely an opportunity to express his views, as did many others on both sides of the issue.” Icahn never had “material non-public information” about EPA and White House actions, Lynn said, and the views he expressed to the administration were no different from his public positions.
As for the current RIN strategy, Icahn said that speculators drive up prices for the credits, ganging up on refineries that are forced to buy them. So CVR takes advantage of the fact that it has as much as a year from the time it sells fuel to the time it must turn over the corresponding credits to the EPA.
“They keep pushing the price up, thinking I’m just going to buy it,” he said. “And I stopped doing it. I said, ‘Screw ’em,’ because I have a year.”
This strategy makes CVR different from most refineries, which rarely wager on the direction of prices, Icahn said.
Separate from his trades in the RIN market, Icahn has seen his stake in CVR climb in value since Trump’s election, making him more than $500 million on paper. Lynn, his general counsel, noted that before the recent surge, high RINs prices had knocked more than $2 billion off the shares’ value.
Icahn said the EPA rules have resulted in an arbitrary transfer of wealth from independent refiners like his, which must buy RINs, to large oil companies and gas-station chains that sell them. Others disagree. Those who support the current system include most groups representing the corn and ethanol industries, truck stops and the American Petroleum Institute. President Barack Obama’s EPA endorsed the status quo in November.
Icahn’s special adviser title doesn’t make him a government employee, and he’s not required to comply with ethics rules or sell any of his financial holdings to reduce conflicts of interest. When he speaks with Trump and the White House, Icahn said, he’s merely acting as a private citizen whose opinion the president values. The White House has yet to act on his proposal.
--With assistance from Mario Parker.
Robert Friedman, David Scheer
© 2017 Bloomberg L.P
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