Comments on RINs Changes Mixed

E15 Public Comment Period Closes as Clock Ticks Toward Driving Season

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The public comment period closed Monday for an EPA rule that would allow year-round E15 sales and make reforms to the biofuels credit market. (DTN photo by Greg Horstmeier)

OMAHA (DTN) -- Comments submitted before the April 29 deadline have drawn a predictable line in the sand on allowing year-round E15 sales and reforming the biofuels credits market.

The ethanol industry made a push for E15 and is unified against credits reform, while refining interests said little about E15 while calling for reform.

EPA said it intends to finalize the rule in time for the summer driving season starting on June 1, though ethanol industry officials have concerns that the deadline will not be met. In addition, there's concern the proposed reform for Renewable Identification Numbers, or RINs, could ultimately doom the E15 portion of the rule.

EPA proposed a number of reforms, including prohibiting certain parties from being able to purchase separated RINs, requiring public disclosure when RIN holdings exceed specified thresholds, limiting the length of time a non-obligated party can hold RINs, and increasing the compliance frequency of the program from annually to quarterly.

Obligated parties to the RFS, including refiners and others, are allowed to buy RINs or blend biofuels to comply with the law.

"To ensure E15 sales are not interrupted again this year, NCGA urges EPA to complete this rulemaking by June 1, as well as ensure the complex RIN market reform proposal does not weigh down the E15 rule and remains severable," the National Corn Growers Association said in comments.

"While farmers are not direct participants in the RIN market, we know an effective RIN market helps drive biofuels blending under the Renewable Fuel Standard and NCGA is concerned with many of the proposed changes for the RIN market. EPA must ensure RIN market rules are fair to those who are blending biofuels to further the RFS and maintain an efficient RIN marketplace. As such, EPA should not finalize the four primary proposed RIN market changes."

NCGA said obligated parties to the Renewable Fuel Standard have had more than 10 years to comply with the law.

"Although many have made compliance adjustments, others have not," the group said. While some obligated parties have raised concerns about higher RIN values, EPA, in numerous reviews such as annual RFS volume rulemakings, has repeatedly concluded RIN values do not have an economic impact on refiners."

NCGA said the agency should implement "additional market monitoring capabilities" before undertaking any RINs reform.

"Beginning with enhanced data systems and data collection, EPA could then better assess whether RIN market manipulation is occurring," NCGA said. "By diagnosing a problem before proposing solutions, EPA would be in a better position to support transparency and function in the RIN market.

"Rather than increasing transparency, EPA's proposed reforms tilt the playing field in the RIN market in ways that discourage biofuels blending. The RIN marketplace exists to offer compliance flexibility for meeting parties' RFS obligation -- an obligation to blend biofuels."

On E15, NCGA said the cost to retailers to add E15 is "often exaggerated."

According to "The Petroleum Equipment Institute and the USDA, most stations can upgrade their hanging hardware and dispensers, adding E15 capability for as little as $1,000," NCGA said. "Converting current fuel positions costs even less."

COMPLIANCE COSTS

The agency is working on the rule at a time when RINs prices are low. In addition, EPA has said refining companies recover the costs of RINs by increased prices at the pump. Despite that, the reform proposal came about in response to refining interests' concerns about costs and price volatility.

Refiner HollyFrontier said in comments that reforms are needed.

"HollyFrontier believes that the proposed suite of RIN market reforms will help reduce RFS compliance costs and bring much relief for obligated parties," the company said.

"Key to these initiatives is EPA providing in a final rule a package of reforms as is proposed, and not moving single RIN market reforms in isolation. These and other reforms should help reduce RIN market manipulation and ensure that the credits operate as the compliance mechanism that Congress intended," the company added.

The Fueling American Jobs Coalition, which consists of a group of manufacturers and refiners, said in a statement the proposed RINs reform is a "significant initial step" "to address some of the flaws inherent in the compliance credits that underpin the Renewable Fuel Standard. While intended as a simple compliance mechanism, the unregulated and opportunistic trading of RINs credits has enriched speculators, integrated oil companies and large marketing firms while subjecting merchant refiners to a burdensome and unpredictable hit to their bottom lines -- in some cases, forcing refiners to pay more for RINs than the cost of their own payroll -- and threatening manufacturing jobs."

Ethanol interest groups Growth Energy, the Renewable Fuels Association and the American Coalition for Ethanol said in separate comments the reforms threaten the RFS.

The Commodity Futures Trading Commission, or CFTC, could find no evidence of RINs market manipulation. However, the CFTC said market data available is inadequate to make a definitive determination.

"We believe EPA's proposed RIN market interventions could create the very market distortions they are intended to remedy and should not be included in the final rule," Growth Energy said in a summary of its comments.

"We believe that the proposed quarterly and asymmetrical compliance mechanisms, along with proposed limits on RIN market participation, would reduce market liquidity and increase incentives for parties to 'game' the system to gain an unfair price advantage."

The Renewable Fuels Association said it opposes any reforms that would reduce "compliance flexibility, diminish liquidity in the RIN market, give certain parties in the marketplace unfairly advantaged positions, add unnecessary complexity, increase administrative burdens, or impugn the RIN market's ability to incentivize expansion of renewable fuel consumption.

"While RFA is supportive of enhancing transparency in the RIN marketplace, RFA does not believe any of the four primary RIN reform options in the proposed rule would accomplish that objective."

The American Coalition for Ethanol said the RINs reforms would have the "effect of reducing liquidity in the RIN market, consolidate power in the hands of certain oil refiners, and limit fuel wholesalers, blenders and retailers from using RIN value to sell higher blends of ethanol.

"Taken together, the RIN reforms constitute a poison pill which is incompatible with the goal of making E15 available to consumers year-round."

BREAKING PROMISES

Iowa Renewable Fuels Association Executive Director Monte Shaw said in comments the reforms would "radically alter RIN regulations" and would "undermine the incentive to blend renewable fuels, thereby breaking" President Donald Trump's promise to protect the Renewable Fuel Standard.

"If EPA adopts RIN procedures that eviscerate the value of RINs, as this proposal does, then the agency has eviscerated the incentive to expand the use of renewable fuels, which is the main purpose of the RFS," Shaw said.

The EPA also received comments from the National Biodiesel Board, the American Corn Growers Foundation, ethanol plant owner Midwest AgEnergy Group and Quad County Corn Processors in Iowa -- all opposing RINs reforms.

"Instances where market manipulations are alleged to have occurred have typically involved an obligated party, but the proposed changes do nothing to limit the opportunity for obligated parties to buy and sell with other obligated parties," Midwest AgEnergy said in comments.

"All other entities are restricted on how many RINs they can own, how long they can hold RINs, or the ability to purchase RINs at all. Since all of these restrictions will be placed on entities trying to function in the same marketplace as obligated parties, it appears the proposed changes purposefully create more inequity instead of removing it."

Todd Neeley can be reached at todd.neeley@dtn.com

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(BAS/CZ)

Todd Neeley