September 28, 2017

Citi Warns of 'Bearish Shockwaves' through RIN Markets

Early bid and asked numbers for D6 RINs are at a wide 66cts to 70cts this morning, but there is concern about fallout from one confirmed Washington initiative, as well as reports of another unusual effort that could swell balances of the controversial Renewable Identification Numbers (RINs).

Analysts at Citi today warned clients that if recent reports are accurate, the price of D6 RINs could plunge to 30-35cts from recent trading levels from 66- 75cts. The bank does stress that the plunge would be predicated on potential cuts of biomass-biodiesel volumes as well as an export measure that might inflate conventional D6 ethanol RIN totals.

Under all scenarios, the bank sees RIN price volatility escalating while the policy shifts remain uncertain, and subject to likely litigation. The first hint of a policy shift came earlier in the week when EPA indicated it was taking comments on a potential reduction of biodiesel volumes that could knock 15% off the proposal. Citi believes this could carve out an additional 472.5 million gallons from the advanced category to 3.77 billion gallons and result in a total renewables volume of 18.77 billion gal (down from a proposed 19.24 billion gal.

Citi believes that a cut in the biodiesel volumes would be "moderately bearish" for RINs. But they note Wednesday news reports that talk of a potential White House deal that might allow corn-ethanol exports to count toward D6 compliance. That measure would be "structurally bearish" for conventional RINs. OPIS has not confirmed this initiative, but sources say that it would boost net RIN supply much closer to RIN generation and make for more inflated RIN balances.

September 20, 2017

Potential of Sugar Beets for Use as a Biofuel Feedstock Lauded

The production of sugar beets for use as a biofuel feedstock has the potential to span significant portions of the United States across "millions of acres" of land, according to a professor who studies the plant.

David Ripplinger, director of the Bioenergy and Products Innovation Center at North Dakota State University, told OPIS on Tuesday that the sugar beet biofuel industry could eventually involve "possibly millions of acres, with production across the northern United States, the West, Mid Atlantic and South."

The Environmental Protection Agency in July invited comment on its analysis of upstream greenhouse gas (GHG) emissions attributable to the production of sugar beets for use as a biofuel feedstock. EPA said that it may apply the analysis in the future to determine whether biofuels produced from sugar beets meet the necessary GHG reduction threshold required for qualification as renewable fuel under the Renewable Fuel Standard program.

"We anticipate that biofuels produced from sugar beets could qualify as renewable fuel or advanced biofuel, depending on the type and efficiency of the fuel production process technology used," the agency stated.

Ripplinger called EPA's pronouncement "a critical step in commercializing new biofuels."

"Having an approved pathway is critical to commercialization to make a project bankable," he said. "Having a lower-carbon-intensity fuel increases the marketability of the fuel, especially into states like California that have a low-carbon fuel standard."

Observers had expected to hear from the agency sooner, according to Ripplinger.

"EPA underestimated the number of submissions of biofuel pathways that would be submitted, leading to a logjam of applications," he said. "The sugar beet application was slowed in part because it required additional modeling, there were later applications that were submitted and EPA froze all applications to overhaul the application process."

The agency next needs to finalize its estimates of the greenhouse gas emissions associated with the production and transportation of sugar beets destined for biofuel, according to Ripplinger.

"Then it will need to estimate the greenhouse gas emissions resulting from processing those beets into fuel," he said.

EPA previously said that it had received petitions from Green Vision Group (GVG), Tracy Renewable Energy and Plant Sensory Systems asking that it determine the renewable fuel categories, if any, for which biofuels produced from sugar beets may be eligible.

North Dakota-based GVG told OPIS last year that it had put on hold plans to process industrial sugar beets to make biofuels, with its president, Maynard Helgaas, saying that "EPA has been dragging its feet approving industrial beets as a feedstock."

In comments submitted to EPA, GVG outlined plans to construct processing facilities with annual capacity of 20 million gal, each of which would require about 750,000 tons of beets. About 26.5 gal of ethanol would be produced per ton of beets, it said.

The company indicated that it believes that EPA's assumed production of 26 tons per acre is too low for future production.

With beet production at 30 tons per acre, about 25,000 acres of beets would be needed per facility, it said.

"With a four-year crop rotation, we need a total of about 100,000 acres of land committed to beet production on a long-term basis," it added.

Ripplinger said that "it will likely still be a few years" before energy beet projects are seen sprouting up across the country, noting that "energy prices are low."

He added that he is not sure where the first refineries will be built, but mentioned as possibilities California, Maryland, Florida and North Dakota.

According to the U.S. Department of Agriculture, the largest region for sugar beet production is the area of the Red River Valley of western Minnesota and eastern North Dakota.

September 13, 2017

Icahn Received 'No Assurances' on RFS Point of Obligation: Pruitt

Businessman and former White House regulatory adviser Carl Icahn "received no assurances" on how EPA would handle requests that it change the compliance obligation under the Renewable Fuel Standard (RFS)," agency Administrator Scott Pruitt told Senate Democrats on Monday.

In a letter to Rhode Island Democratic Sen. Sheldon Whitehouse, Pruitt said he was responding to letters that Whitehouse and a handful of other Senate Democrats had written to the agency this summer requesting all communications Icahn had with EPA about agency policies and regulation, particularly those involving the RFS.

A copy of the letter was obtained and first reported by E&E News.

Democrats in Congress said Icahn's dual roles as unpaid regulatory adviser to President Trump and majority owner in CVR Energy, a merchant refiner that has urged the EPA to move the RFS program's compliance burden to blenders from refiners and fuel importers, raised ethical and legal concerns. CVR has argued that the current point of obligation, which requires it to buy Renewable Identification Numbers (RINs) to comply with the RFS, poses a threat to its ongoing operations.

RIN prices fell and CVR's share price rose after Icahn was named to his White House position.

"Mr. Icahn was one of many of the president's advisors that I met with during my confirmation process," Pruitt told Whitehouse. "During that meeting I made no assurances with regard to the point of obligation or any other substantive issue."

Pruitt also said EPA's Office of Environmental Information searched the email accounts of 39 senior employees, both political and career staff, and found "no emails to or from any of those employees and Mr. Icahn or CVR on any subject."
The search covered the period from Feb. 17 to Aug. 18, Pruitt added.

Pruitt noted that Icahn is no longer serving as an adviser to the administration and said "EPA has taken no final action with regard to the point of obligation. I will continue to rely on the counsel of my talented staff -- both political and career -- to provide advice and inform the agency's decision making with regard to the RFS."

August 21, 2017

EPA May Grant Greater Future RFS Exemptions after Sinclair Court Ruling: TPH

The Denver Circuit Court of Appeals' ruling to overturn Sinclair Refining's small refinery exemption denial potentially suggests that the Environmental Protection Agency (EPA) could grant greater future exemptions, which may reduce the Renewable Identification Number (RIN) obligation for those companies that might qualify, according to Tudor Pickering & Holt (TPH) on Monday.

In response to the court ruling, D6 ethanol RIN prices pulled back from the recent rally to finish last week at 88cts/gal (-4cts week on week) after topping out at an intra-week and year-to-date 2017 high of 93cts/gal, the investment bank said. 

"We suspect a flurry of RFS [Renewable Fuel Standard] exemption applications could hit the EPA upcoming from any and all U.S. refiners with smaller-sized plants," TPH said.

Some industry sources said that if EPA grants more RFS exemptions to other smaller refineries in the future, the move would have an impact on the Renewable Volume Obligations for other obligated larger refiners. A greater number of exemptions could increase the share of the RFS obligation or mandate pie among larger obligated refiners for every barrel of small refiner exemptions.

However, the impact of higher RVO percentage for obligated parties is expected to be relatively small for each individual refinery, with the total exempted volumes divided among many obligated refiners.

Last week, the court in Denver ruled that the EPA exceeded its statutory authority when denying Sinclair's small refinery exemption extension request beyond 2013. Sinclair is a private Rockies refiner with two plants in Rawlins, Wyo., and Casper, Wyo.

The EPA originally denied the exemption under the agency's economic hardship waiver given that the two plants were profitable and compliance with biofuel regulations would not force operational closure. However, the appellate court vacated the EPA's decision and remanded the ruling back to the agency to reevaluate the company's application under additional considerations.

While small refiners may hope for RFS relief, large U.S. refiners can forget about it as last week's ruling does not apply to those entities, TPH said. 

"In fact, prior small refiner waivers have resulted in increased RIN costs for all other companies to pick up the slack as the EPA typically has not changed the total industry compliance figure in those instances," the bank said.

"In addition, we remind investors that the U.S. Court of Appeals of the District of Columbia in July '17 struck down the EPA's prior decision to lower the 2016 RFS blending mandate, which could put U.S. refiners on the hook for another 0.5 billion RINs to satisfy a potential retroactive change to last year's obligation," it added.

Setting aside the fact that the various circuits of the U.S. appellate court are all over the place on their differing RFS rulings, TPH does not expect any meaningful, structural decline in RIN prices unless Congress acts to alter the RFS program altogether. 

At 88cts/gal, current D6 ethanol RINs remains 3cts/gal above last year's average level, while D4 biodiesel RINs have not budged and remain elevated at $1.05/gal.

TPH estimates that U.S. refiners' RIN obligation costs comprise on average 60% D6 and 40% D4 RINs. The bank continues to hold a cautious view that RFS compliance costs still pose a meaningful headwind for refiner earnings with merchant refiners holding the most exposure, including CVR Refining, PBF Energy, HollyFrontier and Valero.

August 14, 2017

Legislative Changes for RFS Reform in 2018 Becoming More Likely: Bank

The Renewable Fuel Standard reform appears to be gaining steam, and legislative changes in 2018 are more likely to occur, according to Wells Fargo on Monday.

Last month, the Environmental Protection Agency was found to have incorrectly adjusted the renewable volume obligation for 2016, the bank said. While initially called a failure for U.S. refiners, the event may actually prove to be a prod for congressional action sooner than later, Wells Fargo said.

"We believe this is due to the fact that administrative action is currently unable to provide the necessary adjustments to ensure smooth operation of the Renewable Fuel Standard (RFS), that nearly every party to the RFS desires some changes to the regulation (clearly though some of these desired changes are incompatible), that the original intent of the RFS is no longer fully applicable and that after 2022, the RVO would solely be administered by the EPA with potentially detrimental changes occurring," the bank said.

Post-election, the bank's consensus view was that the EPA would unilaterally make changes to annual mandated volumes (overturned by court order), alter the point of obligation and other tweaks.

With the administrative side more restrained (or constrained by the courts and conflicts), the RFS still rife with challenges and mismatches between which biofuels are mandated versus which are available and the Reid Vapor Pressure restrictions (think emissions) limiting year-round use of more than 10% ethanol blends, nearly all participants are interested in adjustment to the RFS, Wells Fargo said.

The bank expects the energy committees in the Senate and House to debate the legislative changes for RFS reform this fall.

August 7, 2017

RFS Observers Ponder EPA's Next Moves in Wake of Court Ruling

After combing through a U.S. appeals court ruling that found EPA incorrectly interpreted language in the Renewable Fuel Standard (RFS) that permits it to reduce annual biofuel targets due to "inadequate domestic supply," renewable fuel and oil industry officials are beginning to consider exactly how they would like to see the agency comply with the July 28 order.

The U.S. Court of Appeals for the District of Columbia Circuit handed the renewable fuels industry a major win when it ruled that EPA erred by broadening the definition of inadequate domestic supply of biofuels to include "real-world constraints," including the E10 blend wall and the market's ability to consume increasing amounts of renewable fuels to justify reducing the 2014-2016 Renewable Volume Obligations (RVO) below levels set by Congress.

The court vacated the 2016 RVO and sent the rule back to EPA for further consideration. After failing to issue RVOs for 2014 and 2015, EPA in November 2015 said it was getting the RFS program back on track and issued final volume targets for 2014, 2015 and 2016. In each of those years, it reduced the volumes below statutory levels using the inadequate domestic supply waiver authority that the court struck down.

While several sources suggested this week that the ruling did not make clear whether EPA must also revise volumes in 2014 and 2015, most agree the decision was unequivocal and that only the 2016 RVO must be changed.

"The court clearly said that it was granting the petition for review of the '2015 Rule' ... and vacating the volumes for 2016 due to EPA interpretation of inadequate domestic supply. Therefore, 2014 and 2015 stand, which is not unexpected given that 2014 was over and 2015 was essentially over when the final rule was issued," Susan Lafferty, partner with Washington law firm Eversheds Sutherland said.

"The uncertainty now, of course, is what EPA will do with 2016," Lafferty added.

EPA has yet to comment on the order, but few sources expect the agency will opt to appeal the unanimous ruling by a three-judge panel. Most sources in the industry believe the agency will instead propose a plan for complying with the order, release its proposal for public comment and issue a final decision, a process that could extend into 2018.

While most RFS stakeholders have yet to decide what solution they will recommend that EPA pursue, sources familiar with the program suggested that several options are on the table.

Renewable Fuels Association (RFA) President and CEO Bob Dinneen last week said he believes that the agency could meet the court's order by simply raising the conventional biofuel target in the 2016 RVO from the 14.5 billion gal to the statutory cap of 15 billion gal.

Under this scenario, obligated parties would be required to add 500 million gal to their 2016 total and could accomplish that either by blending more ethanol or purchasing RINs, including by drawing down on banked RIN credits, which are estimated in excess of 2 billion.

"The oil companies are squealing like stuck pigs right now, but the court only remanded 2016, not 2014 and 2015," Dinneen said Thursday in an interview with Agritalk radio. "Had they done that, we'd be talking about more than 2 billion gallons" that they could need to make up.

"There are plenty of wet gallons to go around and plenty of surplus credits, so this won't have a major impact," he said, adding that EPA is likely to give the "oil industry some flexibility in how it can respond."

Scott Irwin, an economist with the University of Illinois, who closely follows RFS issues, said he is not convinced that the court intended to limit the order only to 2016 volumes.

"The court said the application of the waiver was invalid and it was clear in their discussion that they were talking about all three years. Which years matters a lot to ultimate remedies and EPA may need further clarification from the court or its own lawyers," he said.

"Does lateness trump the use of an invalid waiver? I'd be surprised if the court intended to create that type of perverse incentive with its ruling," he said, adding that EPA could as a result "build a case for being late" with its final RVOs.

Irwin Suggests Revising 2016 Advanced Biofuel Volumes May Be an Option

Irwin, however, said that if the court remanded only the 2016 volumes, EPA could propose reducing the 3.61 billion gal advanced biofuels target to 3 billion gal, a move that would free up 610 million gal and easily exceed the
500 million-gal shortfall. While the RFS statute sets the advanced biofuels minimum at 7.25 billion gal, Irwin said it could back out the 4.25 billion gal legal minimum for cellulosic biofuels, which is part of the advanced bucket, arriving at the 3 billion-gal number. Actual production of cellulosic biofuel last year was well below the 4.25 billion-gal target.

"With 3.61 billion gallons for advanced and 14.5 billion gals for conventional in 2016, EPA could adopt a 'switcheroo' strategy, take 500 million gal out of advanced and make it 3.11 billion gal. It could then shift those gallons to the conventional bucket and the "implied conventional number magically becomes 15 billion gallons," Irwin said.

Under such a plan, Irwin said, all obligated parties would have to do is take the D4 RINs they already turned in for compliance and apply them to the conventional obligation," something he likened to a "paper-shuffling exercise."

He acknowledged, however, that such a proposal would likely encounter resistance from the biofuels industry, which complained at EPA's public hearing last week on the proposed 2018 RVOs about the agency's plan to reduce the advanced biofuel target to 4.24 billion gal from 4.28 billion gal in 2017.

"On paper you can shuffle these volumes and there would be no pressure on RINs, but EPA can't just write these numbers down and will need to go through a long and involved rulemaking process to justify it, particularly after the fact," he said. Further, Irwin said, such a move would amount to a dramatic change in the trajectory for advanced biofuels that would not be consistent with the RFS.

Irwin said a second option would be to keep the advanced target in place and add 500 million gal to the conventional total for 2016, adding that while obligated parties would need to retire additional RINs, they'd likely be given some flexibility by EPA and could have a couple of years to meet the revised higher target.

Lafferty agreed that EPA may well choose to add 500 million RINs to the 2016 conventional biofuels target and could decide to allow the industry to make up the deficit through refiling 2016 and 2017 compliance reports. But she said that the agency will probably not be able to issue a final decision before Nov.
30, when it is required to release its final RVO number for 2018.

"If they still want to get those numbers out by Nov. 30 but they also want to spread out the retirement of RINs to include 2018 RINs, the agency could add language to the final 2018 RVO rule saying that at some point next year, it could potentially add to the 2018 volume requirement to comply with the court's order," Lafferty said.

What is unclear, she said, is whether the current administration will conclude that this approach creates a "RIN carry-over deficit" for obligated parties and would therefore be "problematic" given the restriction against an obligated party having a compliance deficit two years in a row.  EPA should be able to exercise its enforcement discretion and not pursue any technical violations were they to occur.

Lafferty said EPA also could temporarily relax current rules that bar the trading of RINs that are more than 2 years old to give obligated parties time to "reshuffle who is holding" the credits. "If EPA doesn't spread out the retirement of additional RINs for 2016, then you could see RIN prices really spike. ... In that regard, it would seem to make sense not to disrupt the market. EPA would seemingly have some incentive to say the 2016 volume requirements should have been bigger by up to 500 million gallons, but we are going to allow 2016, 2017 and 2018 RINs to be used to satisfy the shortfall."

Could EPA Justify 2016 Volumes Using 'Severe Economic Harm' Waiver?

Some in the oil industry are also discussing yet another option that EPA could pursue to comply with the court's ruling: Change the argument it used to justify the 2014-2016 RVOs from inadequate domestic supply to "severe economic or environmental harm."

"The court did a nice job both in oral arguments and in the written decision laying out what the general waiver authorities are for EPA under the RFS," Scott Segal, a partner with law firm Bracewell, which has represented a number of obligated parties, told OPIS last week.

"Supply is one and another is generalized, but severe harm to the economy or environment in a state, region or the country as a whole," Segal said, adding that he believes the court's order "seems to point EPA in the direction of severe economic harm."

"Now some have suggested that waiver is difficult to meet, but there's actually not a whole lot of clarification in the Clean Air Act about what 'severe' means in terms of economic harm," he said. "So it's pretty much up to the [EPA] administrator to use his discretion to determine whether there is severe economic harm, and that might be related to going through the blend wall, skyrocketing RIN prices, a lot of off-road or marine vehicles hurt by higher ethanol blends or if fleet vehicles used to move goods across the country were impacted. All of these are possibilities that could become the basis for severe economic harm.

"All the findings that EPA has made in the past to calibrate the RVO in an appropriate way could probably be adduced for other" applications of the general waiver authority," Segal continued. "I'm not overly concerned that EPA's hands are really tied in that respect."

Others, however, are much less certain that EPA could successfully switch arguments to maintain the 2014-2016 RVOs.

"The severe economic harm language in the statute seems to be a really high bar," Lafferty said. "It's never been tested, but at the time that was our assumption why EPA did not pursue both waiver authorities" when it reduced the volumes in the 2015 Rule.

Irwin was blunter: "I'd say good luck with that and believe it's wishful thinking. That statute says severe economic harm to a state, region or national economy, not to obligated parties, and that's a high hurdle to meet." He pointed out that the agency did not elect to use the economic harm waiver in 2012 when the U.S. corn market was in the "midst of the worst drought since the 1930s" and corn prices spiked.

Monte Shaw, executive director the Iowa Renewable Fuels Association, agreed, saying that if EPA thought it had a shot at using the severe economic harm waiver authority in 2015 "it would not have gone through the pretzel logic of saying demand equated to supply."

Shaw also said the renewable fuels industry needs to be reasonable in what it seeks from EPA in the wake of the court ruling. "We should be careful to not ask for anything that could slow down future rulemakings. That doesn't mean what we were cheated out isn't important, but what I am saying is that we have to be thoughtful. Let's find a reasonable and workable way to be made whole."

July 25, 2017

House Hearing Focuses on Future of Federal Biofuels R&D Support

A hearing Tuesday before two House Science subcommittees designed to examine federal support for research into advanced biofuels divided largely along party lines, with most Republican members arguing that the private sector should be shouldering more of the burden and Democrats insisting that continued government support is needed if the sector is to realize its potential.

At the hearing before the subcommittees on environment and energy, Environment Subcommittee Chairman Andy Biggs (R-Ariz.) said he believes the U.S. government has for "far too long been picking winners and losers in the American energy market" and that such support has, among other things, propped up "unsuccessful or mediocre business ventures" and stifled "innovation in the private sector."

"Rather than spending taxpayer dollars on misguided subsidies and inefficient commercial-scale projects, we should avoid intervening in the free market and focus instead on supporting federal funding for basic research that supports technological advances in biofuels and provides tools for businesses to deploy new technologies."

Biggs added that he plans to introduced on Wednesday legislation that would eliminate "biofuel subsidies and related programs" in the farm bill, saying that over the past 30 years taxpayers have paid out billions of dollars in biofuel subsidies.

He said the government should be focused on basic and early stage biofuels research. "The sooner this type of research comes to fruition and can be commercialized by the private sector, the better."

Biggs' comments were largely echoed by Energy Subcommittee Chairman Randy Weber (R-Texas), who in his opening remarks argued that the "federal government is a poor substitute for the market when it comes to picking the most effective energy sources and technologies."

The biofuels industry provides a cautionary example of this misplaced government investment. Unfortunately, the federal government hasn't accomplished much more than require the use of conventional biofuels that were already available in the commercial market," Weber said.

The hearing at times appeared to veer into attacks on the Renewable Fuel Standard (RFS), and Democrats on both subcommittees offered a defense of the program.

Rep. Suzanne Bonamici (D-Ore.) said U.S. dependence on the oil has made the country "subject to boom and bust cycles" in petroleum markets and "does nothing to reduce carbon emissions." She added that the RFS has helped the U.S. economy and provides net positive economic benefits and warned that "draconian cuts to biofuel research programs" outlined in the Trump administration's budget "threaten to derail that progress."

Paul Gilna, director of the BioEnergy Science Center at the U.S. Department of Energy's Oak Ridge National Laboratory said the DOE program was established in
2007 to focus on "bottlenecks" in the production of cellulosic biofuels. "Over the past 10 years the initial phases of the program have created multiple breakthroughs" in the use of non-food materials to create biofuels, he told the hearing.

Gilna also said industry is very much involved in the government's biofuels research and is interested in licensing products that "they can take forward.

Would industry do this alone? I think the evidence suggests they would not."

"The body of research over the past 10 years has created value and is now poised on developing products that could be produced more easily and less costly than those same products from oil."

Also testifying at the hearing were John DeCicco, a research professor of the University of Michigan Energy Institute and a long-time critic of the RFS, Nick Loris a research fellow with the Heritage Foundation and Growth Energy CEO Emily Skor.

In his testimony, DeCicco said that while "protecting the climate from a worsening disruption due to excess CO2 in the atmosphere is now a top challenge for energy research and policy," the "choice of what technologies to deploy must be left to the marketplace, to industries and entrepreneurs who take risks with private money rather than rely on private funds."

He added that the "federal push for advanced biofuels has failed," saying that despite years of support and billions of dollars of investment by DOE and other agencies, "none of the promised cellulosic fuels have become commercially viable, even with subsidies amplified by mandates."

Skor, however, took issue with that characterization, saying continued government support for biofuels is needed because the U.S. "fuels market is not a free market" and the biofuels industry is in the position of asking its primary competitor to be its customer.

She added that while some cellulosic biofuels technologies have been commercialized, progress has been hurt by a lack of consistent policies, including EPA's failure to release until late in 2015 annual renewable volume targets under the RFS for 2014 and 2015. The economic recession of 2007 also dampened private investment in the sector, she said.

"You are starting to see an infusion of money from the private sector into this technology, which is very much at a commercial scale," Skor told the House members. "We're not where we want to be, but we are making progress."

Gilna added that if the goals of the government are energy innovation, diversity and stability, they "require both private and public support."

July 24, 2017

Some Refiners Pushing for Establishment of New RIN Category

U.S. fuel markets are accustomed, though occasionally uncomfortable, with the alphanumeric nomenclature of D4, D5 and D6 Renewable Identification Numbers or RINs. But things could soon get even more complicated.

OPIS has learned that there is a substantial behind-the-scenes effort by a number of U.S. refiners to establish a sixth category of RIN, for now referred to as a D8. This RIN would accommodate the need for midlevel ethanol blends and could also offset some of the penalties that can affect refiners unable to blend much ethanol in their distribution systems.

Meetings to discuss promoting a new RIN have been ongoing for much of this year, and OPIS confirmed that a base case for a D8 RIN was presented last week at a meeting of the American Fuel and Petrochemical Manufacturers (AFPM) in Washington. In part, the effort is tied to "signals" given by the Environmental Protection Agency that suggest the agency is open to new ideas and will exercise more latitude in dealing with proposals that might have been regarded as anathema to the Obama administration.

Refiners are believed to be divided on the notion of a D8 RIN, just as they are not all on the same page when it comes to efforts (spearheaded mostly by Valero) to change the point of obligation for RIN compliance. Multiple sources have told OPIS that Marathon Petroleum, generally regarded as a moderate in the hydrocarbons-versus-ethanol debate, is the chief proponent of the new RIN, with some buy-in from other refineries who see little chance that the point of obligation will be changed to blenders from refiners and importers.

At this point, many of the particulars tied to this new D8 RIN as well as rules that would form its foundation, are vague. But the new RIN would be designed explicitly to apply to ethanol blended with conventional gasoline that exceeds 9.7% or 9.8%. Any ethanol blended up to that capacity might be treated as a D6 RIN, pretty much in line with the status quo. Ethanol blends above that threshold would qualify for the D8 RINs, sources said.

When word of a potential D8 structure first surfaced among top brass at one large independent refiner, the concept was welcomed. The theory proffered privately to OPIS by one executive was that D6 values would be driven lower by the additional blending. The D8 values would likely be determined by how much leverage the new RIN would create for the higher midlevel blends.

Large marketers who in many cases might be the biggest beneficiaries of expensive RINs could be the biggest losers, but OPIS cannot find any present backing for the effort beyond the refining sector. In truth, all of the chain marketers we talked to were not even familiar with the effort to establish a new D8 RIN, and OPIS also couldn't find ethanol executives familiar with the initiative.

Beyond worries from independent gasoline marketers and the agricultural segment, there are other problems that might work against the birth of a new RIN category.  A D8 classification would also apply to the incremental ethanol used for E85 and other blends that cater to the flex fuel fleets. Flex fuel vehicle tax breaks aren't likely to be restored.

There is also no effort that can be uncovered to deal with the problems that loom for biodiesel, particularly with a consensus view holding that restoring tax credits might be a quixotic task with the Trump administration.

Ultimately, several parties familiar with the D8 effort believe that the odds are stacked against the proposed structure. But odds makers haven't had a good run in the last nine months in politics or sports, so perhaps a long shot in energy regulation shouldn't be summarily dismissed.

Note: The notion of success or failure for a new RIN category was not a factor in the rise of D6 ethanol RINs this week. The rise in that category to 84cts and more was tied to some large refiner buying and not any perceived change in regulations.

July 19, 2017

Indiana Men Sentenced to Prison for Tax, RINs Fraud: DOJ

The co-owners of an Indiana biofuels company were sentenced to prison Tuesday by U.S. District Court Judge James Moody, the U.S. Department of Justice said.

Fred Witmer, 46, and Gary Jury, 58, of Triton Energy LLC and Gen2 Renewable Diesel LLC, pleaded guilty to conspiracy, fraud and false statements in October.

Witmer and Jury were sentenced to 57 months and 30 months in prison, respectively. According to their pleas, Witmer and Jury generated more than $60 million in fraudulent tax credits and Renewable Identification Number (RIN) credits under the Renewable Fuel Standard. As part of their pleas, Witmer and Jury agreed to the prison sentences.

Witmer admitted to fraudulently claiming tax and RIN credits on non-qualifying renewable fuel and to deceiving buyers of his RIN credits. And while Witmer represented that the fuel was used as transportation fuel, he admitted selling it to be made into fire starter logs and for asphalt and cement production. Jury admitted conspiring to fraudulently claim tax credits and to providing false statements to the EPA, DOJ said.

"The defendants purposefully defrauded the federal government, taking illegal advantage of a program created by Congress to help our nation achieve energy, economic, and environmental goals," acting Assistant Attorney General Jeffrey Wood of DOJ's Department's Environment and Natural Resources Division, said in a statement. "These crimes have been prosecuted to the fullest extent, and our actions here demonstrate that the Justice Department will continue to prosecute fraud in the RIN markets."

"The defendants' massive fraud in this case undermines the competitive and fair marketplace on which law abiding renewable fuels producers depend," said acting Assistant Administrator Larry Starfield for EPA's Office of Enforcement and Compliance Assurance. "This case shows that EPA is fully committed to working with our law enforcement partners to pursue and hold accountable entities that break the law."