Oil industry infighting heats up as EPA weighs biofuels rule change

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By Chris Prentice | NEW YORK

NEW YORK Feb 23 Oil companies showed deepening
divides on the future of the U.S. biofuels program in solicited
comments from the Environmental Protection Agency (EPA) over a
plan sought by some refiners to shift the program’s financial
burden to retailers and blenders.

All sides are pushing hard, seizing the opportunity to test
President Donald Trump’s commitment to the program. Trump has
supported the program, but top figures in his administration
have criticized it.

Refiners, integrated oil companies, fuel retailers and
biofuels manufacturers flooded the EPA with comments on its plan
to deny requests from refiners to tweak the U.S. Renewable Fuel
Standard (RFS) by pushing the compliance burden further
downstream.

Within the oil industry, the fight pits Valero Energy Corp and billionaire Carl Icahn against refiners like
Marathon Petroleum Corp. Biofuels advocates are worried
about losing progress into the U.S. fuel stream since lawmakers
established the RFS program in 2005 under then President George
W. Bush.

In November, the Obama administration EPA said it was
prepared to deny requests from oil refiners to shift compliance
obligations, but opened that decision to public comments, due on
Wednesday.

Some, such as the American Petroleum Institute, have labeled
the system broken and urged dramatic overhaul. U.S. Independent
refiners such as Phillips 66 say the system is financially
burdensome and targets the wrong group.

The biofuel industry and fuel retailers have asked the EPA
to keep the program intact, saying it has achieved its goals of
reducing consumption of fossil fuels and creating jobs.

“We believe the current structure of the RFS has generally
worked to drive expanded production and use of renewable fuels
in the U.S. marketplace,” Bob Dinneen, president of the
Renewable Fuels Association said in a letter to the EPA.

The final decision rests with an agency under the oversight
of Scott Pruitt, former Oklahoma Attorney General and critic of
the RFS who has pledged to scrub unnecessary regulations.

Speculation has risen that the EPA might now be more likely
to consider the change, especially after Trump announced the
installation of Carl Icahn, majority shareholder of CVR Energy
Inc, as a special advisor on regulation. Icahn has been
an outspoken critic of how the program operates. Shares of CVR
have risen 37 percent since the election.

Valero and Phillips 66 contend the current program
structure distorts the market. Each year, EPA requires fuel
companies to blend biofuels into the gasoline and diesel pool.
Companies can either blend or buy compliance credits, known as
Renewable Identification Numbers (RINs), from those who have.

Prices of these credits jumped after EPA set targets for
biofuels use in 2017 that were higher than some anticipated. Oil
refiners without significant retail arms, including Valero,
reported paying a record amount for these credits last year. RIN
prices have tumbled since the election.

Valero is the country’s largest oil refiner and one of the
country’s largest ethanol producers, but has limited capacity to
blend after it sold its retail segment in 2013. It contends that
fuel retailers including Casey’s General Store benefit
unfairly from selling RINs generated from their blending
operations.

Casey’s countered in its comments to the EPA that there was “no explicit connection between Casey’s motor fuel profitability
and RIN values.”

Marathon, which has invested heavily in increasing its
ability to blend biofuels, in comments to the EPA dated Feb. 21
said it opposed shifting the burden to retailers and blenders,
arguing it would create risk for the viability of the RIN market
by adding more companies to the list of those required to prove
they are using biofuels.

“The Renewable Fuel Standard is broken, and changing the
point of obligation only pushes these problems to a different
group of entities,” said American Petroleum Institute Downstream
Group Director Frank Macchiarola in prepared remarks on
Wednesday.

The issue has even divided small and large fuel retailers.

The Small Retailers Association told the EPA its members
cannot compete with larger ones who can blend gasoline and
generate sellable credits that lower their cost.

“They are then able to use this profit to roll up small
businesses,” the group said. (Additional reporting by; Jarrett Renshaw; Editing by David
Gregorio)



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