EPA Refiner Waivers Signal Potential RINS Policy Change

04/05/18 03:56PM EDT

Trump Considering Policy Changes to Renewable Fuel Standard to Provide Refiners Relief from Costly RINS Regulation. Decision expected in April.

EPA Refiner Waivers Signal Potential RINS Policy Change  - zbra

The Environmental Protection Agency (EPA) granted waivers last month to three small refineries of Andeavor (ANDV) that exempted them from compliance under the Renewable Fuel Standard (RFS) for 2016, Reuters reported on Tuesday.

The waivers mean the refineries do not have to blend ethanol or other biofuels and do not have to buy RIN credits to comply with the RFS. Under the RFS law, EPA is allowed to grant waivers to small refineries for economic hardship due to compliance. 

While the waivers alone are a big development for the individual companies receiving them, we think it signals a larger policy change being considered by the Trump Administration. We believe there is a greater than 50 percent chance the White House will soon implement changes to the RFS regulations that will provide relief to refiners from costly RINS compliance. 

Last fall, the Administration and EPA were considering various policy options to the RFS program but succumbed to political pressure from corn state Senators who were holding up a key EPA nominee. 

After the policy changes were abandoned, a Philadelphia refiner declared bankruptcy and placed blame on the RFS program and expensive RINS. Senators from oil and refining states retaliated by holding up a key Agriculture Department nominee important to corn states. 

The two legislative power plays resulted in the White House convening both sides for talks to develop policy proposals but have not resulted in any progress.  But EPA and other key policymakers in the administration have continued work behind the scenes and will soon present Trump with several policy options that will likely give something to both sides. 

We believe the administration will try to offer win-win for both side including a waiver to allow sales of E15 ethanol during summer months as well as a change similar to proposal floated by Senator Ted Cruz (R-Texas) to cap RIN credits at 10 cents or allow refiners to purchase discounted RINS directly from the federal government when prices are above a certain level. 

It is also possible that Trump may decide to do nothing but we believe this is not a likely outcome. The Philadelphia Energy Solutions refinery bankruptcy has provided some urgency to the policy process that did not exist last fall when the Administration sided with renewable fuels groups. 

In our view, the EPA waivers granted to Andeavor last month highlight the policy problem presented by the RFS and now signal the direction the Administration will likely take in providing RINS relief.  On timing, we believe we are near the end of the process and a decision may come as soon as this month.

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