As we reported on April 5, the Trump Administration will soon announce policy changes to the Renewable Fuel Standard (RFS) program that will be viewed as a win-win for both sides but likely provide significant relief to refiners from high RINS costs.
The Environmental Protection Agency (EPA) is quickly developing the new proposed rules that will allow E15 ethanol sales during summer months (that are now prohibited by the Clean Air Act) and also allow ethanol exports to qualify for RINS credits. Reuters reported the general news on Friday here.
President Trump held a meeting on Tuesday morning with administration officials and Senators from ethanol and refining states to hammer out a final deal after months of back-and-forth discussions. During the meeting Trump is said to have agreed to the both the ethanol exports and the E15 sales policy changes and directed EPA to take the necessary steps.
The rules are in the final stages of development and could be released as soon as next week. In our April 5 note, we forecast that the policy changes could be released by the end of April so we are off only by about two weeks or so.
The changes are a win-win for both sides in the RFS debate. E15 summer sales would potentially lead to greater volumes of ethanol on an annual basis and is a policy change the biofuels industry has sought for years. The ethanol exports change is major victory for refiners. Under current rules, RINS credits do not attach to ethanol or biofuel exports. The new proposed change would attach RINS credits to exports and greatly expand the number of RINS credits available to the market.
Refiners estimate that allowing RINS for ethanol exports alone could result in RINS trading in a 15-30 cents range and provide significant relief from high compliance costs under the RFS program.
It is not clear whether the changes would be permanent or temporary for either or both of provisions.
Renewable Fuels Advocates also assert that EPA will provide reallocations of credits lost due to small refiner waivers granted by EPA over the last year. To date, EPA has granted nearly 25 small refiner waivers that exempt the refineries from RINS compliance. The number is double the amount from the previous year.
We believe this is not a settled point and think it is unlikely there will be some retroactive treatment of the small refiner waivers that were already issued. However, it is possible that we could see some stronger conditions for the granting of waivers in the future. It should be noted that the record number of waivers that were granted by EPA this year is due to a provision passed by Congress and a recent court ruling directing EPA to consider less-stringent criteria. This provision may therefore be subject to litigation.
Similarly, renewable groups claim the change to ethanol exports is illegal and so we expect this will also be something that gets litigated. Renewable groups have aggressively opposed attaching RINS to exports and held up an EPA nominee last year that resulting in EPA Administrator sending a letter to pro-RFS Senators that took ethanol exports off the table.
