Exclusive: U.S. EPA aims to curb biofuel credit speculation by blocking outsiders

WASHINGTON (Reuters) - The Environmental Protection Agency will attempt to stamp out speculation in the U.S. biofuel credit market by barring trading by non-industry players, publicizing large positions, and improving price transparency, a source familiar with the agency’s proposals told Reuters on Thursday.

FILE PHOTO: The U.S. Environmental Protection Agency (EPA) sign is seen on the podium at EPA headquarters in Washington, U.S., July 11, 2018. REUTERS/Ting Shen

The measures, included in a broader policy reform under review by the Trump administration, are intended to help U.S. oil refiners cope with the costs of complying with the U.S. Renewable Fuel Standard. Under the law, passed in 2005 and expanded in 2007 partly to help expand farmers’ market for corn, refiners must blend certain volumes of biofuels like ethanol into their fuel or purchase credits from those that do.

For years, refiners have complained that the market for such credits is vulnerable to manipulation that has at times caused prices to surge, and compliance costs to rise with them.

Under the measures, parties such as banks and financial institutions that are not part of the fuel supply chain will not be permitted to trade biofuel credits, called Renewable Identification Numbers or RINs, according to the source.

Such traders have in the past acquired large volumes of the biofuel credits in speculative plays, forcing smaller players that require credits to comply with the biofuels law to scramble to buy them, often at higher prices.

Another of the five proposed measures to curb credit speculation calls for RIN buyers to disclose their holdings to the EPA if they acquire volumes beyond a certain threshold – likely 120 percent of their obligation under the Renewable Fuel Standard, the source said.

The measures also require quarterly, instead of annual, retirement or sales of the credits to prevent “hoarding,” a quarterly limit to how long credit stockpiles can be held, and improving EPA’s market monitoring capabilities by collecting information about transactions, the source said.

“All this is meant to limit hoarding and create greater liquidity in the market place,” the source said.

Michael Abboud, an EPA spokesman, declined to comment on the content of the proposal.

The EPA sent the draft rule to the White House for review on Monday, and hopes to finalize it before the summer driving season.

The anti-speculation measures have been twinned with another EPA proposal to expand sales of higher ethanol blends of gasoline, called E15, year-round, to help corn farmers supplying the ethanol industry.

President Donald Trump in October directed the EPA to draft the two-part rule as a way to please both the oil and agricultural industries, crucial constituencies which have often bitterly battled over biofuels.

While the Renewable Fuel Standard has helped farmers by creating a 15 billion gallon a year market for corn-based ethanol, oil refiners have increasingly complained that compliance costs them a fortune and threatens the very blue-collar jobs Trump has promised to protect.

Reporting by Humeyra Pamuk in Washington; Writing by Richard Valdmanis; Editing by Chizu Nomiyama, Matthew Lewis and Richard Chang