Icahn’s Pig in a Poke

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By Brent Erickson, Biotechnology Innovation Organization

Members of the U.S. Senate are questioning whether Carl Icahn’s lobbying to change the Renewable Fuel Standard creates an ethics conflict with his role as advisor in the Trump administration. In addition to the ethics question, Members of Congress and some in the biofuels industry should examine whether Icahn could even deliver on the purported quid-pro-quo even if he wanted to.

In late February 2017, Icahn and a biofuel trade association reportedly discussed a presidential executive order to make Icahn’s desired change to the RFS Point of Obligation (the so-called POO) in exchange for modifications to unconnected policy priorities for biofuel producers. The proposed “deal” essentially was a non-starter, since altering federal policies is a far more challenging task than Icahn or his partners care to admit publicly. In short, the reported “deal” cannot be accomplished simply by waving a magic wand or through a presidential executive order.

Icahn claims the RFS exacts a disproportionate toll on his business interests, and he therefore wants to move the POO as far from CVR as possible. Icahn Enterprises owns 82 percent of CVR Energy, which includes two oil refineries – one in Kansas and a small one in Oklahoma – and a rack marketing terminal for selling finished fuel. Despite owning the rack terminal, CVR protests it cannot blend enough biofuel to meet the obligation and must therefore buy Renewable Identification Numbers (RINs) on the market. However, Reuters has reported that CVR sold RINs on several occasions in the past year, creating a short position in the market and apparently gambling that it can escape the obligation or buy the RINs back at a deflated price. Based on Reuters’ reporting, Icahn has made a $50 million windfall on the deal, and Senators are now asking whether he influenced RIN prices through his connections to the administration and campaign while making the trades.

When Icahn was named a special advisor to the President on regulatory reform in December 2016, many different stakeholders erroneously believed he would quickly push through changes to the RFS and exempt his refineries from having to purchase RINs. Indeed, the “deal” presented to the White House by Icahn this past February was purported to be “non-negotiable.” But federal laws are made of sturdier stuff than that and several prior attempts to move the POO are now stumbling blocks to Icahn’s goal.

In November 2016, EPA proposed to deny petitions filed by the American Fuel and Petrochemical Manufacturers and several independent refiners asking the agency to change the point of obligation. Notably, not all petitioners agreed on who should be obligated, and some of the various petitions may not have exempted CVR. EPA made a strong economic case that moving the POO would not increase production and use of biofuels, as petitioners claimed; in fact it would likely disrupt RFS stakeholders’ investments and thereby decrease biofuel use. By law, if EPA now decided to reverse itself and move the POO, it would have to present a rational argument for doing so – one that countered its own previous evidence. An executive order to change the POO would likely face a Court challenge. EPA would have to undertake a new rulemaking and respond to comments from numerous groups opposed to moving the POO, including most biofuel producers and several oil producers.

The other part of the February “deal” floated by Icahn offered a few tidbits for the ethanol industry. Chief among them was a waiver of gasoline volatility standards for blends of 15 percent ethanol (E15) to allow E15 to be sold in summer months. Gasoline evaporation contributes to ozone formation. Ethanol burns cleanly, decreasing engine tailpipe emissions, and therefore the standard 10 percent ethanol gasoline blend (E10) earns a small waiver of evaporative emissions limits. E15 blends reduce both evaporative and tailpipe emissions compared to E10 but don’t qualify for the waiver because Congress’s 1990 amendments to the federal Clean Air Act specify E10. A White House executive order on E15 does nothing to change EPA’s well-documented position on the matter or alter the legal or procedural landscape around the issue. Even worse, EO’s are not legally binding. So the biofuels industry would have no recourse to force regulators to follow through on the E15 waiver.

Icahn’s “deal” was rumored to offer the ethanol industry changes to EPA’s Motor Vehicle Emission Simulator (MOVES) model, which is used by the agency and states to develop policies to meet National Ambient Air Quality Standards (NAAQS). The MOVES model is indeed flawed because it uses input parameters from an April 2013 fuel study that was basically designed to attribute tailpipe emissions to the ethanol content in the gasoline. So, to correct the flaws in the model, EPA must redo the study. But in April, the Trump administration proposed to eliminate funding for the EPA office that conducts fuel and engine tests, creating a new potential hurdle that – at a minimum – would conflict with any potential executive order to change the MOVES model.

The most absurd part of the Icahn “deal” was a proposal for the extension of the $1 per gallon biodiesel tax credit, which expired at the end of 2016. The White House does not have the authority to grant this or any other tax policy via executive order. Tax policy is set by Congress and Presidential recommendations mean little on Capitol Hill.

The biofuels industry has opposed moving the POO primarily because it would require lengthy rulemaking and disrupt an RFS program that only recently got back on track. Further delays and uncertainty on something as fundamental as who’s obligated will hurt advanced biofuels producers more than most. Even the American Petroleum Institute (API) opposes changes to the POO.

But the real problem here is even if you like the alleged carrots Icahn dangled in front of ethanol producers to justify moving the point of obligation, an executive order does nothing to change the federal Administrative Procedures Act or the other bodies of law that will prevent the industry from collecting on the “deal” after we’ve given Carl Icahn what he wants.

Brent Erickson is executive vice president in charge of the Industrial and Environmental Section at the Biotechnology Innovation Organization (BIO). BIO represents more than 1,200 biotechnology companies, academic institutions, and state biotechnology centers across the United States and in more than 30 other nations.

This article was originally published on Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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