S&P Global Platts editors Sophie Byron and Wes Swift and Director of Global Biofuels Analysis Corey Lavinsky discuss the impact from the proposed settlement agreement between the US Environmental Protection Agency and Philadelphia Energy Solutions on the biofuels market.
The trio review what impact the proposal had on Renewable Identification Number prices and what it means for the future of the US biofuels policy.
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The PES-EPA proposal: What’s it mean for US biofuels?
Sophie Byron: Welcome to the Commodities Spotlight Podcast from S&P Global Platts, I’m Sophie Byron senior managing editor for the Americas Agriculture pricing team and I am joined by Wes Swift, biofuels editor and Corey Lavinsky biofuels analyst.
It’s been a tumultuous few months for the US biofuels market. Vocal critics of the federal government’s Renewable Fuel Standard have called for changes to the policy which mandates that renewable fuels be blended into US transportation fuel. And each new development has sent markets moving in dramatic fashion.
The most recent example came late on March 12, when the US Environmental Protection Agency reached a proposed agreement with Philadelphia Energy Solutions, an East Coast refiner that had declared bankruptcy, concerning its obligations under the RFS. Wes can you explain briefly what this agreement entails?
Wes Swift: Sure thing Sophie. In its bankruptcy filing, PES argued that the costs of RINs – the credits that are used to prove an obligated party’s compliance with the RFS – were a key factor in its financial problems. This proposed agreement with the EPA would allow PES to use its current stockpile of those credits to comply, and relieve it of any further compliance obligation that remains. This would means PES would be absolved of millions of dollars of expense.
SB: So why is this an important development for the biofuels industry?
WS: Critics of this agreement say it sets a dangerous precedent to relieve a refiner of its obligation under the RFS. Will other refiners or importers argue that they too are in financial trouble and look for similar treatment? From a larger perspective, this is just the latest in a series of events in which opponents of the RFS are looking to change the law. And that can rattle the markets.
SB: What was the impact to the market?
WS: On Tuesday, prices for RINs dropped in early trading, but rebounded quickly. But RIN prices have been slumping for about month. Since Feb. 15, prices for 2018 Ethanol RINS have dropped 45% to be assessed 38.50 cents/RIN on March 13their lowest level since March 17 of 2017.
SB: You stated that this is the latest development in a series of changes, Can you expand a little more about has been causing drop in prices?
WS: In the last few weeks, the White House has hosted several meetings between RFS supporters and its critics, looking for a “win-win” solution that makes everyone happy. After these meetings, reports emerged that included proposals such as a cap on RIN prices, and a RVP waiver on E15 blending. A price cap is seen by biofuels supporters as harmful to the industry. The uncertainty has helped prices to tumble.
SB: So Corey, what does this mean going forward?
Corey Lavinsky: The proposed settlement agreement will be published in the Federal Register and is subject to a 10-day comment period. We expect a firestorm of comments opposing the agreement which will either cause a delay or perhaps lead the government to modify or withdraw the offer of settlement
SB: Has any of these discussions or the settlement proposal had an impact on the RFS?
CL: Other obligated parties will certainly view the settlement proposal as a potential way to obtain relief that has already cost them billions of dollars and could open the door to a broader biofuels policy adjustment. But currently there is no change to the RFS. The key point to remember is that even with all the White House meetings, there’s been no consensus on what changes – if any – would be made to the RFS. Biofuels supporters and oil supporters are both dug in, and don’t seem likely to budge any time soon. And we’ve seen in the past that because of its political support – particularly in the Senate among Midwest senators – the RFS is very resilient.
SB: Well, Corey and Wes, thank you for your insight. You can find more news, analysis and price assessments in the Biofuelscan, as well as on Platts.com. Thanks for listening.