EPA looks to overhaul market for trading of biofuel credits

President Donald Trump's administration is planning to propose an overhaul of the opaque market for trading biofuel compliance credits after complaints of hoarding and wild price swings, according to people familiar with the matter.

The Environmental Protection Agency is set to lay out several options in coming weeks, including barring Wall Street banks and other outsiders from trading the credits, said the people, who asked for anonymity to discuss internal deliberations.

The EPA is taking the action under orders from Trump, who last year told the agency to pursue changes while simultaneously lifting summertime fueling restrictions on higher-ethanol gasoline. The EPA is honing its proposal in preparation for unveiling it as soon as next month.

The effort focuses on Renewable Identification Numbers, a system of credits the government initially created to give refiners and importers more flexibility in satisfying annual biofuel quotas. Renewable Identification Numbers morphed from a simple compliance tool into a financial commodity, with values swinging in concert with policy news from Washington. Some independent refiners have alleged speculation and manipulation in the credits market, asserting that traders have abandoned some sales after negotiating them and others have placed fraudulent bids with the goal of inducing higher prices.

Billionaire Carl Icahn, the majority owner of independent oil refiner CVR Energy Inc., had complained that the program structure is "rigged" and changes were needed.

The EPA isn't planning to prescribe a single option. Instead, regulators expect to outline several specific possible changes and then seek public comment on the ideas -- including the interplay between possible combinations, the people said.

One option under consideration would set position limits at 120 percent of refiners' and importers' biofuel-blending obligations, a measure aimed at preventing companies from maintaining a hoard of credits they can sell whenever prices spike, according to three people familiar with the plan. Another would require market participants to reveal how many Renewable Identification Numbers they hold over a yet-to-be specified threshold.

Business on 02/21/2019

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