White House Said to Debate Icahn Plan Revamping Ethanol Rule

(Bloomberg) -- White House officials have spent the past two days in deliberations with billionaire refinery owner Carl Icahn about his proposal to modify federal policy on renewable fuels and with ethanol producers who oppose it, according to three people familiar with the talks.

The flurry of meetings and phone calls came after Bloomberg News reported Monday that Icahn had helped broker a compromise with a leading biofuel group on reworking the program. The report led to a surge of more than $100 million in the value of Icahn's refinery investments.

Icahn, who is also an unpaid adviser on regulations to President Donald Trump, predicted the modifications he is seeking would be made soon. He described it as "a matter of extreme urgency" that must be addressed "to avoid potential bankruptcies."

This "is the quintessential example of the type of insane regulations throttling our economy that Donald Trump said all throughout his campaign he wanted to see changed," Icahn said in an email to Bloomberg. "It is within the White House's power to move quickly on this issue."

Previous story: Icahn's $126 Million Gain on Biofuel Deal Prompts Criticism

Senior administration officials spoke with Icahn at length about his plan on Tuesday and held in-person meetings Wednesday with representatives of the Fuels America coalition of biofuel producers that opposes the proposed restructuring. Representatives of the American Petroleum Institute, which is lobbying against changes, also discussed the issue with White House and Environmental Protection Agency officials.

The White House discussions were described by the people who asked not to be identified describing private conversations.

Support for the Renewable Fuel Standard and the corn-based ethanol industry is viewed as a litmus test for politicians in the Midwest, particularly Iowa, which helped elect Trump to the White House last November. Last week, Trump reiterated his support for the fuel, citing its importance to the rural economy.

Icahn's proposed change would not alter a 12-year-old requirement that ethanol and other biofuel be mixed into the nation's motor fuel supply. Instead, it would alter who is required to do it -- known as the "point of obligation."

The current approach puts the onus on refiners, creating a disadvantage for those -- like Icahn's CVR Energy Inc. -- with little infrastructure to blend in biofuels and generate the fungible credits that are used to show compliance. As a result, those independent refiners must buy compliance credits to make up for their shortfall. Icahn is pressing the Trump administration to make fuel blenders responsible.

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"I hope and believe the point of obligation will be changed shortly," Icahn said.

The ethanol industry is divided over the program. While most biofuel advocacy groups, including Fuels America, Poet LLC and Growth Energy oppose Icahn's plan, the Renewable Fuels Association agreed to back the structural change as long as the Trump administration also issues a waiver that would allow gasoline blends containing 15 percent ethanol to be sold year-round.

The Trump administration is not leaning in one direction or the other, according to one person familiar with the talks, but is intensely studying the issue that is both legally complex and politically complicated. 

White House spokeswoman Kelly Love said there was no executive order in the works dealing with ethanol but did not directly respond to questions about the status of discussions.

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Growth Energy's members include Poet and Green Plains Inc., two of the four-biggest U.S. ethanol producers. Its membership also includes large gas station chains, including Thorntons Inc. and Kum & Go, that can benefit from the existing system. Similarly, the Renewable Fuels Association's membership roster includes an array of ethanol producers, including Valero Energy Corp., a San Antonio refiner that backs Icahn's plan.

Fuels America pressed against the proposed structural change during its previously arranged Wednesday meeting with the National Economic Council at the White House. "Our only communication with the administration has been to reinforce our opposition to any change -- including a shift in the point of obligation -- to the RFS," Fuels America said in an emailed statement. "We also expressed our appreciation to the White House for making it clear that no such order is being developed."

Presidential Memorandum

Although Trump could set the work in motion with a presidential memorandum directing the EPA to act, it could take a year or more for regulators to formally implement the change. 

The agency would have to justify its decision to move the point of obligation from refiners to blenders -- a move made harder by the Obama administration's proposed denial of such a change last November. A public comment period on that issue closed last week.

Opponents say the change would inject uncertainty into the marketplace, suddenly forcing companies that have never participated in the Renewable Fuel Standard to comply with annual biofuel quotas. The upheaval could derail efforts to put more ethanol into the nation's gasoline, they say.

Kyle Gilley, the senior vice president of external affairs and communications at Poet,  said in an op-ed that it would derail the Renewable Fuel Standard, "imposing new burdens on small businesses and requiring the EPA to fundamentally restructure the fuel market, a process that could delay higher biofuel targets for years."

New Burdens

Separately, the American Petroleum Institute has argued the move would strip momentum from efforts to repeal or overhaul the renewable fuel mandate in Congress. On Thursday, the API joined 14 other organizations in a letter to EPA Administrator Scott Pruitt urging the EPA not to change the point of organization.

Republicans in Congress also are resisting.

Representative John Shimkus, an Illinois Republican who is a senior member of the House Energy and Commerce Committee and is spearheading an effort to revamp the program, said it would be a bad idea for the EPA to make the structural shift. 

"The vast majority of obligated parties are in opposition to changing the point of obligation," Shimkus said. "Changing that really empowers a minority." 

Republican Iowa Senator Charles Grassley said he spoke White House officials who assured him no change is pending or imminent. "Moving the point of obligation from a handful of refiners to hundreds or thousands of small fuel retailers would undermine the integrity and viability of this successful program," he said in a statement Wednesday.

Meanwhile, Senate Democrat Amy Klobuchar said Icahn's dual role as advocate and White House adviser deserves "serious scrutiny."

"Rather than proposals that generate potential conflicts of interest, we should be doing what is in the best interest of rural economies and consumers,” she said in a statement.

--With assistance from Ari Natter and Mario Parker

To contact the reporter on this story: Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net.

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Elizabeth Wasserman