Best stock to invest in – 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
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