April 2, 2018 / 7:31 PM / 6 months ago

Renewable fuel credits post biggest quarterly loss in a year

NEW YORK, April 2 (Reuters) - Prices of renewable fuel credits slumped 35.7 percent in the first three months of 2018, their biggest quarterly loss in a year, on uncertainty over the future of U.S. biofuels policy.

This has been the second straight year of uncertainty for the Renewable Fuel Standard (RFS), a 2005 law requiring fuel producers to blend increasing volumes of renewable fuels like ethanol with petroleum-based counterparts.

Those who cannot blend these fuels are required to purchase credits, known as Renewable Identification Numbers (RINs). Those credits once cost just a few cents, but the price has risen with more ambitious requirements for biofuels use to cut greenhouse gas emissions.

The RFS program, also aimed at reducing U.S. dependence on foreign oil and boosting rural economies, has expanded the market for corn-based fuels. But independent refiners have complained as the price of the credits at times has exceeded $1 each. Philadelphia Energy Solutions declared bankruptcy this year citing the costs, though Reuters also reported on other factors.

President Donald Trump held several meetings at the White House, trying to bridge a gap between big oil and big corn. Sources now say, however, that he has decided to leave reform to Congress.

“Since last summer, it’s been one big raging political battle in D.C. about changing the implementation of the Renewable Fuel Standard,” said Scott Irwin, agricultural economist at the University of Illinois.

Uncertainty surrounding the program, along with the PES bankruptcy, pressured prices of the renewable fuel credits. They fell to a one-year low of 35 cents apiece in mid-March, according to data from the Oil price Information Service (OPIS), from a Jan. 2 high of 72 cents. The credits closed the quarter at 44.5 cents.

Senator Ted Cruz, a Texas Republican, has suggested a 10-cent cap on such credits, while biofuel advocates say the price will naturally fall as consumption increases.

Any change will be difficult to push through as the 2018 midterm elections approach. Lawmakers in farm states and those from states with large energy sectors will face election-year pressure from their powerful constituencies.

Irwin said prices for renewable fuel credits may rebound in the short term, then drift downward in one to three years. Refiners are not convinced the law is working.

“In no other market that I know of do you see such wild swings, such volatility,” said Brendan Williams, vice president of PBF Energy, which has pushed for reform or repeal of the program. “We’re hopeful that right now, we have more substantive dialogue at a higher level than any time I can remember.” (Reporting by Ayenat Mersie; Editing by David Gregorio)

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