Exclusive: Inside edge -
Trump advisor Icahn's big bet against biofuels credits
Send a link to a friend
[April 12, 2017]
By Chris Prentice and Jarrett Renshaw
(Reuters) -
Billionaire
investor Carl Icahn's oil refining company, CVR Energy, made a massive
bet in 2016 that prices for U.S. government biofuels credits would fall
- just before Icahn started advising President Donald Trump on
regulations driving that market.
The size and specifics of the gamble - involving $186 million worth of
biofuels credits the company said it needed at the end of 2016 to
satisfy regulatory requirements - have not been previously reported by
the media.
The credit system is designed to encourage the mixing of renewable
fuels, such as ethanol, into gasoline or diesel. The government awards
the biofuels credits to firms that produce such blends - and requires
firms that don’t, such as CVR, to buy the credits from their
competitors.
Icahn's firm positioned itself to slash those regulatory costs by tens
of millions of dollars if biofuels credit prices declined, according to
a Reuters review of CVR filings with the Securities and Exchange
Commission and interviews with two brokers involved in the firm’s
trading of biofuels credits.
![](http://archives.lincolndailynews.com/2017/Apr/12/images/ads/current/lincolntheatre_sda_031016.png)
Last year, in a counterintuitive trading strategy, Icahn’s refining firm
postponed buying biofuels credits and instead sold millions of them – a
bet that it could buy the credits it would need later at lower prices,
according to the two brokers and CVR’s year-end SEC filing.
That strategy looked prescient, starting in December, as prices for
biofuels credits fell in response to a series of political events tied
to the election of Trump. These included his appointment of Icahn - a
vocal critic of biofuels credit mandates - as an unpaid “special advisor
to the President” on regulatory issues.
In February, biofuels credit prices fell again after the famed activist
investor proposed policy changes to the White House that would free
certain refiners - including CVR - from their obligation to buy the
credits.
Icahn, who owns an 82-percent stake in CVR Energy, did not respond to
repeated phone calls and emails seeking comment. He has said previously
that his advocacy on biofuels regulation is not self-serving because it
would benefit a broad swath of the U.S. refining industry, including
some of CVR's competitors.
Spokespeople for CVR and the Trump administration declined to comment.
White House spokeswoman Kelly Love has said previously that Icahn was
acting as a private individual in pushing biofuels policy changes and
that his “special advisor” appointment was not a formal job in the
administration.
CVR has not publicly disclosed the number of credits it sold to other
firms or the prices paid, and Reuters was unable to determine the
specific amounts.
At year end, after the credit sales, CVR estimated it needed credits
worth $186 million to meet its regulatory obligations, according an SEC
filing reviewed by Reuters.
The credits may end up costing CVR much less, however, because market
prices for renewable fuel credits have since dived.
![](http://archives.lincolndailynews.com/2017/Apr/12/images/ads/current/graue_sda_2016.png)
Last year, when CVR was unloading credits, they sold for an average of
77 cents - and peaked at more than $1, according to prices compiled by
Oil Price Information Service.
But prices dropped to about 53 cents by March 31. Biofuels credits
traded at 55 cents on Tuesday.
(For a graphic detailing how CVR played the volatile biofuels credit
market, see: http://tmsnrt.rs/2p5LNT9).
CVR isn’t assured of big savings. The amount of money the firm is
ultimately forced to spend on biofuels credits depends on their price
when it decides to purchase them.
But CVR’s credit sell-off last year gave the firm two potentially
lucrative options: It could have purchased enough new credits - after
prices plummeted early this year - to meet government mandates before
March 31; or it could have delayed the required purchases for one more
year, as allowed by law, in the hopes that credit prices would fall even
further.
CVR declined to comment on which of those options the company chose.
CONFLICTING INTERESTS
Icahn’s policy recommendations to Trump, if enacted, would likely
further undermine the value of the credits by reducing demand from
refiners such as CVR, which do not have the facilities needed to blend
ethanol into gasoline, credit brokers and industry experts said.
[to top of second column] |
![](../images/041217PICS/busine41.jpg)
Billionaire
activist-investor Carl Icahn gives an interview on FOX Business
Network's Neil Cavuto show in New York, U.S. on February 11, 2014.
REUTERS/Brendan McDermid/File Photo
![](http://archives.lincolndailynews.com/2017/Apr/12/images/ads/current/st_claras_lda_082114.png)
Some
Democratic lawmakers and biofuels advocates have argued that Icahn's policy
recommendations to the Republican administration create a conflict of interest
with his investments.
Icahn
should not be advising Trump on policy changes that move markets in which Icahn
is "speculating deeply," said Brooke Coleman, executive director of the Advanced
Biofuels Business Council, a trade group that represents producers of renewable
fuels and opposes Icahn’s policy recommendations.
"What he's saying would allow him to make more money," Coleman said. "He's in a
position to perpetually put uncertainty out in the marketplace."
Richard Painter - a law professor at the University of Minnesota and the chief
White House ethics lawyer for former President George W. Bush from 2005 to 2007
- believes that Icahn’s unique access to the White House and influence on policy
creates a conflict even though, as an informal advisor, he isn’t getting a
government paycheck.
“We don’t give out knighthoods in the United States. If you have a title, that
means you have a job,” Painter said.
Some
experts, however, argue that Icahn avoided a conflict of interest by not taking
a paid government position.
“He’s free to give his advice. People do that all the time. The rulemaker is
free to take their advice or not,” said Charles Elson, a finance professor at
the University of Delaware. “That’s as old as Washington.”
![](http://archives.lincolndailynews.com/2017/Apr/12/images/ads/current/american_legion_sda_2014.png)
ICAHN TARGETS “ABSURD” MANDATE
The credits were created under the U.S. Renewable Fuel Standard, initially
enacted in 2005 under the administration of George W. Bush.
The law aimed to cut greenhouse gas emissions and reduce dependence on foreign
oil, while giving a boost to rural economies that grow corn for ethanol
production.
The credits create a financial penalty for refiners – such as Icahn’s CVR – that
don’t have the blending facilities needed to create an ethanol-gasoline mix.
Icahn has called the requirement "absurd" and “insane” because it punishes some
refiners for failing to do something that they have no ability to do.
Icahn’s proposal to the White House would shift the burden of blending ethanol
and other biofuels - or buying credits - to a variety of firms with blending
facilities, such as integrated oil firms, traders, fuel distributors and
retailers.
The full details of Icahn's proposal have not been made public. White House
sources have previously told Reuters that the administration is considering the
policy change but is concerned about a potential backlash from the ethanol
industry.
MARKET-MOVING POLITICS
Icahn’s policy proposal is one of several political events that drove down
prices in the biofuels credit markets.
Prices tanked on December 7 after Trump appointed Scott Pruitt - a critic of
biofuels regulation - to lead the Environmental Protection Agency, which
implements those rules.
Credit values declined even faster after December 22, with the naming of Icahn
as an advisor on regulation.
![](http://archives.lincolndailynews.com/2016/Aug/26/images/ads/current/directory_buttons.png)
On February 27, news broke that Trump – after being advised by Icahn – would be
preparing an executive order on biofuels regulation.
The next trading day, biofuels credit prices dropped to an intraday low of 30
cents.
(Editing by Richard Valdmanis, Simon Webb and Brian Thevenot)
[© 2017 Thomson Reuters. All rights
reserved.] Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |