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Icahn Guess How Much These RINs Cost

Carl Icahn, billionaire and adviser to Donald Trump, is supposedly looking to ‘chance’ for a way out of looming environmental credit payments.  The renewable identification number (RIN) market is used to by credits for producing a damaging product; gasoline. CVR Energy, which Icahn owns an 82% stake in, is paying around $200 million a year on RINs.

RINs are distributed and collected by the Environmental Protection Agency (EPA) to enforce the Renewable Fuel Standard. The standard is a Bush-era law requiring billions of gallons of biofuel be added to the national gasoline mix. As such 10% of American motor fuel is derived from corn not oil. Companies can buy and sell RINs in a very free market.

Icahn owns an 82% stake in CVR Energy Inc., CVR has to buy identification numbers for its gasoline within one year of their production. Credits are bought from the EPA in rounds or on the free market from other investors. In an interview last week with Yahoo Finance, Icahn revealed his public strategy as shorting the market. Icahn said speculators are driving up prices for the credits, so he will wait.

“I’m not selling ’em, I’m not buying ’em. Hey, this is what I do in the market. I’m taking a chance.”

CVR faces large payments if Icahn’s gamble is incorrect. Since 2013 the company stock price has been stagnant and falling. Any fossil fuel company is now largely cutting against the grain of public opinion. Those that wish to stay in business are now, rightly so, having to examine their practices. Icahn’s market bluff is a refusal to actually change their companies to a new way of producing energy by playing the market instead.

The Sell Off

Delaying payment gives Icahn more time. Time in which Icahn must be assuming somthing will happen. RINs could drop in price, which would reduce CVR’s liabilities. Or the market rules could change.

RIN credits aim to reduce emissions by assigning each unit of production a cost. It is one way to put a price on carbon. In this case the carbon in gasoline saved from emission by mxing in biofuels. Not the simplest of mechanisms. To create a monetary value which compensates for the external harms caused by the supply chain requires a methodology. The mechanism looping in the EPA and their agency to create RINs is cyclical.

Currently the point of obligation for returning the RINs to the EPA falls on refineries. Icahn is a refinery owner. He wants EPA rules to put the cost of compliance on blenders, not refiners.

All this is expected behaviour from business. Nothing here is illegal, simply economical. Are these are the sorts of moves the invisible hand of the market is summon to make? Wanting to push through these changes is enough, yet Icahn has clout.

A lightning rod for criticism is Icahn’s relationship with the Trump administration. He is an unpaid advisor. Trump has already ‘made deals’ with individual companies and industries. Deals are a trademark of his, why is this time any different? All he needs to sell the idea is one billionaire to say moving the obligation of RIN credits will create jobs and he has all the proof he needs.

Icahn’s Control

Ultimately however, current regulations allow Icahn’s market bluffing priority over environmental factors. Cap and trade, credit systems, and carbon taxes don’t inherently push for innovative changes. RINs are aimed price in their inherent global warming potential and keeping on trucking. Supply and demand creates multiple parties involved in the pollution. Calculating the monetary value of a pollution unit is a hard. Determining where, who, to charge is contentious.

Icahn’s general counsel Jesse Lynne stated his client never had the ability to influence the EPA or White House policy. Icahn’s stake in the game CVR however has benefited mulltiple times from events orbiting Trump. When Trump won the election in November RIN prices tumbled. Scott Pruitt’s selection to lead the EPA saw the price fall again. On February 28 Icahn went to the White House, the price fell again.

Price drops are things Trump can sell to his audience. Understanding the impact of climate change is simple, conveying to the population the complexities, strengths and weaknesses of the economic mechanisms employed to curb the impact is nigh on impossible.

Icahn’s special advisorship grants him access to the President without the restrictions of being a government employee. No conflict of interests can be insinuated if Icahn is a private citizen held in favour by the President. Free market assumptions underpin the idea that a market for committing, and absolving, bad behaviour is viable.

Pigouvian Taxes are one way to internalise the bad behaviour. First one needs to identify an external harm currently not factored into costs. Then place a fee on that behaviour or action, thus squeezing it out of the realm of pragmatic business. They can be revenue neutral or revenue positive. Revenue positive policies are able to recycle surpluses generated to deal with seen and unforeseen consequences. As a corporation and investor Icahn’s job is to act in his own self-interest, whether he truly believes that his interest is in everyone’s best interests is harder to verify and far less likely.

About the author

Mathew Sayer

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