Unintended consequences
HOLLYFRONTIER's
President and CEO George J Damiris
From Q2 2016 earnings call transcript
Also impacting earnings this quarter were increasing costs associated with purchasing RINs to comply with the RFS mandate, which in this margin environment continue to have significant impact as a proportion of earnings.
Before I discuss operational results and expectations, I'd like to spend a moment on the RFS program. Obviously, this mandate has been receiving increased attention in recent months, given the price of RINs and negative blending economics. We believe the constructs of the RFS do not align the ability to influence biofuel blending with the burden of compliance.
Along with others in our industry and our trade association, AFPM, we're advocating for the EPA to address this mismatch in the point of obligation and to do so expeditiously. The simple fact is that RINs were intended to be a certificate of compliance under the RFS, not a method of extracting value or creating winners and losers based on asset configuration in the value chain.
A far more equitable structure would be to expand the point of obligation to include those parties that have the ability and desire to increase volumes of biofuel blending as of the intent of the RFS. Further, we agree with those advocating for oversight of the RIN market. We believe oversight is needed to regulate speculatory participation, which has caused RIN prices to trade well in excess of the cost of blend in a market that is thinly traded and where demand for RINs has already pegged against supply.
The current point of obligation carries severe unintended consequences for merchant refiners like HollyFrontier, and does not advance goals set forth by the EPA. We believe the mismatch between the burden of compliance and the ability to influence biofuel blending is becoming more understood in Washington, by other affected parties and by EPA officials. We ask that EPA move quickly in their analysis of the point of obligation and, ideally, initiate a rulemaking process that will provide the quickest path to implementing an equitable solution.
President and CEO George J Damiris
From Q2 2016 earnings call transcript
Also impacting earnings this quarter were increasing costs associated with purchasing RINs to comply with the RFS mandate, which in this margin environment continue to have significant impact as a proportion of earnings.
Before I discuss operational results and expectations, I'd like to spend a moment on the RFS program. Obviously, this mandate has been receiving increased attention in recent months, given the price of RINs and negative blending economics. We believe the constructs of the RFS do not align the ability to influence biofuel blending with the burden of compliance.
Along with others in our industry and our trade association, AFPM, we're advocating for the EPA to address this mismatch in the point of obligation and to do so expeditiously. The simple fact is that RINs were intended to be a certificate of compliance under the RFS, not a method of extracting value or creating winners and losers based on asset configuration in the value chain.
A far more equitable structure would be to expand the point of obligation to include those parties that have the ability and desire to increase volumes of biofuel blending as of the intent of the RFS. Further, we agree with those advocating for oversight of the RIN market. We believe oversight is needed to regulate speculatory participation, which has caused RIN prices to trade well in excess of the cost of blend in a market that is thinly traded and where demand for RINs has already pegged against supply.
The current point of obligation carries severe unintended consequences for merchant refiners like HollyFrontier, and does not advance goals set forth by the EPA. We believe the mismatch between the burden of compliance and the ability to influence biofuel blending is becoming more understood in Washington, by other affected parties and by EPA officials. We ask that EPA move quickly in their analysis of the point of obligation and, ideally, initiate a rulemaking process that will provide the quickest path to implementing an equitable solution.
One glaring current example is a new DOT rule under consideration restricting the speed limit of trucks on major roadways, supposedly to reduce accidents. With over 30,000 highway deaths a year, the reduced speed will supposedly reduce the body count by under a hundred fatalities annually. Of course, the analysis ignored a possible increase in fatalities from collisions rear ending slower moving trucks, and did not consider the possibility that slower speed would inevitably result in truckers spending longer hours behind the wheel, increasing the risk of accidents. Economic impacts were also unidimensional, citing reduced fuel costs at the lower speed, but not the likely costs of increased truck fleet size to meet delivery schedules, just to cite one likely result.
There is overwhelming evidence that decreasing the speed of a class of vehicles will increase accidents unless all vehicles decrease speed.
Not only are these bureaucrats heavy-under-handed totalitarians, they are wholly incompetent!
Incompetence seems to be a requirement for public office.
Good day to you.
DOB
Thanks for the clarification .
Good afternoon to you,
DOB
will cause increased accidents. . you don't change the
relative speed of objects in a pipe without increasing
impacts between them. . the DOT is stupid. -- j
.
I agree, here is how it often works: create or invent a problem then put forth the worst possible solution, that is the fix.
Have a good evening!
DOB
to expanding the bureaucracy! -- j
.
That is a great example of unintended consequences.
Regards,
DOB
But even if it did, EPA has no constitutional authority to exist. (And arguably neither does any administrative agency. I would overturn the entire Code of Federal Regulations as a violation of separation of powers.)
Programs like the one described are not "ponzi schemes" but they are rent-seeking schemes, and thus destroy wealth for no gain. David Friedman explains rent-seeking in Hidden Order.
I would amend that amendment that pertains to the IRS also.
I am dino~
Hear me ROAR!
Countless times
I have heard he or she is not for clean water or air.
This candidate is against education. This one is against women. What a bunch of bullshit. There are very few humans that would be opposed to air water education or women.
Have a great weekend and roll tide.
DOB
Yeah, like any political party, even the Communist Party, would want their kids to have all dirty that.
And more than once I've seen msnbc termite Chris Hayes run an hour long show entitled "War On Women" where channel-surfer Old Dino could spot it in a corner of the screen. What a doofus!
And with a sigh of relief my Roll Tide great weekend begins.
At one point Ole Miss was ahead of Bama 24-to-3. But that nail-biter ended with Bama 48 and Ole Miss 43. Bama has a history of pulling off wins like that.
ROLL TIDE! WHOOPEE!
Ahem, hope you have a great weekend too, DOB
Old Dino
I saw that harvest moon rise last night.
Today its been overcast with a light rain all day, which is unusual this time of year where I live.
It was a pretty day during the game in Oxford, Mississippi. Guess that nice weather will drift over here tomorrow so I can get another look at that harvest moon .
Disgusting and non productive.
thanks for your input .
DOB
It's just accepted that we sacrifice the individual or industry (coal, refining ,mining, lumber) for the greater good. But whose greater good that is where it will always fail.
Regards,
DOB
Non elected govt bureaucraps creating expense and chaos in the market place with no rhyme or reason.A real co.s thoughts and consequences to it of EPA meddling
Regards,
DOB
•Renewable fuel producers generate RINs
•Market participants trade RINs
•Obligated parties obtain and then ultimately retire RINs for compliance
RINs can be traded in two forms:
•Assigned RINs - directly associated with a batch of fuel and that travel with that batch of fuel from party to party. Purchase obtain both the renewable fuel and RINs together.
•Separated RINs - formerly assigned with a batch of fuel, but are no longer assigned to a batch. Purchase only the RIN.
Examples of typical RIN transactions include:
•Generate - when a fuel is produced, a RIN is generated
•Buy - when an assigned/separated RIN is bought/traded to by a buyer from a seller
•Sell - when an assigned/separated RIN is sold/traded by a seller to a buyer
•Separate - when a RIN is separated from the fuel to which it was originally assigned
•Retire - when a RIN is used to demonstrate compliance, or required to be retired for other purposes
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Market Participants
The regulations outline the following types of RIN market participant categories:
•Obligated parties (refiners and importers of gasoline or diesel)
•Renewable fuel exporters
•Renewable fuel producers
•Registered RIN market participants
Participants include both domestic and foreign companies. A company may fall under one or more categories and can change from year to year based on their trading or business activities.
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RIN Transactions in EMTS
EPA moderated transaction system (EMTS) is a database of record for all transactions involving RINs.
•Parties enter into a trade agreement outside of EMTS
•Each of the trading partners then enter into EMTS a separate record (“buy”/”sell”)
•EMTS matches the trades; if the QA check is passed RINs are transferred between accounts
Companies maintain RIN accounts by D-codes and RIN year (typically called “vintage” year, or the year in which the RIN was generated). RINs are retired for compliance by obligated parties and exporters based on their RVO.
•Obligated parties typically only retire RINs after the end of the compliance year (or by March 31st)
•Exporters have to retire RINs for compliance within one month of the export event (this was a recent change in 2014).
RINs not retired for compliance can be carried over into the next compliance year. RINs are only good for satisfying obligations for the current compliance year or the following compliance year. For example, 2012 RINs can only be used for 2012 and 2013 compliance years. After that, the RINs “expire” or can no longer be used for compliance purposes.
You are welcome.
Good day to you!
DOB