Document LKd71kxEoeODDG5DQ897QKQMw

Economic Issues Associate) with a Change of the RFS Point of Obligation Edgeworth Economics February22,2017 I. Introduction Over the last two years, a number of companies and industry groups with interests in refining businesses have petitioned EPA to change the rules governing the RFS.1 The petitioners have asked EPA to designate blenders or position holders as the entities obligated under the regulation, rather than refiners/importers as specified by the current rule2 The petitioners have offered a number of justifications tor their requests, including various arguments based on economic theory or financial analysis. The primary economics-based arguments of the petitioners and their supporters can be summarized as follows: RIN costs represent a financial burden to merchant refiners and a windfall to blenders, and a change in the Point of Obligation would eliminate that discrepancy.3 Shifting the Point of Obligation would improve incentives to invest in biofuel infrastructure and increase blending.4 The current regulatory structure leads to various inefficiencies in the RIN market, which would be reduced by shifting the Point of Obligation.5 Shifting the Point of Obligation would reduce fraud in RIN markets.6 Shifting the Point of Obligation would not increase the regulatory burden due to any change in the number and/or sophistication of the obligated parties, and could reduce such burden.7 On November 10,2016, EPA responded to the petitions with a proposed denial.8 EPA addressed some of these assertions made by the petitioners in its proposal, but not all of them. Growth Energy has retained Edgeworth Economics to evaluate the economic arguments put forward by the petitioners as well as EPA's responses in the proposed denial, and to provide independent opinions regarding the economic issues raised by all the parties.9 This report is provided as an adjunct to comments introduced into the public record by Growth Energy. 1 See, for example, Letter to EPA re: Petition for Rulemaking, submitted by Valero Energy Corporation, June 13,2016 (`Valero Petition"); Letter to EPA re: Petition for Rulemaking, submitted by HollyFrontier, September 2,2016 ("HollyFrontier Petition"); and Letter to EPA re: Petition for Rulemaking, submitted by American Fuel & Petrochemical Manufacturers, August 4,2016 ("AFPM Petition"). 2 "Notice of Opportunity to Comment on Proposed Denial of Petitions for Rulemaking to Change the RFS Point of Obligation," Federal Register, v. 81, n. 225, November 22,2016, pp. 83776-777. The various petitioners have proposed somewhat different definitions for the proposed obligated parties. In this report, we refer to those proposed to be obligated entities as "blenders." 3 Valero Petition, pp. 13-18; HollyFrontier Petition, pp. 34 and AFPM Petition, pp. 12-16. 4 Valero Petition, pp. 19-23; and HollyFrontier Petition, p. 4. 5 Valero Petition, pp. 23-27; and AFPM Petition, p. 17. 6 Valero Petition, pp. 23-27. 7 Valero Petition, pp. 35-37; and AFPM Petition, pp. 17-18. 8 EPA "Proposed Denial of Petitions for Rulemaking to Change the RFS Point of Obligation," EPA420-D-16-004, November 10, 2016 ("EPA Proposed Denial"). 9 Edgeworth Economics is an independent consultancy of professional economists, specializing in microeconomic and statistical analysis. The preparation of this report was directed by Jesse David, Ph.D. See https://edgewortheconomics.corrVabout-us. 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00001 II. RINs - Neither a Windfall nor an Out-of-Pocket Cost A primary argument put forward by the petitioners for shifting the RFS Point of Obligation is that the current structure creates "disparities in RIN-access that highly prejudices merchant refiners" and "windfalls for others" (namely, non-integrated blenders).10 Other parties, including some financial analysts as well as individuals with interests in merchant refineries, have made similar arguments. For example, in a November 2016 letter to OMB, Carl Icahn (majority owner of CVR Refining) stated that merchant refiners "incur a cost that the others do not have - the price of purchasing a RIN," while "blenders and `Big Oil' players reap a windfall because they can blend without a compliance obligation."11 Essentially, these parties argue that any company with a net position in RINs--whether it be a long position for a blender with relatively little refining or importing operations, or a short position for a refiner with relatively little presence at the rack--experiences a one-for-one impact from RIN trades on the company's bottom-lire profitability. That is, RIN purchases represent a cost with no offsetting benefit, while RIN sales generate revenue with no offsetting oost. The petitioners argue that such a situation unfairly disadvantages merchant refiners, relative to integrated refiners, since merchant refiners generally purchase separated RINs to meet their RFS obligations, while integrated refiners purchase ethanol with RINs attached. As this argument has been perhaps the leading reason for a change in the regulation put forth by the petitioners and their supporters, EPA addressed these claims directly and at length in its proposed denial. EPA concluded that RIN transactions do not represent windfall gains to non-integrated blenders and integrated refiners, nor do they represent discriminatory costs to merchant refiners. The Agency's responses are all on point, namely: Non-integrated blenders and integrated refiners do incur a cost to acquire RINs, notwithstanding the fact that the cost does not show up in their financial statements as a discrete line item. Rather, the cost of RIN acquisition for blenders is integrated in their cost to acquire ethanol--ethanol with RINs attached costs more than ethanol without RINs.12 EPA also points out that integrated refiners experience a cost associated with RINs when they sell blended El 0, as the wholesale price for E10 is less than the combined prices of the component fuels--petroleum blendstock plus ethanol.13 Because prices of gasoline blendstocks sold at wholesale reflect RIN values, merchant refiners recoup their costs to acquire RINs when they sell their gasoline products.14 This conclusion has been confirmed by EPA as well as independent researchers in academia. For example, economists at Iowa State University recently concluded that, conditional on the presence of competition in the markets for blendstocks, gasoline, and RINs (a caveat we address further, belcw), "moving the point of obligation would have little-to-no impact on the distribution of gains and losses from high RIN prices or on the overall effectiveness of the program."15 In another recent paper, which Valero cites repeatedly for other purposes, a group of academics performed a 10 Valero Petition, p. 13. See also, HoilyFrontier Petition, p. 4; andAFPM Petition, p. 10. 11 Letter from Carl Icahn to Shaun Donovan, Director of the Office of Management and Budget, November 3,2016 ("November 2016 Icahn Letter'), p. 3. Of course, "'Big Oil' players"--i.e., vertically-integrated refiners with retail operations--cbfece a compliance obligation under the current RFS structure. Mr. Icahn's point appears to be completely misplaced with respect to these entities. 12 EPA Proposed Denial, p. 17. 13 EPA Proposed Denial, p. 18. 14 EPA Proposed Denial, pp. 17-19. 15 Bruce A Babcock, Gabriel E. Lade, and Sebastien Pouliot, "Impact on Merchant Refiners and Blenders from Changing the RFS Point of Obligation," CARD Policy Brief 16-PB 20, December 2016, p. 9. See also, Dallas Burkholder, "A Preliminary Assessment of RIN Market Dynamics, RIN Prices, and Their Effects," EPA May 14,2015. 2 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00002 statistical analysis of fuels prices and concluded that "an obligated party with a net RIN obligation, such as a merchant refiner, is able to recoup their RIN costs on average through the prices they receive in the wholesale market."16 The anecdotal evidence cited by the petitioners from financial filings of merchant refiners and retailers is flawed.17 ERA addressed the fact that some publicly traded blenders report line items in their financials tor RIN revenues, but nothing tor RIN costs, while some merchant retinas show costs tor RIN acquisition, but no specific reporting tor offsetting revenues. EPA noted that the offsetting effects show up in otter financial categories, and therefore the RIN acquisition costs (tor merchant refiners) or RIN revenues (tor non-integrated blenders) do not represent a net impact on bottom lines of those companies. In fact, public statements by executives at both types of companies contradict the petitioners' positions. For example, Valero cites a news article in its petition as support for a claim of "windfalls" and the "clear disparity among obligated parties"; yet, in that same article, an executive from Valero is quoted as saying that "much or all" of Valera's cost of RIN acquisition was "passed on to consumers."18 Similarly, despite the fact that retailers such as Murphy USA have reported revenues associated with RIN sales as a distinct line item in their financial statements, they also have indicated that their bottom-line profitability has been consistent across years with both low and high RIN prices.19 Notably, although this argument about discriminatory impacts was one of the lead reasons cited by Valero in support of its petition, Valera's economists at the independent consulting firm, NERA, provide no support for it in their recent paper, submitted with Valera's petition.20 In the section of NERA's report titled "Excess Burdens on Refiners that Do Not Blend," the authors devote two sentences to the topic, citing only "uncertainty of future RVOs and the price volatility of RINs," "transaction costs," and "portfolio management costs."21 NERA makes no attempt to quantify such costs, and provides no analysis on the issue of RIN acquisition costs at all. This is in contrast to the estimates of tens or hundreds of millions of dollars in annual costsA/vindfalls purportedly identified by the petitioners.22 However, in a 2013 paper by NERA submitted to the EPA in support of an earlier petition by another merchant refiner (Monroe Energy), NERA did make claims that high RIN prices would adversely affect the profitability of merchant refiners.23 According to NERA in that earlier paper, as of 2013, "merchant refiners 16 Christopher R Knittel, Ben S. Meiselman, and Jarres H. Stock, `The Pass-Through of RIN Prices to Wrolesale and Retail Fuels under the Renewable Fuel Standard," National Bureau of Economic Research working paper No. 21343, July 2015, p. 20. Valero cites Knittel, et ai. (2015) at length in its petition to support its argirrent that "the RFS is not functioning properly." (Valero Petition, pp. 12,18, and 19] However, the conclusions of this paper regarding a lack of lull RIN pass-through to consumers relate only to retail markets for E85, which represents only a fraction of one percent of total fuel sales in the U.S. Knittel, et al. make clear that their findings for El 0 do not support the petitioners' allegations. 17 EPA Proposed Denial, pp. 18-20. 18 Valero Petition, p. 14, citing CezaryPodkul, `The Tally Is in: Ethanol `Blend V\M Cost Refiners at Least $1.35 Billion," Business News, March 31,2014. 19 EPA Proposed Denial, p. 20, citing financial statements of Murphy USA Inc. and Casey's General Stores, Inc. 20 NERA Economic Consulting, "Effects of Moving the Compliance Obligation under RFS2 to Suppliers of Finished Products," prepared for Valero Corporation, July 27,2015. 21 NERA (2015), pp. 20-21. NERA does assert that the presence of a bid-ask spread and the requirement to pay commissions when trading in the market for RINs puts merchant refiners at a "strategic disadvantage" to integrated refiners (p. 33). Such costs represent impacts that would be at least an order of magnitude less significant than the costs cited by the petitioners. Moreover, shifting the Point of Obligation would not eliminate such costs--it would merely shift them to other parties. 22 See, for example, Valero Petition, pp. 14-16; November 2016 Icahn Letter; and `The Winners and the Losers," available at CVR Energy website, http://fixtherfs.org/wp-content/uploads/2016/10AA/inners-and-Losers-Absdute-RIN-Purchases-2.pdf. 23 NERA Economic Consulting, "Analysis of RFS2 RIN Markets," prepared for Monroe Energy LLC, October 15,2013. 3 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00003 are currently absorbing the higher cost of RINs and therefore are losing money"24 and, as a result, "over time, some merchant retinae will have to exit the market."25 *In support of these claims, NERA cited financial metrics for various merchant refiners, including the "cash operating margin" for certain refineries and asserted that: "The average 8 % cent reduction in the margin die to the RIN requirement in 2013 would more than wipe out this margin. It would more than wipe out the margin in many prior years as well."25 In its 2013 report, NERA calculated another financial metric--"net income per gallon of crude capacity"--for nine merchant refiners. This metric showed a range between 1 cent and 25 cents as of 2011/2012, a period when RIN prices were close to zero. Citing escalating RIN prices in mid-2013, NERA stated that "[p]aying the average RIN price in 2013 for every gasoline gallon produced will substantially impact the profitability and viability of refiners."27 NERA concluded: The most likely outcome of continuing a regulatory system that systematically raises the cash operating oosts of merchant refiners relative to Integrated Refiner/Blenders is that the structure of the industiy will change and merchant refiners could disappear28 Valero cites this prediction--now over three years old--in its petition, but none of the petitioners or their economists perform any analysis to check its validity. In fact, NERA's 2013 report offered a specific test for measuring the impact of RIN costs on merchant refiners: Over the last three years, as RIN prices escalated significantly stove 2012 levels, did the profitability of merchant refiners decline and did any of those entities actually "disappear"? Table 1 shows the financial metric identified by NERA for the same group of merchant refiners analyzed in the 2013 report, with new data for 2013-2015. As seen here, none of these refiners "disappeared" after 2012, despite the dramatic increase in RIN prices. Moreover, while average profitability did fall somewhat in 2013 across the industry as a whole29, in 2014 it increased back to essentially the same level as 2012 and in 2015 profitability continued to increase stove 2012 levels. In fact, Valero, the largest refiner in the group, reported profitability in 2015 at a level more than two times that in 2012. Although this analysis cannot rule out any impact of the RFS on the profitability of merchant refiners, since many other factors also influence their businesses, it is clear that the supposedly devastating impacts predicted by the petitioners and their economists failed to materialize. 24NERA (2013), p. 36. NERA (2013), p. 41. * NERA (2013), p.4344. 27 NERA (2013), p. 43-44. 28 NERA (2013), p. 45 (emphasis in original). 29 In their public filings, merchant refiners reported factors such as decreasing spreads in the crude oil market and increasing refinery capacity as the reasons for this trend from 2012 to 2013. See, for example, HollyFrontierCorp., 2013 Form 10-K, p. 31; Phillips 66,2013 Form 10-K, p. 31; and Marathon PetroieimCorp., 2013 Form 10-K, p. 44. 4 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00004 Table 1 Net Income per Barrel Crude Capacity for Merchant Refiners 2011-2015 Refiner HollyFrontier Marathon Phillips 66 \Afestem Refining Tesoro PBF Energy Valero Delek AlonUSA Average (weighted by annual throughput) Net Income perBarrel Crude Capacity (cents pergalIon) 2011 2012 2013 2014 2015 19.6 25.4 10.8 7.7 13.0 13.1 18.5 8.0 9.6 11.8 13.2 12.0 10.8 14.3 12.4 5.7 17.2 11.8 20.6 15.8 5.4 7.2 3.2 6.7 12.9 2.9 0.0 0.5 4.5 3.6 5.2 4.9 6.3 9.9 12.1 7.4 12.7 5.5 11.6 0.7 1.2 2.1 0.7 1.2 1.6 9.5 10.5 7.5 10.4 11.5 D6 RIN Price -Average of DaiIv Values (cents per aallon) 2.6 2.9 59.9 48.6 55.0 Sources: HollyFrontier Investor Presentation, August 2016, p. 27 (available at investor.hollyfrontier.corrVevents.cfm); company annual reports; and CPIS. Ore might ask, why have the adverse impacts on merchant refiners predicted by Valera's economists tailed to appear? There are two general explanations. First, as documented above, changes in RIN prices do not represent a one-for-one impacts on refiner profitability and may, in tact, have no impact at all, due to offsetting movements in fuel prices. Seoond, refiners may have mitigated any residual impact through adjustments to their supply chains and downstream sales arrangements. For example, expertise in blending can be acquired, and merchant refiners can purchase ethanol directly. If physical acquisitions are costly or difficult, contractual arrangements can be used. In the proposed denial, EPA properly identified all of these possibilities as potential compliance options for obligated parties under the existing regulatory stricture.30 III. Incentives to Invest in Biofuel Infrastructure and Increase Blending Another purported benefit that the petitioners have cited as justification for shifting the Point of Obligation is the potential to improve the incentives to blend ethanol and other biofuels.31 The petitioners' position on this issue is relatively straightforward. They state that the current regulatory structure "discourages blending higher volumes of renewable feel" because some of the parties that actually undertake blending are not themselves obligated and therefore have "little incentive to make the necessary level of investment" in blending infrastructure.32 The petitioners also state that the current structure "subsidies] exports" to the detriment of U.S. consumers.33 The RFS's mechanism for signaling an incentive to increase blending is the RIN price. This price provides a consistent incentive to generate new RINs, whether realized as revenue when a blender sells a 30 EPA Proposed Denial, pp. 24-25. 31 Valero Petition, pp. 12-13 and 18-23; and HollyFrontier Petition, p. 4. 33 Valero Petition, p. 21; and NERA (2015), p. 32. 33 Valero Petition, p. 27; and NERA (2015), p. 22. 5 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00005 separated RIN or as a cost when a refiner acquires a RIN to meet its obligation. This, the petitioners' argument in essence relies on a critical assumption: The generation of RINs and/or the transfer of RINs from RIN-generators to obligated parties (to the extent these parties are different) is not functioning in a competitive manner. For example, HollyFrontier states in its petition that "by limiting renewable feel blending, rack sellers can increase RIN prices and maximize profit."34 Similarly, Valero states that expanding blending infrastructure "would be contrary to the blenders' financial interest, as the more renewable feel the blander purchases and blends, the more RINs will be created and those excess RINs will decrease the value of RINs."35 The problem with this strategy for a blender, however, is the same problem facing a supplier in any market with multiple suppliers--it works only if other blenders follow the same strategy. If one blender stockpiles RINs or reduces blending in order to drive up the price of RINs, there would be an incentive for other blenders to increase their generation of RINs in response. Such a response oould be avoided only by collusion among blenders. The petitioners, however, have provided no evidence of any such anticompetitive activity. The petitioners also make the general, theoretical point that the distance in the supply-chain between blenders who separate RINs and obligated parties (refiners) attenuates the incentive presented by the RIN price. Valera's economists at NERA offer two versions of this argument. Their more simplistic version is a plain assertion that "blenders and retailers have little incentive to make the necessary level of investment because under RFS2 they do not have any obligation to blend feels with higher concentrations of renewable fuels."36 This assertion is false. Blenders and retailers have the same incentive to expand the use of renewable fuels as any other party in the supply-chain--the value of the generated RINs. Since RINs can be sold on an open market, realizing that value is not contingent on having a legal obligation under the regulation.37 To the extent that the market price for RINs exceeds the oost of blending additional renewable feel, that differential represents a potential source of profit for obligated and non-obligated blenders alike. NERA's second argument is at least rooted in economic theory. NERA notes that, in general, it can be more effective to place the burden of a regulation on the parties located closest to the consumer decision point that drives the ultimate level of compliance. NERA states that the current policy is "blunt" due to the "separation between the party needing RINs and the party producing the RINs" and that shifting the point of obligation could "improve the efficiency of the regulation."38 Hcwever, as demonstrated across a wide range of eoonomic research on the theory and practice of environmental regulation, this effect will not be significant in a market with low elasticity of demand, such as gasoline, unless there exist other major frictions, such as high transactions costs or lack of competition.39 As stated in a recent paper on greenhouse gas emissions trading: "As long as conditions are competitive and prices pass efficiently through the chain, the point of regulation does not affect the incentive or ability of any party to mitigate."40 34 HollyFrontier Petition, p. 4. 33 Valero Petition, pp. 21-22, citing NERA (2015), pp. 18-19. 36 NERA (2015), p. 32. 37 As noted by ERA the petitioners' argument here is in direct contradiction with their other argument that the current regulatory structure leads to "windfall" profits firm RIN revenues for non-integrated blenders. If generating RINs as a non-obligated party resulted in "windfall" profits, that obviously would represent a significant incentive to expand blending of renewable fuels. 38 NERA (2015), p. 33. 39 See, for example, Gabriel E. Lade and James Bushnell, "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Center for Agricultural and Rural Development, Iowa State University, Working Paper 164AP 570, December 2016, p. 1. 40 Suzi Kerr and Vicki Duscha, "Going to the Source: Using an Upstream Point of Regulation for Energy in a National Chinese Emissions Trading System," Motu Economic and Public Policy Research, Working Paper 14-09, September 2014. See also, for example, Carolyn Fischer, et al., "Using Emissions Trading to Regulate U.S. Greenhouse Gas Emissions: An Overview of Policy 6 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00006 In this esse, ss described above, economists have demonstrated that the markets for the components of gasoline, including petroleum blendstocks and ethanol, operate competitively and efficiently, with the value of RINs reflected in the wholesale prices of fuel components at all points in the supply chain. Moreover, ss pointed out by EPA, export prices have adjusted such that refiners new earn higher prices on domestic supply, which offsets the difference in RFS obligations for exported volumes relative to domesticallyconsumed volumes.41 The case of E85 does represent somewhat of an anomaly in this respect, and the petitioners rely heavily on conditions in the retail marketplace for E85 to support their broader arguments. For example, Valero cites a paper published in June 2015 which found, in contrast to the market for E10, "a near absence of pass through of RIN prices to retail E85 prices."42 There are several problems, however, with relying on this finding as a basis for changing the Point of Obligation. First, as pointed out by EPA in the proposed denial, evidence indicates that wholesale markets for E85 are operating efficiently.43 The problem of a lack of pass-through is confined to the retail marketplace, which would be unaffected by a change in the Point of Obligation. Specifically, to the extent that retail markets for E85 are failing to pass on RIN value to consumers, that is a consequence of the competitive conditions in the market for gasoline retailing, not the markets for RINs or fuel components. As EPA points out, the historic lack of competitive pricing for E85 at the retail level has been due to the fact that, even with foil pass-through, RIN prices have been insufficient to bring E85 prices down to parity (energy adjusted) with El 044 As a result, the number of stations offering E85 has remained low, and consumers who have purchased the fuel generally are not price sensitive. These conditions are not conducive to competition at the retail level. They are, however, unrelated to the Point of Obligation, but rather are related to general RIN price levels and the uncertainty of future levels, due to the decisions of EPA and conditions in fuels markets. As noted by Babcock, et al. (2016), the solution to this problem is greater certainty on future renewable fuel volume obligations (RVOs), not a brand-new change in the regulatory structure.45 Valera's reliance on conditions in the retail market for E85 as a basis for changing the Point of Obligation is flawed for additional reasons. As pointed out by EPA, gasoline stations that have relationships with the obligated refiners are less likely to offer E85 for sale than independent stations or stations owned by nonobligated blenders.46 This empirical finding oontradicts the petitioners' claims that parties without an obligation under the RFS have no incentive to increase blending of renewable fuels and that shifting the Point of Obligation to blenders would increase E85 penetration. More recent research has found that pass-through in even retail E85 markets may be improving, perhaps due to the more sustained, elevated levels of RIN prices during the last few years. A paper published in December 2016 by researchers at the University of California at Davis and Iowa State University concluded that "pass-through of the ethanol subsidy [i.e., RINs] is, on average, complete," although "foil pass-through takes four to six weeks and that local market structure of gasoline stations influences both the speed and Design and Implementation Issues," Resources for the Future, Discussion Paper 98-40, July 1998, p. 3; and Tim Hargrave, "US Carbon Emissions Trading: Description of an Upstream Approach," Center for Clean Air Policy, March 1998. 41 EPA Proposed Denial, pp. 21-22. 42 Valero Petition, p. 18, citing Knittel, et al. (2015), p. 20. 43 EPA Proposed Denial, pp. 30-31. 44 EPA Proposed Denial, p. 30. See also, Babcock, et al. (2016). 45 Babcock, et al. (2016), p. 14. 46 EPA Proposed Denial, pp. 34-36. 7 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00007 overall level of pass-through."47 Thus, the problems with the retail markets tor E85 appear to be dissipating. IV. Purported Inefficiencies and "Speculation" in the RIN Market The petitioners have identified various purported conditions in the trading market tor RlNs--such as high volatility, a lack of liquidity, a lack of market efficiency, and high transactions costs--as justification tor shifting the Point of Obligation to blenders. For example, in its petition, Valero cites "high levels of speculation," "price volatility," and "artificially high values."48 Valera's economists similarly cite "high volatility," a "thin market," and a "larger bid-ask spread" as problems with the market for RINs.49 Other commenters have cited the simply the current level of RIN prices--compared to past levels--as evidence of market manipulation. For example, the CEO of CVR Refining recently asserted that "exempt parties" and "speculators" were "drivpng] prices to confiscatory levels" and that the "market may be cornered."50 None of the petitioners, however, provide any analysis or cite any data to support their allegations about conditions in the RIN market, nor do they offer any evidence to support their claim that shifting the Point of Obligation would improve those conditions. In fact, there is little empirical evidence of any of these problems in the market for RINs, particularly D6 RINs which are the focus of the petitioners' arguments. Key characteristics of any trading market include efficiency (the degree and rapidity with which prices reflect new information) and liquidity (the extent to which a market allows large quantities of trades at stable prices).51 These characteristics depend on factors such as the number of traders, the volume of trades, and any differences in information available to the various market participants. Evidence tor RINs, however, shows that the marketplace is generally functioning wall along these dimensions. For example, economists at Iowa State University recently published a paper in which they pointed out that collusion to restrict the availability of RINs would lead to a situation in which at least some of those RINs were left to expire; yet, that has not happened.52 The authors also noted the difficulty in maintaining collusion to restrict supply in the face of potential punishment as well as cheating within the conspiracy. They concluded: "[0]ur assumption of competitive markets is much more plausible than assuming collusion is what determines RIN prices."53 Other recent research has confirmed the fact that movements in RIN prices reflect changes in the fundamental, underlying characteristics of fuels markets, combined with EPA's stance on the RVOs. For example, research by economists at the University of Illinois demonstrates that recent volatility in D6 RIN prices can be tied directly to conditions in the markets for soybeans and biodiesel:54 The key takeaway point from this review of RINs prices is that if you want to understand the movement of ethanol RINs prices, which gamer most of the headlines, then you have to first understand the movement of biodiesel RINs prices. 47 Lade and Bushnell (2016), Abstract. 48 Valero Petition, p. 25-26. 49 NERA (2015), p. 34. 50 "CVR Refining Reports 2016 Second Quarter Results," CVR Refining press release, July 28,2016. 51 See, for example, Financial Sector Assessment: A Handbook, The World Bank and The International Monetary Fund, 2005, pp. 18-20, available at http://\AM/w.irrf.org/extemal/pubs/Msa/eng. 52 Babcock, etal. (2016). 53 Babcock, etal. (2016), p. 13. 54 Scott Irwin, `What's Up with RINs Prices," faimdoc daily, v. 6, n. 188, October 5,2016. See also, Scott Irwin, "Clues from the RINs Market about the EPA's RVO Proposals for 2014,2015, and 2016," faimdoc daily, v. 5, n. 98, May 28,2015. 8 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00008 and A review of the relevant data shows that the increase in RINs prices seal in 2016 is likely due to the looming expiration of the $1 per gallon biodiesel tax credit at the end of the year. Uncertainty stout extension of the blenders credit increases the odds that blending losses will be larger in future years, which shows up as an increase in the time value of the RINs "option." This component of RINs prices in 2016 is either similar to or smaller than what was observed in previous years when the tax credit also was scheduled to expire. So, while one cannot say with certainty that the RINs market has not been manipulated, there is a logical economic explanation for the credit price increases seen this year. Additional evidence for the efficiency and liquidity of the market for RINs can be found in trading information collected by brokers and data aggregators. Three examples of reports from these sources are attached as Appendix A As shown in these reports (and confirmed in discussions with various market participants), bid-ask spreads--a typical measure of both the efficiency and liquidity of a trading market55--for RINs have been low. Published estimates are generally in the range of 0.5-2 cents, and estimates by market participants fall in the range of one-quarter to one-half a cent during most trading periods, with slight expansions during times of high volatility (tor example, surrounding an EPA announcement regarding RVOs). These reports also show that intra-day trading ranges tend to remain very tight, with even large trades causing little movement in prices--additional indicators of an efficient and liquid market. In general, to the extent that "speculation" does occur (i.e., participation in the RIN market by parties for purposes other than disposing of excess RINs or acquiring RINs for retirement), such practices are entirely legal and can be undertaken by any party, including the petitioners. The petitioners offer no evidence that such activity has caused RIN prices to get out of line from fundamentals for any extended period. Even more relevant to the present discussion, however, is the fact that the petitioners offer no evidence that shifting the Point of Obligation would affect any market inefficiencies due to trading practices or other reasons, to the extent that such problems do exist at all. In its 2015 paper, NERA asserts that the market for RINs has beoome "increasingly thin," and that shifting the Point of Obligation would reduce the number of required transactions and `tighten the bid-ask spread."56 NERA provides no data or even anecdotal evidence supporting any of these claims. In fact, a reduction in the number of a transactions in the marketplace, which Valero and NERA advocate for, would represent, by definition, a shift to a less liquid--i.e., "thinner"--market.57 Reducing the number of transactions would be expected to reduce the extent of price discovery, leading to hicfier bid-ask spreads and a greater likelihood that a single entity or a group of colluding parties could manipulate the market. V. Ability to Monitor Counterparties and Reduce Fraud Petitioners have identified the potential for fraud in the market for RINs as a reason to shift the Point of Obligation to blenders.58 In a recent report prepared for Valero and now available on a CVR Refining website, Doug Parker, former Director of EPA's Criminal Investigation Division, identified cases with "documented fraud loss" related to counterfeit RINs.59 Mr. Parker asserts that these incidents occurred 55 See, for example, The World Bank and The International Monetary Fund (2005), pp. 19-20. 56 NERA (2015), p. 34. 57 The World Bank and The International Monetary Fund (2005), p. 20. 58 Valero Petition, pp. 23-27. 59 Doug Parker, `Wiite Paper Addressing Fraud in the Renewable Fuels Market and Regulatory Approaches to Reducing this Risk in the Future," September 4,2016, available at CVR Refining website, http://fixtherfe.org/supporting-information. 9 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00009 because the obligated parties "simply do not have the investigative expertise or the leverage to conduct such oversight based on where they sit in the production chain."60 These allegations, however, provide little support for the argument to shift the Point of Obligation, for a variety of reasons. First, the documented instances of fraud represent a tiny fraction of the total volume of RIN transactions. Mr. Parker cites a figure of $271 million in "documented fraud loss."61 However, from 2010 through 2014, more than 200 billion RINs changed hands, as documented by EPA's EMTS system.62 Mr. Parker's estimate represents less than one half of 1 percent of the value of those transactions.63 Equally as important, however, is that not a single one of these instances has related to D6 (conventional ethanol) RINs, which are the focus of the petitioners' arguments. Every one of the eight examples cited by Mr. Parker relate to biodiesel.64 In its petition, Valero cites a single news article on the subject, which refers to one of those instances.65 In contrast, the parties that participate in the market for conventional ethanol RINs are generally much better known to one another, since they are primarily large ethanol producers, retailers, oil refiners, and other established parties. Such parties have less incentive to engage in fraudulent behavior, since they repeatedly interact with one another in the market for RINs and have significant assets at stake if fraudulent behavior were to be detected and prosecuted. Moreover, to the extent any such fraud exists, or even the potential for such fraud, the petitioners have provided no analysis to support the argument that shifting the Point of Obligation from refiners to blenders would reduce it. As noted above, Mr. Parker asserts that the refiners do not have "the investigative expertise or the leverage" to oonduct oversight into their counterparties in the RIN market.66 However, it is unclear that blenders, to the extent that they are different from the refiners, would have any greater resources or knowledge to perform such activities. To the contrary, non-integrated blenders are generally smaller and less sophisticated than the refiners, and therefore are likely to have less expertise and resources to dedicate to this issue. Moreover, to the extent that the current obligated parties have developed expertise to deal with counterparty risk, that expertise would be lost if the responsibility was shifted to a new set of entities, whatever their level of sophistication or the resources available to them. In its petition, Valero notes that many parties who trade in the RIN markets are neither generators of RINs nor obligated parties; they include, for example, investment banks.67 To date, however, none the parties that have been accused of actual fraud--as opposed to legal "speculation'1--have been in this category; rather, they all have been producers (or purported producers) of biodiesel. Any policy that might reduce the participation of parties without a direct stake in the regulation would have had no impact on the actual cases of fraud documented to date. As noted above, Valero also asserts in its petition that that shifting the Point of Obligation to blenders would reduce the number of transactions in the RIN market, since the entities creating the RINs often would be the obligated parties themselves. Valero asserts that this would reduce the potential for fraud and cause 60 Parker (2016), p. 5. 61 Parker (2016), p. 7. 62 EPA BVTTS website, https:/AAAAAA/.epa.gov/fuels-registration-reporting-and-compliance-help/annual-rin-salesholdings-SLiTrmry 63 Based on total transactions each year multiplied by the average of daily RIN prices within the year. [EPA HVTTS website, https:/AAAAAA/.epa.gov/fueis-registration-reporting-and-compliance-heip/annuai-i1n-salesholdings-SLrTmary; and CPIS] m Parker (2016), pp.8-10. All of the enforcement actions brought by EPA to date have related to biodiesel RINs. [EPA website, https:/AAAAAA/.epa.gov/enforcerrent/civil-enforcerrent-renewable-fuel-standard-program#ngl] 65 Valero Petition, pp. 25-26, citing Bryan Sims, "Biodiesel RIN fraud causes industry, obligated parties anxiety," Bodiesel Magazine, November 29,2011. Parker (2016), p. 5. 67 Valero Petition, pp. 24-25. 10 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00010 RIN prices to "stabilize."68 Valero appears to be conflating the counterfeiting of RINs with the entirely legal activity of speculation in RIN markets by parties that may or may not have substantial interests in blending or refining operations. \Ne address the questions about speculation, above. With regard to actual fraud, however, there is no evidence that reducing the number of transactions would reduce the incentive to generate fraudulent RINs. That incentive relates primarily to the value of RINs in relation to the penalties for being caught and prosecuted. As we discuss above, the value of RINs is determined in the marketplace based on fundamental features of fuels markets (supply and demand) interacting with the market participants' views regarding EPA's statements and promulgations related to the RVOs. Changing the Point of Obligation would have no impact on those factors. Moreover, as EPA notes in its proposed denial, shifting the Point of Obligation to blenders would make it more difficult for EPA to detect and prosecute non-compliarce and fraud by obligated parties.69 The petitioners' proposed changes in the RFS regulations therefore would, at best, have no impact on the generation of fraudulent RINs, and could make the situation worse. VI. Regulatory Burden and the Nimber and Sophistication of Obligated Parties Finally, the petitioners have asserted that shifting the compliance obligation from refiners/importers to blenders would reduce the overall regulatory burden of the RFS program in terms of the costs of record keeping and reporting to the EPA, or at least not increase that burden, due to a reduction in the number of obligated parties.70 For example, Valero states:71 No analysis has found that moving the Point of Obligation as Valero suggests would increase the number of obligated parties at all, and certainly not in any significant way. More likely, even with some new obligated parties and others dropping off, the total number of obligated parties would decrease. and Thus, oontrary to the 2010 expectation of ballooning numbers [of obligated parties], changing the Point of Obligation to the Rack Seller will not increase the administrative burden. In support of these claims, Valero attached to its petition two estimates of the number of potential obligated parties under the proposed realignment, based on lists of entities that post prices at the rack and various other sources.72 Valero identified approximately 100 to 200 entities that it believes would comprise the universe of obligated parties if the Point of Obligation was shifted to blending and noted that these figures were equal to or less than EPA's estimate of200 current obligated parties. In its proposed denial, EPA devoted a considerable portion of its analysis to addressing this issue, providing two primary responses.73 First, EPA disputed Valera's analyses of potential obligated parties and noted that the original intention of the regulatory design--i .e., to minimize the number of obligated parties-- remains valid.74 As EPA stated in the 2010 Final Rule:75 68 Valero Petition, p. 26. 69 EPA Proposed Denial, pp. 42-44. 70 Valero Petition, pp. 35-37. 71 Valero Petition, p. 36. 72 Valero Petition, Attachments D and E. 73 EPA Proposed Denial, pp. 22-24 and 3742. EPAProposed Denial, p. 38, citing the 2010 Final Rule (75 Federal Register 14669-9C4, March 26,2010), at pp. 14721-722. 75 2010 Final Rule (75 Federal Register 14669-904, March 26,2010), at p. 14722. 11 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00011 VMien the RFS1 regulations were drafted, the obligations were placed on the relatively small number of refiners and importers rather than on the relatively large number of downstream blenders and terminals in order to minimize the number of regulated parties and keep the program simple. EPA's own analysis found that the number of entities which take ownership of motor fuel at the point of blending could range from 350 to "over 1,000," according to one approach for identifying such entities, and "over 1,100" based on a second approach76 Our understanding of the tasks necessary for compliance is that some of the costs involved for obligated parties are "fixed"--for example, a requirement to hire a single, new regulatory officer. Thus, increasing the number of obligated parties would result in an increase in total oosts borne by industry. Moreover, EPA pointed out that its own costs to monitor the regulation also would increase as the number of obligated parties increase, particularly if those new parties are not currently regulated by EPA.77 EPA's second response relates to differences between the types of entities that are currently obligated parties and those that would become obligated parties under the petitioners' proposal. EPA pointed out that current obligated parties include primarily large refiners, which have significant resources as well as expertise in regulatory compliance generally, whereas some blenders do not have those characteristics.78 In addition, EPA noted that, to the extent that current obligated parties who would become non-obligated under the proposal have developed specific expertise to deal with RFS compliance, seme of that expertise would be lost (and then duplicated by new obligated parties) if the Point of Obligation were shifted to blenders.79 Thus, shifting the Point of Obligation would result in additional, unnecessary oosts. A further burden would be introduced if blenders were made the obligated parties due to the increase in the number of transaction points for obligated volumes. In theU.S., there are approximately 10 times as many petroleum product terminals as there are refiners.80 Thus, a requirement to track fuel volumes purchased by blenders, as proposed by the petitioners, would represent a greater administrative burden than a requirement to track volumes produced by refiners. VII. Conclusions In summary, the petitioners have offered a variety of justifications to shift the RFS Point of Obligation from refiners/importers to blenders. In general, the petitioners' arguments that relate to the economic or financial circumstances of the affected parties have been presented without either empirical or theoretical support. A closer examination of those arguments reveals a variety of flaws, seme of which already have been addressed by EPA in its proposed denial. Our primary conclusions regarding the petitioners' arguments are as follows: 1) RIN values represent neither windfalls for blenders nor out-of-pocket costs for refiners. Notwithstanding the fact that seme oompanies report RIN expenses or RIN revenues as distinct line items in their financial statements, the overall impacts of RIN generation and sales (for nonintegrated blenders) and RIN acquisitions (for merchant refiners) are largely or perhaps completely 76 EPA Proposed Denial, pp. 4042. 77 EPA Proposed Denial, pp. 37-39 and 4344. 78 EPA Proposed Denial, pp. 23,39, and 4344. 79 EPA Proposed Denial, p. 23. 80 The Association for Convenience & Fuel Retailing website, http:/AAAAAA/.nacsonline.corrVYourBusinessFuelsReports/2015/StatisticsAndHistoricalContext/Pages/The-US-Petroleim-lndustryStatistics-Definitions.aspx. 12 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00012 offset by countervailing oosts or revenues experienced by the companies in their transactions of component fuels. This conclusion has been supported by the findings of multiple academic researchers and is consistent with economic theory. Moreover, an analysis of the margins earned by merchant refiners since RIN prices began to escalate in 2013 demonstrates no adverse impact. The petitioners' argument therefore provides no justification for shifting the Point of Obligation. 2) Shifting the Point of Obligation would have no impact on the incentives to invest in biofuel infrastructure or increase blending ofrenewable fuels. RIN prices already provide a direct incentive for all parties in the supply-chain to promote renewable fuels. The only conditions that could impede this incentive would be anticompetitive activities or a malfunctioning RIN market. Although the petitioners offer various assertions about such conditions, they have provided no evidence to support those claims. The petitioners also cite circumstances in the retail market for E85 which could indicate a lack of pass-through of RIN value to the final consumer. Those conditions, however, relate primarily to the historic and current levels of the RVOs, as well as uncertainty regarding future levels, and would be unaffected by a shift in the Point of Obligation. 3) RINmarkets are, for the most part, operating efficiently and competitively; moreover, a change in the Point of Obligation would have no beneficial impact on those conditions. The petitioners have made various allegations stout RIN markets, including claims of either inilateral or collusive hoarding, high transactions costs, and excess volatility, among others. However, they provide no evidence to support any of their claims. In fact, research by academic economists as well as direct evidence from trading data indicate that RIN markets are functioning as designed, with prices changing in response to fundamentals and trading costs remaining relatively low. To the extent that the petitioners' proposal would reduce the total number of RIN transactions, any inefficiency or illiquidity in the market would only increase, not decrease as the petitioners claim. 4) Changing the Point ofObligation would have no impact on fraud in RINmarkets. The only documented cases of actual fraud in the market for RINs relate to counterfeiting of biodiesel RINs. These instances have represented a relatively small cost oompared to the overall value of RIN transactions, and have not affected the market for conventional ethanol RINs at all. To the extent that such fraud does exist, there is no reason to believe that blenders would have greater expertise or resources available to them to police such activities, relative to refiners. Moreover, changing the Point of Obligation would have no impact on the incentive to engage in RIN fraud. 5) The petitioners'proposal would result in an increase in the number ofobligatedparties and an increase in the overall administrative burden of the RFS. EPA's analyses have demonstrated that the current regulatory design is consistent with the original intent to minimize the number of obligated parties and the associated costs of administering the program. Shifting the Point of Obligation to blenders would not provide any improvement and likely would result in an increase in such costs. Moreover, such a shift would require new parties to develop expertise, essentially duplicating costs already expended by the current obligated parties. 13 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00013 Appendix A Reports from RIN Brokers and Data Aggregators 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00014 ED 001523 00007803-00015 5lAITS W McGRAW HILL FINANCIAL Volume 4 / Issue 216 / November 3,2015 PI atts key dail yethanol assessments Unit ed states (e/gal 3 Ethanol swap Chicago (Dec) esc Brazil Cargo asessment s (S/cum) low-high midpoint Change PI atts key dail y Biodiesel assessments northwest europe (S/nrrtJi i n; rmi northwest europe premiums (S/rrt) 1 ow-high midpoint Change 799 25 -"'4 northwest europe (C/cum) asia Pacific (S/cum)1 i s na m: Unit ed st at es (c/gal) m.;: in;: asia (S/rntTiwniiv'.Nii!; Biodiesel FOB Southeast Asia MAvSvee 599.90~b00.10 oOO.OO -9.00 tUesday's highl ights US biodiesel jumps on rising heating oil futures Ethanol Europe CEO urges NGOs to support biofuels Brazil spot ethanol export discussions muted on record domestic prices US Ethanol prices continue to fall despite rebounds in corn and gasoline futures BRazil ethanol exPoRts Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: SECEX achieving vol umes in RFs argentina cuts biodiesel export mandatewoul d bedifficul t:CBo t axes, I owers some prices Washington--Mandating the statutory biofuels volumes in the Renewable Fuel Standard will be difficult to achieve due to the blend wall and potentially cause US diesel prices to rise 25-45 cents/gal and E10 gasoline prices to rise 15-30 cents/gal, the Congressional Budget Office said in a report Tuesday. Repealing the RFS could cause diesel prices to fall 5 cents/gal, with a negligible impact on E10 prices, the CBO said. The findings, presented to two House of Representatives subcommittees, could give added ammunition to lawmakers seeking to repeal or reform the RFS. "Full compliance with the mandates in [the RFS statute] poses significant challenges," Terry Dinan, a senior adviser to the CBO, testified. If the statutory IcontinyedoiMflfleJOl Buenos Aires--Argentina's Energy Secretariat said Tuesday it has cut biodiesel export taxes and reduced biodiesel prices for large producers, effective retroactively from September 1. On its website, the department said it reduced export taxes to 8.6% in September compared with 9.82% in August. It also reduced the price of biodiesel supplies paid by oil refiners for a 10% blend in diesel to Pesos 5.213/mt ($0,549) for output from large integrated producers. That down 0.25% from Pesos 5.226/mt in August. The price for output from non-integrated large producers was raised 0.34% to Pesos 6.161/ mt from Pesos 6.14/mt over the same period. Prices for small and medium-sized producers were raised to Pesos 6.971- 7.081/mt compared with Pesos 6.943-7.051/ mt in August, the department said. The biodiesel industry has warned that high taxes and low prices are slowing production, as are a slower-than-expected increase in the blend in diesel beyond 10% and restrictions on exporting product to the EU. The Argentine Biofuels and IcmtinuerLOiMflfleJll Contents Bthariol BINs RV04 ETBE Biodiesel Biofuels industry news 8 Futures and foreign exchange 9 www.platts.com AGRICULTURE 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00016 BIOFUELSCAN NOVEMBER 3, 2015 ethanol maRket CommentaRy Unitedstates market anal ystSSF page 299) US ethanol prices continued to fall Tuesday,despite rebounds in underlying CBOT corn and NYMEX RBOB gasoline futures. CBOT December corn futures rose 4 cents to $3.8Q50/bushel, while November RBOB gasoline futures rose 7.02 cents from Monday to $1.4455/gal. Chicago Argo was assessed at $1.5525/gal, down 1.5 cents from Monday. New York harbor any-November was assessed at $1.6625/gal, down 3.7 cents, while any-Decemberfell to $1.6250/gal from Monday, down 1 cent. Rule 11 ethanol was assessed at $1.5750/gal for this-week delivery, down 2.5 cents. The Houston ethanol assessment fell 5.2 cents to $1,6250/gal. The California ethanol assessments fell to $1.7350/galfor prompt delivery, without receiving either a bid or offer during the Platts Market on Close assessment process. The RIN markets were largely up day on day, as ethanol RINs were assessed at 40.50 cents/RIN ,up 50 points from Monday; advanced RINs were assessed at 49 cents/RIN, down 4.5 cents from Monday; and biodiesel RINs were assessed at 57.5 cents/RIN, up 2 cents from Monday. Us ethanol PRiCe assessments Unit ecfet at es (t/gaitlr . > n Ethanol Chicago (terminal) Ethanol Chicago (Rule 11) Ethanol swap Chicago (Dec) Ethanol swap Chicago (Jan) Ethanol NYH Barge (Nov) Ethanol NYH Barge (Dec) Ethanol Houston 5-1 5 Tank sout hern Cal ifornia Rail SsBessmeni (e/gal) Ethanol prompt 7-14 Ethanol forward 1 5-30 nort hern Cal ifornia Rail BatBessmenJ (e/gal) Ethanol Prompt 7-14 Ethanol Forward 1 5-30 AALRI00 AAVMD00 ESCM001 ESCM002 AAMPF00 AAUEG00 AATG300 1 ow-high 155.20-155.30 1 57.45-157.55 152.45-152.55 1 50.45-150.55 166.20-166.30 162.45-162.55 1 62.45-162.55 AAMNK00 AAMNN80 1 73.45-173.55 171.45-171.55 AAMFT00 HMl'irtOO 1 73.45-173.55 171.45-171.55 Us dRied distil I eRgRains PRiCe assessments ($/s3tt))pPBBF page 501) 1 ow-high GIF New Orleans barge AADDG00 157.95-158.05 FOB Chicago truck ACDDG00 140.45-140.55 Us Chicago anohyh ethanol assessment ratioifMie: page 295) Chicago Argo ethanol was assessed at $1.5525/gal Tuesday. By the 3:15 pm EST (2015 GMT) assessment close, there were eight trades in the Chicago Argo ethanol Platts Market On Close assessment process for November 8-18 delivery. During the MOC process, Koch sold 20,000 barrels to ADM and Shell at $1.5525/gal. Koch then sold 10,000 barrels to Shell at $1.5525/gal. Next, Koch sold 15,000 barrels to Valero at $1.5525/gal. Trading activity concluded when CHS sold 5,000 barrels to Valero at $1.5525/gal. The window concluded with an outstanding bid at $1.55/gal from LDM and an outstanding offer of $1.5550/gal from Koch. New York Harbor ethanol for any-November was assessed at $1.6625/gal, while NYH any-December was assessed at $1.6250/gal. New York Harbor any-November was traded once at $1.6625/gal, when Shell purchased 25,000 barrels from Valero. The New York Harbor anyNovember window concluded with an outstanding bid of $1.65/gal from ADM and an outstanding offer of $1.6725/gal from Rolmpus. New York Harbor any-December concluded with an outstanding bid of $1.61/gal from Shell without an outstanding offer, but was heard at a bid/ask range of $1.62-$1.63/gal prior to the MOC process. The above commentary applies to the following market data codes: AALPJOO, AAMPFOO. midpoint Change 155.25 157.50 152.50 150.50 166.25 162.50 162.50 -1.50 -2.50 -1.00 " -1.80 -3.70 -1.00 -5.20 173.50 171.50 -1.00 -1.00 173.50 171.50 -1.00 -1.00 midpoint 158.00 140.50 Change + 1.00 17cv1906 Sierra Club v. EPA - 6/22 Production Copyright 2015 McGraw Hill Financial 2 ED 001523 00007803-00017 BIOFUELSCAN [ NOVEMBER 3, 2015 The above commentary applies to the following market data codes: R1NCY01, RINCY02, BDRCY01, BDRCY02, ABRCY01 and ABRCY02. ddg market anal ystSBF page 504)The US DOGS market was dead on arrival Tuesday as trading dropped off. "This is the least I've ever seen DOGS trade," one Midwest source said. That assessment was confirmed by another source: "No one seems to care much out in the marketplace today." The market has been dismal in terms of activity for the last several days. Some sources have argued that mild fall weather has stalled domestic demand as beef herds remain in the pastures and out of feedlots. Other sources have argued that forward concerns from possible Chinese customers are stymieing the market. Either way, everyone agrees that nothing is happening in the market now. Looking ahead, the US Energy Information Administration will release its weekly ethanol production and stock estimates on Wednesday. In competing products, corn rallied on Tuesday, as front-month CBOT corn futures settled 4 cents higher as $3.8050/bushel. Soybean meal, however, finished 90 cents lower, with front-month CBOT futures settling at $301.30/st. ddg assessment rat iona(P8F page 504) Chicago FOB DOGS were assessed at $140.50/st with an additional $15 charge for containerizing after being heard bid at $137/st and offered at $144/st. New Orleans GIF DOGS for October were assessed at $158/st as they were last heard bid at $156/st and last heard offered at $160/st at the market close. The above commentary applies to the following market data codes: AADDGOO and ACDDGOO. Us et hanol bids/offers/t radSSf: page209) * MOC bids: Chicago: Ethanol: LDM bids $1.55/gal,Nov 8-18, ITT Argo, 5Kb; Chicago: Ethanol: ADM bids $1.57/gal,Nov 8-18, Rll, 145Kb; Houston: Ethanol: Shell bids $1.61/ gal,Nov 8-18, Houston, 10Kb; New York: Ethanol: ADM bid $1.65/gal, any-Nov, NYH, 25Kb; New York: Ethanol: Shell bids $1.61/gal, any-Nov, NYH, 25Kb. RenewaBI e identification nUmBeR(Rin) (p/Rin) let hanol (df?|BF page 201] Rolling code Calendarcode dw-high midpoint Change IRIN Calendar-Year2014 IR1N Calendar-Year2015 RIN Caiendar-Year2016 rincybi RINCY02 rincybb RD62014 RD6201B RD62016 40.70-40.80 40.45-40.55 40.70-40.80 40.75 40.50 40.75 +0.50 +O.S11 +0.50 Biodiesel (d41 n iRIN Calendar-Year2014 iRIN Ca!endar-Year2015 iRIN Calendar-Year2016 bdrcyoi BDRCY02 bdrcybb RD42014 RD42015 RD42016 55.95-56.05 57.45-57.55 64.95-65.05 56.00 57.50 65.00 +2.00 +2.00 +1.00 advanced biofuel (dSjni n, n IRIN Calendar-Year2014 IRIN Calendar-Year2015 RIN Calendar-Year2016 abrcyoi ABRCY02 abrcyob RD52814 RD52015 RD52016 43.95-44.05 48.95-49.05 53.45-53.55 44.00 49.00 53.50 -4.50 -4.50 -1.50 Cel I ul osic biofuel (ci3) page 201) |R1N Calendar-Year2014 IRIN Caiendar-Year2015 cbrcyoi CBRCY02 RDB2014 RD3201S 48.95-49.05 63.95-64.05 49.00 '64.00 +0.00 +0.00 The calendar codes indicate the traditional full calendar year codes for Platts RINs assessments, while the supplementary roiling codes are unique to the specific calendaryear KilNS, pi at t s Us Renewabl e Vol Ume obi igat ion-Cal CUl at ed Val Ues (PBF page 302) it/aal %/aal Change Biodiesel advanced et hanol Biofuel Cel 1 ul osic 2014 RVO fjan 1,201 4-Jan 31,2015) , IVOY014 4.1 5^5 +0.0413 1.1300 8.1200 0.4860 0.0040 201 5 RVO (Jan 1.201 4-Jan 31.201 6) IV0Y815... 4 1 791 +a0414.. . 1 1300 8.1200 0.4860 0.0040 201 6 RVO (Jul 1,201 5-Jan 31.2016) IVOY016... 4.3060 '+0.0446... 1.1300 8.1200 0.4860 NA RVOs are Renewable Volume Obligation values. RVO is the agg:regate cost of the Renewabl e Identificatiori Number percentage;s per gallon o f transportation fuel for t RVO valu ethanol PRiCes at key RaCk I oCations(if/gal) Chippewa Fal I s des moines grand Forks kansasCity minneapolis omaha sioux Falls Cenex Dale Pet FI Hills Minnlowa Sapp Bros Western DE312FX 167.31 DE059FX 162.86 DE1Y5FX 172.76 DE17SAT 169.00 DE0S9IF 175.00 DE175IF 173.00 DE059CW 164.00 DE099IF 170.00 , 169.00 ~>w Afv 1 75.00 ', v 169.00 DE2S6FX 198.99 DE141IF 185.00 DE141CW 185.00 mm-wv 168.00 DE185IF 169.00 DE185CW 163.00 DE185EA 162.90 'Ct-.f'. 171.00 DE256IF 164.00 DE256CW 161.00 C-wf. 166.00 viees anvenva as m u:a: aw vs ! uuivu:/ ia, pravwaa ay a my 17cv1906 Sierra Club v. EPA - 6/22 Production Copyright 2015 McGraw Hill Financial 3 ED 001523 00007803-00018 BIOFUELSCAN [ NOVEMBER 3,2015 * MOC offers: Chicago: Ethanol: Koch offers $1.5550/gal,Nov 8-18, ITT Argo, 10Kb; Houston: Ethanol: Vitol offers $1,64/ gal,Nov 8-18, Houston, 10Kb; New York: Ethanol: Rolympus offers $1.6725/gal, any-Nov, NYH, 25Kb. * MOC trades reported: Koch-ADM, $1.5525/gal, Chicago Argo,Nov 8-18,10Kb; Koch-Shell, $1,5525/gal, Chicago Argo,Nov 8-18,10Kb; Koch-Shell, $1,5525/gal, Chicago Argo,Nov 8-18,5Kb; Koch-Shell, $1,5525/gal, Chicago Argo,Nov 8-18,5Kb; Koch-Valero, $1.5525/gal, Chicago Argo,Nov 8-18,5Kb; Koch-Vaiero, $1.5525/gal, Chicago Argo,Nov 8-18,5Kb; Koch-Valero, $1.5525/gal, Chicago Argo,Nov 8-18,5Kb; CHS-Valero,$l.5525/gal, Chicago Argo,Nov 8-18,5Kb; Shell-Valero, $1.6625/gal, New York Harbor, any-Nov, 25Kb. Other trades reported: None. Us et hanol excl usiofWf page 209) * No data was excluded from the assessment. The above price indications apply to the following market data codes: AALRIOO, AAMPFOO. Us Rin bids/offers/t radef!BF page 206) * MOC bids: None. * MOC offers: None. * MOC trades reported: None. Other trades reported: None. BRazil ethanol PRiCeassessments Brazil Cargo asessments Ethanol FOB Santos Cargo (p/gal) Ethanol FOB Santos Cargo ($/cu m) Ethanol FOB Santos Cargo (Real/cu m) hydrous anP Domestic Ex-mill Ribeirao with taxes (Reai/cu m) FOB Santos/Parar anhydrous anP Domestic Ex-mill Ribeirao with taxes (Real/cu m) grade Ben! .),: .err: FOB Santos/Paranagua ($/cu m) dail y Prices',;n); .i.-iui' Spot Ex-mill Ribeirao Flydrous expressed as Raw Sugar equivalent (basis 96 degrees pol) (p/lb) Spot FOB Anhydrous direct to FOB NY (inc. D5 value) ($/ga!) Spot FOB Anhydrous direct to FOB NY (inc. D5 value) ($/cu m) Rin d6ethanol 2014 (4/R) N) 45 low-high AAWFQ00 AAWFP00 208.15-208.25 529.95-530.05 2073.25-2073.35 AAXNG6S AAXNR00 1945.00-1955 487.50-492.50 AXN\eQ 1895.00-1905.00 ,TAA A;'509 497.50-502.50 midpoint 208.20 530.00 2073.30 1950.00 490.00 1900.00 500.00 Change + 7.60 +0.00 +28.10 +80.00 +20.00 +20.00 +20.00 AAXOA00 AAXN039 + AK+.P00 13.94-13.96 1.83-1.85 483.44-488.72 13.95 1.84 486.08 ethanol t2FoBRotteRdam +0.80 +0.12 -31.70 Us Rin ex cl usions(PBF page 206) * No data was excluded from the assessment. The above price indications apply to the following market data codes: RINCY01, RINCY02, BDRCY01, BDRCY02, ABRCYD1, ABRCY02. Bra z iltPBF page 289) Comment aIV: Domestic hydrous ethanol prices in CenterSouth Brazil surged Tuesday,following the country's long weekend that kept the market closed Monday. The Platts hydrous assessment increased Real 80/cu m to Real 1,956/cu m on an ex-mill Ribeirao Preto basis, in line with the last deals heard Tuesday.The price is an all-time high. Despite 25 31-Aug 14-Sep 25-Sep 08-G4 21-G4 03-Nov the surge, market participants saw good volumes trading at this level. Rains forecasted for the whole week translated into higher offers on Tuesday, sources said. "Producers are very bullish," a broker said. On exports, discussions remained quiet due to strength in domestic prices. "Everything is at standstill for spot shipments. Everyone is focused on the 550 01-Sep 14-Sep 25-Sep 08-04 21-04 03-Nov domestic market," a trader said. "There are no spot offers - rains are hampering the harvest," a broker said. Only an offer for Grade B for the next crop, 2016-17, was heard at $420/cu m on an FOB Santos/Paranagua basis. Despite weeks of quiet spot discussions, Brazilian ethanol exports in October reached a 2015 record of 259.1 million liters, up 49% from 17cv1906 Sierra Club v. EPA - 6/22 Production Copyright 2015 McGraw Hill Financial 4 Desk: 239-390-2885 PFL MARKETS DAILY '24,2014 Month Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Settle 2.1070 2.0120 1.9210 1.8400 1.7650 1.7220 Prev 2.109 2.015 1.927 1.848 1.773 1.726 Chg Month Aug 14 0.004 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Settle 2.8368 2.8130 2.6711 2.6432 2.6256 2.6204 Prev 2.8601 2.8388 2.6917 2.6624 2.6440 2.6382 Chg Month . , - : Sep 14 Oct 14 . Nov 14 - Dec 14 : ' Jan 15 ' ; Feb 15 Settle 102.07 100.72 99.86 99.12 98.47 97.85 Prev 103.12 101.65 100.73 99.95 99.24 98.57 Chg Month (1.05) Aug 14 (0.93) Sep 14 (0.87) Oct 14 (0.83) Nov 14 (0.77) Dec 14 Jan 15 Settle 2.8709 2.8792 2.8902 2.9013 2.9117 2.9195 Prev 2.8754 2.8857 2.8970 2.9086 2.9198 2.9281 Chg (0.0045) ( . ) (0.0065) 0 0068 (0.0073) (0.0081) Month Sep 14 Settle Prev 361.50 362.50 Chg Month Settle Prev Aug 14 1207.50 1201.00 Chg Month 6.50 Sep 14 Settle Prev 528.75 530.75 Chg Month t v.......... Aug 14 Settle 3.847 Prev 3.762 Chg 0.085 Dec 14 369.50 370.75 Sep 14 1111.50 1101.75 9.75 Dec 14 550.25 554.50 (4.25) Sep 14 3.850 3.776 0.074 Mar 15 381.25 382.50 Nov 14 1084.75 1076.50 8.25 Mar 15 572.75 577.75 (5.00) Oct 14 3.859 3.787 0.072 May 15 389.50 390.25 Jan 15 1091.50 1083.75 7.75 May 15 ` 588.25 593.75 (5.50) Nov 14 3.906 3.839 0.067 Jul 15 397.00 397.50 Mar 15 1097.50 1090.75 6.75 Jul 15 600.50 607.00 (6.50) Dec 14 3.985 3.921 0.064 Sep 15 404.00 405.00 May 15 1103.50 1097.00 6.50 Sep 15 613.00 619.50 (6.50) Jan 15 4.054 3.995 0.059 Ethanol Cn|p Spr<sad Prici SillES! 1 Equities shook off a 20% drop in new home salesi in June from the original May print, but WTI Aug 14 2.4953 Q1 14 1.454 futures soldoff leading a decline in petroleum markets. RBOB futures closed lower for a third Sep 14 2.2198 Q2 14 1.122 consecutive day and September traded down to two and half month lows. Soybeans added to Oct 14 1.9559 Q3 14 0.998 yesterday's gains and touched a one week high after weekly export sales came in at 2.5 million Nov 14 1.6410 Q4 14 0.902 tonnes, most of which was for the 14/15 marketing year. Corn, however, could not get any Dec 14 1.4235 Q1 15 0.832 Nationwide Ethanol Indicative Pricing Location Bid Ask Argo ITT 2.140 2.155 NYH Barge 2.240 2.260 traction and finished down, settling near its four year lows set on Tuesday. Ethanol futures posted small losses with the biggest decline, of 0.8 cents, coming in the November and December contracts. Physical markets were little changed as Argo traded $2,145 and August New York Harbor barges were indicated $2.25 late. D4 RINs were well bid this morning and looked set to breakout, but the rally fizzled in afternoon trade and the market went out around 55.5 cents, after trading up to 56 earlier. LCFS credits held steady in upper 20's as buyers balked Gulf Coast 2.160 2.200 at paying $30. NorCal 2.220 2.260 DOE Storage (mbbl) F/X NEAR MARKET SUMMARY Periods Crude Gasoline Distillate USD Index 80.80 Energy This Week 371.1 217.9 125.9 Brazilian Real 2.218 WTI (Cash) 101.96 Last Week 375.0 214.5 124.3 Canadian Dollar 1.0727 Brent 107.16 Last Year 364.2 222.7 126.5 Euro 1.3462 NYMEX Crude 102.07 Difference -4.0 3.4 1.6 Japanese Yen Front Month Ethanol Crush Spread 101.49 B100 SME Chicago B100SME Gulf Co. 3.57 3.57 B100 FAME Chicago 3.43 B100 FAME Gulf Co. Ag Products 3.50 White Grease (cnt/lb) 38.00 Yellow Grease (cnt/lb) 32.00 Tallow (cnt/lb) 40.00 Soybean Oil (cnt/lb) 36.24 Soybean Meal ($/ton) 395.30 Canola (CAD/tonne) 440.70 Sugar (cnt/lb) 17.05 DDGS-Chicago(wkly) 150.00 Market Indices CRB Index 298.19 DJ Industrials 17083.80 NASDAQ 4472.11 S&P 500 1987.98 Gold 1294.80 This report has been prepared by Progressive Fuels Limited (PFL) personnel for your information only and the views expressed are intended to provide market commentary and are not recommendations. This report is not an offer to sell or a solicitation of any offer to buy any security. The information contained herein has been compiled by PFL from sources believed to be reliable, but no representation or warranty, express or implied, is made by Progressive Fuels Limited, its affiliates or any other person as to its accuracy, completeness or correctness. Copyright 2013 Progressive Fuels Limited. Aii Rights Reserved. 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00019 PFL MARKETS DAILY COMMENTARY July 24, 2014 15-May22-May29-May5-Jun RBOB ------ Ethanol 14 D6 Rins-----------13 D6 RINs 12-Jun 19-Jun 26-Jun 3-Jui 10-Jui 17-Jul 24-Jui 1 2012-2014 F?IN Pricini i/RIN & LCFS in dollars/ci Year Type Bid Ask Year Type Bid Ask 2012 D4 52.00 53.00 2012 D6 51.00 515.00 2013 D4 52.50 53.00 2013 D6 51.50 2014 D4 56.00 2014 D6 51.00 51.50 2012 D5 52.00 2013 D3* - 42.00 2013 D5 51.50 52.00 2014 D5 52.00 54.00 2014 Prompt Dlvd LCFS .. ' Id4 = Biomass Based Diesel RIN D5 = Sugarcane Based Advanced Fuel RIN 1 D3* = Cellulosic Waiver fixed by EPA D6 = Com tthanol 3ascd RIN LCFS Credits (1 Credit = 1 MT of C02) Month(s) Aug 14 1 RBOB Settle 2.8368 CBOT Ethanol Settle 2.1070 iff Implied (0.7298) 1 CU Ethanol Swaps Month(s) Settle 1 Aug 14 2.0550 1 Nationwide Etoh Pricing 1 i Location Bid Ask Chicago Rule 11 2.110 2.130 Sep 14 2.8130 2.0120 (0.8010) Sep 14 1.9583 FOB NE BN 2.000 2.020 Oct 14 Nov 14 2.6711 2.6432 1.9210 1.8400 (0.7501) (0.8032) Oct 14 Nov 14 1.8733 1.8000 FOB NE UP Tampa 2.020 2.260 2.040 2.280 Dec 14 2.6256 1.7650 (0.8606) Dec 14 Futyreg/F 1.7542 Pacifc Northwest 2.240 2.280 0.6200 0.20 0.5700 0.5200 0.4700 0.10 0.00 -0.10 -0.20 0.4200 5/15/20H- 5/25/2014 6/4/2014 _6/14/2014 6/24/2014 7/4/2014 7/14/2014 -0.30 7/24/2014 This report has been prepared by Progressive Fuels Limited (PFL) personnel for your information only and the views expressed are intended to provide market commentary and are not recommendations. This report is not an offer to sell or a solicitation of any offer to buy any security. The information contained herein has been compiled by PFL from sources believed to be reliable, but no representation or warranty, express or implied, is made by Progressive Fuels Limited, its affiliates or any other person as to its accuracy, completeness or correctness. Copyright 2013 Progressive Fuels Limited. Ail Rights Reserved. 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00020 PFL BIOFUEL MARKETS DAILY COMMENTARY R3 R2 R1 SI S2 S3 5DMA 20 DMA 50 DMA 2.266 2.218 2.172 2.046 2.007 1.969 2.098 2.118 2.164 CORN July 24,2014 R3 R2 R1 SI S2 S3 5DMA 20DMA 50DMA 380.5 375.0 368.9 354.4 348.3 343.0 363.9 396.6 434.4 RBOB 3.15 3.1 2.95 2.9 2-. un 17-Jun 2-Jui 17-Jul SOYBEANS R3 3.0179 R3 1273.7 R2 2.9550 1520 R2 1250.0 R1 2.9245 1470 SI 2.7542 \ /X - v- - v. S2 2.7017 1370 S3 2.6512 R1 1232.1 SI 1183.8 S2 1167.8 S3 1141.3 2.8659 2.9512 1270 - 11 5DIV1A 20DMA 1189.0 1294.3 2.9913 1220 1170 L / 50DMA 1393.9 i 2-Jun 17-Jun 2-Jul 17-Jul R3 R2 R1 SI S2 S3 5DMA 20DMA 50DMA 571.0 562.5 550.8 508.4 498.8 752.2 529.3 546.3 590.4 R3 R2 R1 SI S2 S3 5DMA 20DMA 50 DMA 3.0364 2.9521 2.9072 2.8355 2.8009 2.7303 2.8609 2.8999 2.9310 NATURAL GAS 4.7 - _____M____ _________________________ 4.5 - 4.3 - V 4.1 3.9 v 3.7 2-Jun 17-Jun 2-Jul 17-Jul R3 R2 R1 SI S2 S3 5DMA 20DMA 50DMA 4.182 4.049 3.926 3.772 3.664 3.607 3.836 4.143 4.396 City H/L Chicago 75/57 New York 80/67 Houston 96/76 Los Angeles 90/69 Washington D.C. 82/67 St. Louis 82/65 Naples, Florida 90/73 . . WEATHER Except for some iingering showers aiong the immediate coast, Thursday wiii be noticeabiy cooler and drier behind the cold front across much of the region. A pleasant Sate July surface high pressure brings a dry Thursday across the Great Lakes and Ohio Valley region. Scattered thunderstorms wiii develop today along a cold front from Virginia to the Gulf Coast and Florida Peninsula. Less coverage of rain today with only isolated to scattered thunderstorms expected in eastern Montana and eastern Wyoming and scattered showers in northern Washington. This report has been prepared by Progressive Fuels Limited (PFL) personnel for your information only and the views expressed are intended to provide market commentary and are not recommendations. This report is not an offer to sell or a solicitation of any offer to buy any security. The information contained herein has been compiled by PFL from sources believed to be reliable, but no representation or warranty, express or implied, is made by Progressive Fuels Limited, its affiliates or any other person as to its accuracy, completeness or correctness. Copyright 2014 Progressive Fuels Limited. All Rights Reserved. For information on howto trade a RinswapTM please contact the PFL desk at (239)390-2885. 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00021 Argus v .> - ,Mr. r - A- A;;-: u A A1' ,r - : : r- i i OVERVIEW PRICE SUMMARY US ethanol prices continued to find upward momentum Fri day despite weaker CBOT com and RBOB gasoline futures as traders eyed robust export demand and tumbling inventories and production. The RINs market was mostly higher Friday as the D4/D6 spread climbed to just off a ten-month high. Chicago (Argo) New York Harbor fob Brazil anhydrous Los Angeles low Cl Cbot ethanol t/mc 159.50 163.25 206.87 168.00 154.60 *1.13 *1.00 0.00 -3.00 *1.10 Stm> 421.35 431.26 546.50 443.81 408.41 * *2.99 2.64 0,00 -7.93 *2.91 US biodiesel premiums gained Friday as D4 RIN prices ticked upward, but outright prices fell as the Nymex plunged nearly 4.75s. A OI K CS c'thrtiSOl pi tees Renewable fuel (ethanol) Biomass based diesel Advanced biofuel RV0 t/USG Timing 2016 2016 2016 2016 Price 87.00 98.50 97.50 9.15 * Less 2015 -0.13 0.25 *0.25 -0.01 -0.50 -1.75 -1,50 *0.57 SME New York Harbor MOO MSG SME Houston fob 8100 MSG SME Chicago fob B100 t/USG SME fob Paranagua S/c SME fob Argentina upriver S/c Cbot soybean oil t/lb 111mmlm Price 320.98 311.48 327.98 815.00 727.21 33.31 4 -4.44 -4.44 -4.44 4.00 -9.92 -0.65 lilllillllillllii Spread Ethanol crush spread S/bmbei Heating oil/soybean oil spread t/USG Houston less Chicago ethanol MSG New York Harbor less Chicago ethanol MSG Los Angeles less Chicago ethanol MSG Los Angeles less Nebraska ethanol MSG Rule 11 less Nebraska ethanol MSG *0.96 -1.09 *4.00 *3.75 8.50 25.00 12.50 t 0.03 0.00 0.00 -0.13 -4.13 3.00 -0.50 Cgi tent Credits S/t California carbon allowances (CCA) low-carbon fuel standard (ICES) Price per gallon t/USG CCA price for regular Carbob ICES price for regular Carbob Vintage Price 2016 2016 2016 2016 12.96 95.00 10.43 3.35 0.00 -0.50 0.00 -0.02 Copyright 2016 Argus Media group ` uj-'ri to: O ti . ; .V' V'j lr:: i 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00022 Argus Amcncas Biofuels ETHANOL US US ethanol prices continued to find upward momentum Friday despite weaker CBOT corn and RBOB gasoline futures as trad ers eyed robust export demand and tumbling inventories and production. CBOT corn futures were slightly lower after China's Ministry of Commerce announced a 33.8pc anti-dumping duty on all US distiller's dried grains effective immediately. Ethanol export activity continues to underpin the market as a 15,OOOm3 shipment is scheduled to depart from Saint Rose, Louisiana for Brazil in the second half of September. A 10,000t shipment is scheduled to depart from the US west coast for China sometime in September, while an 8,Q00t ship ment is scheduled to depart from the US Gulf coast for Korea between 2-12 October. At Kinder Morgan's Argo ethanol hub, prompt barrels reached a near three-month high after a deal was done at 159^/USG, while a deal was heard done early at 16CWUSG. September any availabilities remained flat to the prompt bar rels as a market was seen between 159* and 160^/USG. ANNOUNCEMENT Chicago Argo prompt t/USG Weighted average Argo any Sep t/USG Rule 11 prompt t/USG New York Any Sep t/USG US Gulf coast/south Houston t/USG Tampa t/USG Atlanta t/USG Dallas t/USG Nebraska Union Pacific t/USG Burlington Northern t/USG US west coast Los Angeles low Cl t/USG Brazil fob anhydrous $/m3 fob anhydrous BRL/m3 fob hydrous $/mJ fob hydrous BRL/m3 cif anhydrous $/m3 cff anhydrous BRL/m3 fob Santos industrial grade* $/mJ fob Santos industrial grade* BRL/m3 Asia cfr Asia South Korea B grade $/m3 `assessment Is as of 23 Sep Low High 1 159.00 159.00 154.00 160.00 159.00 160.00 157.00 162.50 164.00 163.00 177.00 170.00 161.00 164.00 178.00 171.00 162.00 141.50 141.50 144.50 144.50 167.00 169.00 470.00 1,517.91 455.00 1,469.47 431.00 1,391.96 460.00 1,485.62 623.00 2,012.04 582.00 1,879.63 486.00 1,569.59 585.00 1,889.32 610.00 620.00 +1.13 +1.13 -0.50 +1.00 +1.13 +1.13 +1.13 +1.13 0.00 0.00 -3.00 0.00 +12.62 0.00 +11.98 +0.50 +12.20 +12.50 -26.54 -25.00 Argus completes and extends annual Iosco assurance review Argus has completed its fourth external assurance review of its price benchmarks, extending the scope of the process to cover petrochemicals and fertilizers for the first time, as well as again covering crude, products, biofuels, thermal coal, coking coal, natural gas and biomass benchmarks. The review was carried out by professional services firm PwC. Annual in dependent, external reviews of oil benchmarks are required by international regulatory group Iosco's Principles for Oil Price Reporting Agencies, and Iosco encourages extension of the reviews to non-oil benchmarks. For more information and to download the review visit our website: http://www. argusmedia, com /About-Argus/How-We-Work Chicago, low-high New York, low-high Sep 159.00-160.00 162.50-164.00 Oct 150.25-151.25 161.50-162.50 Nov 143.50-144.50 153.50-154.50 Dec 139.50-140.50 149.00-150.00 Spot New York Rbob barge 83.7 New York Cbob barge 83.7 Houston Rbob Colonial 83.7 Houston Cbob Colonial 85 Los Angeles Carbob 84 month Mont Belvieu natural gasoline Settlement Nymex Rbob settlement, Oct Nymex Rbob crack spread, Nov S/bl Low High 138.19 138.44 135.69 135.44 155.07 96.50 138.44 138.94 136.69 136.69 156.07 101.00 137.69 +12.46 -3.99 -3.62 -2.99 -3.62 -2.61 -1.44 -2.49 +0.87 Market Chicago Argo New York Harbor Timing 28 Sep-8 Oct Any Sep Price t/USG 159.00 164.00 Volume '000 bl 5 25 Chicago (Argo) prompt t/USG New York Harbor prompt t/USG Los Angeles low Cl t/USG fob Brazil anhydrous S/m3 cif Brazil anhydrous S/m3 Averages 152.96 157.33 166.31 537.28 446.47 Copyright 2016 Argus Media group */:. '.v:d w: -r , Pc + . v ,, , r Y./- tom 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00023 ARGUS MARKET MAP; ETHANOL \ r Hew York h\ e/USG New York Harbor values remained at a ten-week high after September barges were traded at 164MUSG, while a heard traded went through early at 162.5*/USG. The October barges lost a quarter-cent after being discussed between 161.5c and 162.5C/USG without trade. Chicago Rule 11 railcars shipping next week were discussed between 154c and 157C/USG, but transactions were not re ported. Fob Nebraska Union Pacific railcars shipping this week were unchanged after a trade was heard done at 143</USG. Arizona railcars shipping this week were heard traded at 162* and 163*/USG. At the west coast, NorCal cars shipping this week were heard traded at 168*/USG, down 3* on the day. Brazil The Brazilian ethanol market ended the week on a quiet note Friday as both delivered and domestic prices stabilized. Selling levels for cif Brazil deliveries ticked $1/m! to $486/ m3 in thin commerce as firm buying interest failed to material ize. LA ethanol vs Chicago ethanol e/USG Los Angeles ethanol vs Rule 11 c/USG Copyright 2016 Argus Media group Page 3 of 12 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00024 I Argus Americas Biofuels Discourse was also limited on the export front as high domestic valuations worked against waterborne economics. Anhydrous fuel ethanol hovered in the $470-623/m3 range, while the hydrous fuel specification failed to bulge from the $455-582/m3 levels. Korean B grade ethanol gained $13/m3 to $46G-585/m3 in weekly comparison as stouter domestic valu ations and a stronger Brazilian currency lifted the industrial grade specification over the course of the week. In Sao Paulo, ex-mill truckloads of hydrous fuel ethanol with 12pc I CMS tax stabilized in the R1;950-1,960/m3 range in a fairly illiquid session Friday as weak demand and limited supply kept a lid on commerce in Ribeirao Preto. RINS The RINs market was mostly higher Friday as the D4/D6 spread climbed to just off a ten-month high. The 2016 vintage D4 biomass-based diesel RINs rose by a quarter-cent as deals were done at 98.5#/RIN, widening the B16/E16 spread by more than a quarter-cent to 11.5#/RIN. Current year D6 ethanol credits were slightly lower as com merce was done between 86.75* and 87.25#, while the El6/ E17 spread was talked at +0.25#/+Q.4# without trade. The 2015 vintage D6 credits edged higher after credits exchanged hands at 87.5#/RIN The 2016 vintage D3 cellulosic RINs shed two cents as com merce was done for QAP credits at 203*/R!N. The 2014 vintage Market Biodiesel Cellulosic Ethanol Timing 2016 2016 2016 2016 2015 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 Price tmm 98.50 98.50 98.50 203.00 87.50 86.75 86.75 86.75 87.00 87.00 87.00 87.25 87.25 87.25 87.25 87.25 87.25 Volume '000 RINs 500 250 675 100 3000 500 500 350 500 500 1000 1000 500 2000 3000 500 2000 Renewable fuel (ethanol) 2014 2015 2016 Weighted average 2017 Biomass-based diesel 2014 2015 2016 2017 Cellulosic biofuel 2014 2015 2016 Advanced biofuel 2014 2015 2016 Renewable Volume Obligation (RVO) t/US6 2015 2016 Low 87.25 87.25 86.75 86.50 98.25 99.75 98.25 100.25 123.00 159.00 202.00 98.25 98.75 97.25 High 87.75 87.75 87.25 87,15 86.85 98.75 100.75 98.75 102.25 125.00 161.00 204.00 98.75 99.25 97.75 8.58 9.15 * +0.13 +0.13 -0.13 -0.20 +0.25 +0.25 +0.25 +0.25 -2,50 0.00 -2.00 +0.25 +0.25 +0.25 0.02 -0.01 Category spreads, 2015 Biodiesel 04-ethanol 06 Biodiesel D4-advanced biofuel 05 Advanced biofuel 05-ethanol 06 Category spreads, 2016 Biodiesel D4-ethanol 06 Biodiesel 04-advanced biofuel 05 Advanced biofuel 05-ethanol 06 Vintage spreads, 2015-2016 Biodiesel 04 Advanced biofuel 05 Ethanol D6 Today 12.75 1.25 11.50 11.50 1.00 10.50 1.75 1.50 0.50 Prior day 5-day avg 0.13 0.00 *0.13 +0.38 0.00 *0.38 0.00 0.00 +0.25 12.62 1.25 11.38 11.12 1.00 10.12 1.75 1.50 0.25 12.65 1.25 11.40 11.20 1.00 10.20 1.75 1.50 0.30 Advanced RINs vs ethanol RINs (current year) t/RtN Copyright 2016 Argus Media group l: . eC 7 t'.'i v,;.- . <7 .v '> Page 4 of 12 17cv1906 Sierra Club v. EPA - 6/22 Production ED 001523 00007803-00025