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Analysis-U.S. oil refiners bet the farm Biden will back them on biofuels

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November 11, 2021

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – U.S. merchant oil refiners like Monroe Energy and PBF Energy Inc are playing chicken with the White House, taking moves in the biofuels credit market that could force them to close plants and fire union workers unless the Biden administration bails them out by changing the rules on blending biofuels in gasoline.

Merchant refiners have long tried to dismantle a U.S. law requiring them to blend biofuels like ethanol into their fuel or buy credits from competitors who do.

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But until very recently, they largely continued to participate in the multibillion-dollar credit market by buying credits to offset their production, a Reuters analysis of earnings releases shows. But, now, some of these same refiners are building up record short positions in the credits.

Behind the shift is a bet that U.S. President Joe Biden will ultimately side with refiners and their powerful union supporters. But significantly rolling back the law as they wish would anger the nation’s Farm Belt, experts interviewed by Reuters said.

Refiners have extra leverage right now because the White House is battling rising fuel prices, which are hurting Biden’s poll ratings.

“This is nothing more than a political shakedown,” Brooke Coleman, executive director of the Advanced Biofuels Business Council, told Reuters. “These refineries are daring the Biden White House to make them lie in the bed they made by intentionally running up massive short positions,” on biofuel credits.

LIABILITIES SKYROCKET

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Refiners who had little outstanding biofuel credit liabilities a year ago have let them climb to record highs https://graphics.reuters.com/USA-BIOFUELS/WHITE-HOUSE/znpnekxowvl/chart.png in the third quarter, according to a review of their latest financial filings.

* Monroe Energy, a subsidiary of Delta Airlines, , has increased its potential biofuel liabilities to a company record of $547 million by the end of the third quarter, up from just $68 million a year prior, the latest filing shows

* PBF Energy Inc has amassed a $1.3 billion credit liability from halting or slowing purchases, according to its third quarter filing, up from $236 million a year earlier.

* CVR Energy, whose majority owner is billionaire Carl Ichan, has a $442 million credit liability, according to the company’s third quarter filing, up from $83 million a year earlier.

None of the companies responded to requests for comment.

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In 2017, Carlyle Group-backed Philadelphia Energy Solutions (PES) stopped buying compliance credits, eventually amassing a $350 million outstanding obligation before it eventually filed bankruptcy. The U.S. Environmental Protection Agency (EPA), as part of the bankruptcy hearings, waived about half of those costs.

The PES refinery eventually shut after a massive explosion in 2019.

“PES taught the market that you can play chicken with the EPA and win. It’s a form of civil disobedience of the law,” said Ed Hirs, an energy economist at the University of Houston.

Hirs said shorting the market is clearly a strategic play, but the gambit carries great risk.

“If the administration doesn’t buckle, then these companies will have to pay billions of dollars to comply. That could force PBF into bankruptcy and we will see if Delta reaches into its pockets to bail out the refinery,” Hirs said.

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HISTORIC YEAR FOR CREDITS

Refiners must turn in the compliance credits to the EPA by March for the previous year, giving them plenty of flexibility on when they take these costs. In the past, refiners purchased biofuel credits daily to match their production, even though they could defer buying if they believe the prices are too high or to manage cash flow.

Prices for the compliance credits, known as RINs, have traded erratically in a historic year for the market. After hitting an all-time record in June at $2.00 each, renewable fuel (D6) credits traded at $1.08 on Wednesday. That level is still above where they started the year at about 80 cents.

In September, Reuters reported that the Biden administration was considering big cuts to the blending requirements. Such a move would anger farm-state voters, so a decision has been delayed as Democratic lawmakers try to pass other big-ticket bills.

DISRUPTIVE SHUTDOWN THREATENED

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Refiners have argued to the White House that the higher RIN costs have boosted prices for gasoline, which have hit above $3.40 per gallon. They have noted that the plants, including ones in Biden’s home state of Delaware, offer high-paying union jobs.

Now at least one producer is threatening to shut a refinery over outstanding biofuel liabilities the company has run up.

In recent weeks, Monroe Energy has made a presentation to various stakeholders, including local politicians and labor leaders, painting a stark outlook for its refinery outside Philadelphia, according to two sources who have seen the documents.

The company presentation made clear that either the Biden administration intervenes and rolls back U.S. biofuel laws or its around 200,000 barrel-per-day refinery will be forced to shut its doors and lay off hundreds of union workers, the sources said.

If the Biden administration fails to intervene and prices stay at current levels, the Delta refinery would have to go into the market and settle a significant portion of its $547 million liability in upcoming months.

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The refinery recorded a $186 million loss in the first three quarters of 2021, filings show.

“They made it clear that this is the hill they are preparing to die on,” said a source who has seen the presentation.

(Reporting By Jarrett Renshaw and Stephanie Kelly; Editing by David Gregorio)

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UK firms struggle to find staff, see higher inflation – BoE survey

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December 2, 2021

LONDON (Reuters) – British companies are struggling to find the staff they need and expect higher inflation in the year ahead, according to a survey published on Thursday by the Bank of England which is weighing up whether to raise interest rates this month.

The BoE’s monthly Decision Maker Panel survey showed 85% of respondent firms were finding it harder to recruit new employees compared to normal, with 58% reporting it to be much harder.

The survey also showed year-ahead annual price inflation was expected to be 4.2%, up from 3.9% in the October survey.

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(Writing by William Schomberg, editing by Andy Bruce)

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Sustainable investors look for profits in fuzzy data

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December 2, 2021

By Ross Kerber and Simon Jessop

(Reuters) – Sustainability-focused investors believe a little effort can go a long way toward finding profitable opportunities buried in incomplete corporate environmental or social impact filings.

That is according to several speakers on a panel at  the  Reuters Next conference, who described how they choose sustainable investments and work with executives at a time when there are few standard requirements for how major U.S. and European companies should detail carbon emissions disclosures or workforce demographics.

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Eoin Murray, head of investment at Federated Hermes, said the disparate reports from many companies give portfolio managers the chance to dig deeper.

“As an active manager, there’s a part of me which doesn’t mind that some of the data doesn’t entirely line up, because it means the rewards go to those that do their homework properly and unearth the real gems,” Murray said.

Mary Jane McQuillen, a managing director for ClearBridge Investments, said while some companies are eager to become more sustainable, others are defensive and don’t want to be burdened by yet another topic of investor interest.

A third group, McQuillen said, admits there is much about sustainable reporting they don’t know, and is seeking input from their shareholders.

“They say, ‘we really don’t know what the issues are. If you can help us as an owner, and with your years of experience as an investor in understanding how these issues may apply to my industry, as well as to my particular company, that would be super helpful,” she said.

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U.S. regulators are in the process of developing guidance for how companies should spell out things like emissions, and rules in Europe are just coming into place.

At the U.N. climate change conference in Glasgow, Scotland, in November, global leaders agreed to do more to curb carbon emissions and took other steps toward setting up global carbon markets and an international body to set sustainability reporting standards.

Julie Gorte, senior vice president at Impax Asset Management, said absent complete corporate reporting, investors can still learn a great deal about companies’ environmental, social or governance impact through government filings.

“For companies the watchword is, look, people are going to find out stuff about you, whether you tell them or not. If you want them to know what the truth is, tell them,” Gorte said.

To watch the Reuters Next conference please register here https://reutersevents.com/events/next/

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(Reporting by Ross Kerber and by Simon Jessop; Editing by Sonya Hepinstall)

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Facebook could be sued by consumer groups, EU court adviser says

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December 2, 2021

By Foo Yun Chee

BRUSSELS (Reuters) – Facebook could be sued by consumer groups for privacy violations, an adviser to Europe’s top court said on Thursday, in a German online gaming case that could pave the way for similar action across the EU.

The case started in 2012 and is one of several privacy and antitrust headaches facing Facebook in Europe, where regulators have introduced legislation to curb the power of so-called tech giants and ensure more transparency.

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“Member states may allow consumer protection associations to bring representative actions against infringements of the protection of personal data,” Richard de la Tour, advocate general at the Luxembourg-based Court of Justice of the European Union (CJEU), said in an opinion.

Such actions must be based on infringements of rights derived directly from GDPR, he added, referring to the landmark EU privacy rules adopted three years ago.

“We’ll analyse the Advocate General’s opinion. Legal clarity on scope and process of GDPR is important and we’re glad the Court of Justice of the European Union is considering the questions raised in this case.” said a spokesperson Meta Platforms Inc.

GDPR stipulates that any requests to collect personal data should be subject to clear and informed consent.

De la Tour said consumer bodies that defend the collective interests of consumers are particularly suited to GDPR’s objective of establishing a high level of personal data protection.

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Facebook found itself in the dock after the Federation of German Consumer Organisations filed a lawsuit alleging that the social network had allowed operators of online games to improperly collect the personal data of gamers.

The games were offered on Facebook’s App Center in 2012. By playing the games, users automatically agreed to share personal data including email addresses. At the end of the game, they would receive a message saying that the app could post their status, photos and other information.

A German lower court had ruled in favour of the German federation, leading Facebook to appeal to a higher court, which subsequently sought advice from the CJEU.

Facebook has since revamped its privacy settings.

(Reporting by Foo Yun Chee; Editing by David Goodman)

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