Exclusive: Tesla aims to enter the U.S. renewable fuel credit market

© Reuters. FILE PHOTO: The logo of the automobile manufacturer Tesla can be seen on October 28, 2020 in a branch in Bern. REUTERS / Arnd Wiegmann / File Photo

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – Tesla (NASDAQ 🙂 Inc is aiming to enter the US multi-billion dollar renewable credit market in hopes of capitalizing on the Biden government’s march toward new zero-emission goals, two said sources familiar with the matter.

The electric car maker is one of at least eight companies pending an application with the Environmental Protection Agency relating to power generation and renewable energy loans. The EPA will list the pending applications with some details but not the names of the companies.

Tesla’s entry could potentially transform the renewable credit market founded in the mid-2000s to boost investment in the U.S. biofuel industry. The market generated around 18 billion loans in 2020 and is currently dominated by ethanol producers. Tesla’s application would likely be tied to the generation of electricity related to biogas.

The Biden government is expected to review EPA applications and outline how electric vehicles could qualify for tradable loans under the Renewable Fuel Standard (RFS) this summer, the two sources said.

The move could be the largest expansion of President George W. Bush’s RFS program, which aims to stimulate rural America and wean the country from oil imports.

The entry of Tesla and other electric vehicle manufacturers into the renewable energy system could attract investment in a much-needed network of infrastructure, including charging stations, for electric vehicles.

However, it is likely that some in the U.S. refining industry would be upset that they would have to buy the loans generated by Tesla and other alternative fuel providers, called RINs, essentially to subsidize an electric car company that is trying to put petrochemical refineries out of business bring.

Farmers might see Tesla’s entry as Biden’s White House, prioritizing electric vehicles over biofuels in response to the climate crisis.

BIOGAS LOGISTICS

In 2016, just before the Obama administration stepped down, the EPA released a proposal asking for an opinion on how best to structure loans for renewable electricity used as transport fuel.

The proposal remained largely dormant during the Trump administration, which spent most of its time on fuel credits trying to find common ground between rivals in the corn and oil industries.

Electricity from biogas – mainly from landfills in the country – can already generate loans under the RFS program. However, the EPA has never approved requests for it as the agency has not yet resolved the logistical issues.

One of the most important questions is how the creditworthy biogas can be traced back from its origin to the battery of a car and who along this supply chain is allowed to take advantage of the lucrative loans.

Under the RFS, refineries are required to mix biofuels such as corn-based ethanol into their fuel pool or purchase compliance credits in a credit market that has seen prices rise sharply in recent years.

The program has helped fuel investment in ethanol plants in states like Iowa and Nebraska, but liquid fuels have been attacked by the Biden administration.

Tesla would generate the most lucrative type of loans known as D3s, which trade at a substantial premium over the larger pool of traditional ethanol loans.

Tesla not only builds electric cars, but also invests in charging stations and large batteries.

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