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Icahn to EPA: You’re creating ‘the mother of all short squeezes’

Billionaire activist investor Carl Icahn.
Victor J. Blue | Bloomberg | Getty Images
Billionaire activist investor Carl Icahn.

Billionaire investor Carl Icahn has penned a lengthy letter to the U.S. Environmental Protection Agency (EPA) outlining why the renewable fuel credit market could bankrupt oil refiners.

Mid-sized oil refineries, such as CVR Energy which Icahn has a controlling stake in, must buy Renewable Identification Number (RIN) credits as part of a scheme designed to reduce reliance on imported oil and the emission of greenhouse gases.

In the letter – dated August 9 but first reported Monday by Bloomberg and Reuters - Icahn said the RIN market is rigged in a similar way that stock markets were prior to the crashes of 1929 and 2008.

"The RIN market is the quintessential example of a 'rigged' market where large gas station chains, big oil companies and large speculators are assured to make windfall profits at the expense of small and midsized independent refineries which have been designated the 'obligated parties' to deliver RINs," Icahn said in the letter.


Gasoline delivery truck driver preparing to fill the underground gas tanks
Robyn Beck | AFP | Getty Images
Gasoline delivery truck driver preparing to fill the underground gas tanks

Icahn goes on to outline that a RIN can only be produced if gasoline oil is blended to EPA standards and the only people who can both blend and buy the gasoline are big oil companies who also issue the credits.

He said these bigger blenders and oil firms realize that mid-size refineries can only sell to them and are therefore pumping up the price of the legally required RIN certificates by as much as 20 times.

"As a result, the RIN market has become 'the mother of all short squeezes,'" he added.

Icahn claims in the letter that he is not being overly dramatic and warns the EPA that it runs the risk of being "the perfect scapegoat" in allowing the continued transfer of wealth from one group of companies to another.

As part of a summary Icahn highlighted a recommendation by Goldman Sachs that told investors to sell shares in any refiner that has significant exposure to RINs.

Signing off, Icahn also suggested that time is of the essence and he requested an opportunity to speak with EPA administrator Gina McCarthy.

An EPA spokesperson told CNBC Tuesday that the organization would review the letter and respond appropriately.