Welcome to issue 4 of Commodities News and Trends, aiming to help commodity market participants identify and adapt to the market news and legal developments that impact their commodity trading.
Biofuels in Latin America: Brazil and Argentina on the path forward
By Augusto Mancinelli and Annette Moreno
Latin America has set out on the path of sustainable, greener energy, and in recent years has built tremendous momentum in the biofuels market. Two countries in particular – Brazil and Argentina – have taken important steps forward. Read more.
Is the end in sight for the shale-driven pipeline building boom?
By Deanna R. Reitman and Jeffrey Bourdon
Political and financial barriers are pressuring midstream companies to limit their spending and building of new natural gas pipeline infrastructure. State mandates and state goals of becoming carbon-neutral, plus mounting activism by environmental, social and governance-oriented investors, are pushing many midstream companies to re-evaluate their business model. It is increasingly the case that long-term contracts, signed around 2010, are not being renewed on comparable long-term conditions. Read more.
- Energy storage tax credits and climate goals: Latest developments in Washington. Commercial interest in energy storage is growing rapidly, driven by such factors as the rapid expansion of energy demand and policymakers’ continued emphasis on achieving climate goals. In 2020, the US saw approximately 3.5 gigawatt hours of energy storage installed, which is more than the aggregate 3.1 gigawatt hours of energy storage installed from 2013 to 2019.
Despite recent growth, energy storage capacity may not be expanding fast enough. To meet President Joe Biden’s goal of achieving 100-percent carbon-pollution-free electricity by 2035, the US is anticipated to need 100 gigawatts of storage by 2030.
Recent legislative and agency actions suggest that one particular combination of federal responses could enable the US to achieve an energy storage capacity capable of supporting carbon-pollution-free electricity by 2035: energy storage tax credits plus greater access to markets for energy storage devices.
To learn more, please see our article here.
- Chicago Mercantile Exchange introduces futures contract for Nature-Based Global Emissions Offsets. CME, one of the world’s leading derivatives marketplaces, has announced the introduction of its new Nature-Based Global Emissions Offsets futures contract (N-GEO™). CME describes the new spot contract as the “latest market-based solution to help create a more transparent and efficient voluntary emissions offset market.” Nature-based offsets are credits generated from reducing emissions from specific kinds of accredited land use practices, such as restoring or preserving forests. Emissions offsets have become a key tool for companies striving to meet net-zero commitments. N-GEO is intended as a way for offset market participants to manage related price risks.
- Orbital Marine Power’s tidal turbine commences power generation. Orbital Marine Power’s O2, regarded as the world’s most powerful tidal turbine, has commenced grid-connected marine power generation at the European Marine Energy Centre (EMEC). The 2-megawatt O2 turbine, anchored off Orkney, Scotland in the Fall of Warness, is propelled by tidal flow. A subsea cable links it to a local electricity network on land. The turbine is expected to operate for the next 15 years and to meet the annual electricity demand of around 2,000 homes. O2 will also provide power to a land-based electrolyzer that will generate green hydrogen.
- CBP begins detaining solar panel imports suspected of forced labor violations. US Customs and Border Protection (CBP) has reportedly started detaining solar panel imports from China suspected of containing silica-based products made by Xinjiang-based Hoshine Silicon Industry Co., Ltd. and its subsidiaries. Earlier this year, the agency issued a withhold release order on these products due to concerns that they are produced using forced labor. These reports highlight the tension between the Biden Administration’s human rights agenda and its actions addressing the climate change crisis. Chinese companies are leading producers of solar panels and some use raw materials from Hoshine, the world’s largest producer of metallurgical-grade silicon. Importers have expressed concerns about an overly broad enforcement of the withhold release order by CBP that might negatively affect their ability to import and impact efforts to tackle the climate change crisis.
- Mining investment model finds traction in carbon credits market. Metal streaming has gained prominence as a vehicle for investing in commodity metals, and that model is now finding traction in the burgeoning carbon marketplace. Toronto-based Carbon Streaming Corporation is using the streaming model to capitalize on helping companies meet their GHG reduction goals. CSC purchases credits from emission-reduction projects around the world; companies can then purchase the credits to offset their own emissions. Recently, for instance, CSC entered into a carbon credits agreement with the owner and operator of Canada’s largest gold mine. Many expect carbon markets to continue heating up as governments around the world consider pricing and capping carbon emissions to address climate change.
- Concerns over potential antidumping and countervailing duties on urea ammonium nitrate solutions imported from Russia and Trinidad and Tobago. In late July, the American Farm Bureau Federation expressed concerns over the possible imposition of antidumping (AD) and countervailing duties (CVD) on urea ammonium nitrate solutions (UAN) imported from Russia and Trinidad and Tobago. The Farm Bureau stated that the imposition of AD/CVD would hinder American farmers’ access to an affordable and competitive UAN supply. UAN is is extensively used to fertilize corn, soybeans, cotton and other crops; it can be sourced domestically or imported. About 81 percent of UAN imports into the US come from Russia and Trinidad and Tobago. In addition, the Farm Bureau stated that approximately 25 percent of the operating costs of fertilizer use could be attributed to UAN. Therefore, any AD/CVD on UAN imports from Russia and Trinidad and Tobago would, as reported by the Farm Bureau, increase the production costs of American farmers and negatively affect their supply chains.
- DOC issues preliminary CVD of up to 266.37 percent on organic soybean meal imports from India. On August 30, 2021, the Department of Commerce preliminary found that the Government of India had unfairly subsidized its soybean meal producers and imposed preliminary CVD duties on these Indian imports of 7.05 percent and 266.37 percent. This DOC determination establishes the preliminary duty margins in the subsidies portion of the investigation. Following the publication of the preliminary determination in the Federal Register, Commerce will instruct US Customs and Border Protection to begin suspending liquidation and collect VD duties (in the form of cash deposits) on entries of organic soybean meal from India.
- More leeway on the President’s ability to modify Section 232 duties. A 2-1 precedential decision from the US Court of Appeals of the Federal Circuit overturned a successful challenge to a tariff increase under Section 232 of the Trade Expansion Act of 1962. In the July 13, 2021 opinion, the Federal Circuit concluded that former President Donald Trump had the authority to double the Section 232 duties from 25 percent to 50 percent on Turkish steel imports, reversing the decision of the US Court of International Trade (CIT) on this matter.
The Trump Administration had imposed Section 232 duties on steel and aluminum imports in March 2018 following an investigation finding that these imports posed a threat to national security. Several months later, after a 105-day statutory deadline had lapsed, the Administration doubled the duties on Turkish steel imports in August 2018. US importer (Transpacific Steel LLC) and others challenged this increase. The CIT found the increase unlawful because the President had violated Section 232’s timing provisions.
The Federal Circuit overturned the CIT decision and concluded that the increase was permissible because the initial proclamation imposing Section 232 duties on steel imports had allowed for possible future adjustments.
On August 23, 2021, Transpacific Steel and others filed a petition requesting a rehearing by all federal circuit judges of the July 13, 2021 decision.
- CFTC launches civil enforcement action and criminal proceedings against silver leasing scheme. The CFTC has announced a civil enforcement action charging multiple Florida defendants with fraud related to a multimillion-dollar precious metals leasing scheme. Recent years have seen an uptick in CFTC enforcement action, evidence of its commitment to “vigorously investigate and seek to hold accountable those who make false promises and misappropriate customer funds.” According to the CFTC, the defendants defrauded silver investors of at least $8 million between 2014 and 2019. Separately but on the same day, the US Attorney for the Southern District of New York announced criminal charges against the individual defendants.
- JP Morgan enters the small but growing market of ESG derivatives. JP Morgan has joined the growing number of major financial institutions seeking to market derivatives as ESG products. The product hedges against currency-exchange and interest-rate risks. To avoid additional costs, both parties to the contract must meet specific ESG targets. JP Morgan sees ESG derivatives as as part of a broader, forward-looking approach in which ESG considerations are part of every investment decision.
COMMODITY FUTURES TRADING COMMISSION
- CFTC Commissioner: we will support the transition to a low-carbon economy. In an early summer keynote address, CFTC Commissioner Dan M. Berkovitz affirmed that the Commission aims to support the transition to a low-carbon economy. He said, “The dangers to our financial markets from climate change are clear and present.”
The Commission will pursue three paths. First, the CFTC will work to protect the integrity of the markets it regulates, but this will involve learning more on how these markets interact. To preserve market integrity during the transition, for example, the CFTC must be aware of how primary, secondary, and derivative carbon markets function, and this includes being aware of how market participants use these markets to meet compliance obligations, manage risks, and discover prices.
Second, the CFTC will be open to suggestions from exchanges and market participants on developing and approving new products intended to help companies hedge climate-related risks.
Third, the CFTC “should ensure appropriate management and disclosure of climate-related risks.”
Commissioner Berkovitz’s comments suggest the CFTC is preparing to take an active role in creating regulations that respond to companies’ uses of derivatives markets as they transition their business models to a carbon-neutral economy. Companies are encouraged to regularly monitor developments in regulations that affect the markets in which they function.
- Continued enforcement activity by CFTC in the cryptocurrency sphere. A federal court has ordered a $100 million civil monetary penalty against five companies charged with illegal operation of a cryptocurrency trading platform and anti-money laundering violations. In a separate action, a federal court entered a default judgment against a foreign trading platform for offering illegal leveraged transactions of Ether, Litecoin, Bitcoin and precious metals in violation of the CEA.
Continued enforcement activity by CFTC in the cryptocurrency sphere. A federal court has ordered a $100 million civil monetary penalty against five companies charged with illegal operation of a cryptocurrency trading platform and anti-money laundering violations. In a separate action, a federal court entered a default judgment against a foreign trading platform for offering illegal leveraged transactions of Ether, Litecoin, Bitcoin and precious metals in violation of the CEA.
- CFTC and commodity pools. The CFTC is continuing to move against commodity pools for fraud and for violations of commodity pool regulations. Here are some recent actions:
- On August 17, 2021, the CFTC filed a civil enforcement in the US District Court for the District of Nebraska against a CPO and its owner alleging commodity pool fraud in connection with commodity futures trading.
- On August 17, 2021, the CFTC filed a civil enforcement against a forex firm and its owner for fraud and misappropriation in connection with the operation of a foreign currency commodity pool.
- On August 26, 2021, the CFTC issued an order and simultaneously settled charges against an operator of commodity pools for failing to register as a commodity pool operator (CPO) and for failure to comply with relevant CPO regulations. The CPO was ordered to pay a $150,000 civil penalty.
- On August 27, 2021, a federal district entered a consent order against a CPO for fraudulently soliciting individuals to invest and for the misappropriation of millions of dollars. In a parallel criminal proceeding, that CPO was ordered to pay $34.5 million in restitution.
- FERC proposes rulemaking on regional transmission coordination. FERC has proposed rulemaking under the 2006 Federal Power Act to achieve “more holistic transmission planning and cost allocation and generator interconnection processes, to plan the grid for the future, and to do so in a way that results in rates that are just and reasonable.” The move responds to the accelerating transition from centrally located generation to more remote load centers. Transmissions systems are growing, evolving, and interconnecting as never before, creating new challenges to transmission management. FERC is seeking comment on whether and how to change “regional transmission planning and cost allocation and generator interconnection processes.” For stakeholders wishing to comment, FERC advises, “Comments and reply comments, identified by Docket No. RM21-17, are due 75 days and 105 days, respectively, after publication in the Federal Register,” which at this writing has not occurred.
- After 40-year wait, FERC launches Office of Public Participation. The Federal Energy Regulatory Commission, the agency charged with regulating the transmission and sale of energy in interstate commerce, announced in June the first formal steps toward creating the Office of Public Participation. Congress first authorized the OPP in 1978 to facilitate participation in FERC proceedings by members of the public, including landowners, consumers, and other stakeholders. FERC never took up the authorization. But recent omnibus legislation directed FERC to provide details of how it will create and operate the OPP. Following that directive, FERC announced a four-year timeline to bring the newly established OPP fully online, beginning with hiring a director and deputy director for the OPP by year’s end.
- FERC seeks to overhaul transmission and interconnection rules for energy projects. Responding to the shift from electrical generation in urban areas to electrical generation in more rural areas, FERC has announced an Advanced Notice of Proposed Rulemaking entitled Building for the Future Through Electric Regional Transmission Planning and Cost Allocation and Generator Interconnection. This Notice, seeking public comment on reforms to transmission and interconnection rules for energy projects. explores three areas: (1) integrating anticipated future generation needs in identifying long-term, regional transmission facilities; (2) reconsidering how to apportion cost responsibility for such facilities and interconnection-related network upgrades; and (3) enhancing transmission oversight into how new transmission facilities are identified and paid for. FERC has confirmed that this notice is the first step in considering an overhaul to the transmission planning and generator interconnection rules to advance cleaner energy policies.
This Notice lacks strong bipartisan support, with two Democratic leaders issuing an optimistic joint concurrence and two Republican commissioners issuing separate concurrences expressing concerns over some portions of the notice. Future rulemaking may be contentious.
Public comments are due 75 days after the notice is published in the Federal Register, and reply comments are due 105 days after notice is published in the Federal Register, which at this writing has not occurred.
- FERC launches first transmission reforms. Key sector observers note that the biggest practical roadblock in the move to renewable energy is the grid. Recognizing this issue, FERC has issued a notice calling for grid reforms via a rulemaking on high-voltage transmission planning. The goal of this notice is to reform FERC policy o help smooth the way to a carbon-free electric grid.
In addition to this advanced notice, FERC has commissioned a task force in partnership with the National Association of Regulatory Utility Commissioners to address transmission barriers.
These steps, FERC believes, will help determine how to move more than 750 gigawatts of energy that are currently sitting in interconnection queues across the country. Clean energy groups are expressing cautious optimism, noting the complexity and breadth of the overhaul the advanced notice is taking on.
- More news from FERC.
- FERC denied an Ohio energy company certain incentives because the company did not follow state regulations. The decision was split: The first dissenting opinion found it was wrong to deny the incentive based on state regulations because FERC is a federal body; the second dissenting opinion simply found that the decision was unfair to rule upon considering FERC’s proposal on the 50-basis point adder was still ongoing.
- Additionally, FERC’s newest member is pushing for a Western RTO designed to help manage the balance of electricity generation and demand in the Western states.
- Finally, Commissioner Neil Chatterjee has announced his departure from FERC, and President Biden has yet to announce who will replace him when he officially leaves.
- Supreme Court backs refiners in biofuels exemption fight. The US Supreme Court has overruled the Tenth Circuit Court of Appeals in restoring small refiners’ exemptions from blending requirements under the federal Renewable Fuel Standard. The dispute focused on whether the Clean Air Act allows EPA to “extend” small-refinery exemptions after the exemptions had lapsed. In a 6–3 decision, the Court held that it does. Writing for the majority, Justice Neil Gorsuch found examples of such “extension” in other federal laws and noted that the language at issue here provided additional support for the more expansive interpretation. Justice Amy Coney Barret, writing for the dissenting justices, argued that the CAA’s text and structure do not support that interpretation. Once an exemption has lapsed, the dissent argues, the time to extend it has passed. The case is HollyFrontier Cheyenne Refining LLC v. Renewable Fuels Association.
- Gas industry seeks rehearing, arguing that FERC cannot review already approved projects. The Interstate Natural Gas Association of America (INGAA) is again seeking rehearing of FERC’s controversial February order seeking further briefing on whether to allow the Algonquin Gas Transmission compressor station in Weymouth, Massachusetts to stay in service and whether to require mitigation measures that address safety and environmental concerns. The project was approved in 2017, and the time to appeal that approval had long since lapsed. FERC had previously denied a request to rehear the order as premature, arguing that any harm to the industry was thus far only speculative. Industry advocates disagree, arguing that FERC’s order amounts to an end run around the appeal deadline and creates significant regulatory uncertainty for the industry. INGAA has also petitioned the DC Circuit Court of Appeals to review FERC's recent actions in the case.
- DC Circuit hears arguments for and against FERC’s energy storage order. The DC Circuit is hearing arguments over FERC’s 2020 order allowing the Midwest Independent System Operator Inc. (MISO) to treat certain energy storage facilities within its jurisdiction as transmission assets. Utilities, storage developers and clean energy advocates challenged the order, arguing that FERC’s action discriminates against non-MISO energy storage facilities and undermines the agency’s longstanding policy of encouraging competition in the transmission market. FERC and MISO counter that the order is justified and nondiscriminatory. MISO argues that the petitioners challenging the order had ignored important distinctions between storage as transmission and other storage facilities, such as its inability to act as generators and set rates.
- A federal district court orders two companies and one individual to pay $15.6 million for forex fraud and registration violations. A federal district court in Georgia has granted a motion for default judgment filed by the CFTC against various companies and an individual allegedly involved in forex transaction fraud. The defendants allegedly engaged in fraudulent solicitations to customers to induce them to open discretionary trading accounts and then offered to trade those accounts through an automated forex trading software, when in fact no such trades occurred.
- Federal court enters consent order against owner of precious metal dealer for $16 million. Following an earlier CFTC complaint, a federal district court found that a precious metal dealer and its owner had, over a six-year period, defrauded thousands of customers all over the United States through false representations and omissions. In the Ponzi-like scheme, customers were told their funds would be used to purchase precious metals for long-term storage; only the earliest customers ever received the metals they had purchased. The court required the owner of the precious metal dealer to pay over $16 million in restitution and permanently enjoined him from registering with the CFTC or otherwise trading in any CFTC-regulated markets. In 2020, the owner was sentenced to ten years in prison on money laundering and wire fraud charges.
IN THE NEWS
- Mexican company converts avocado pits into completely biodegradable plastics for everyday use. Mexican company Biofase has developed a proprietorial technique to manufacture everyday household goods from avocado pits. The company’s proprietorial technique transforms the pits into bioplastics, which are then used to make cutlery, bags and straws that are 100 percent biodegradable. In developing the bioplastic, Biofase tested such plant materials as mango and mamey sapote seeds. The company is able to divert tons of avocado pits that would have been sent to landfill, manufacturing 130 tons of products each month, 80 percent of which are exported to the United States, Costa Rica, Canada, Colombia, and Peru.
Robert J. Gruendel
Global Co-Chair, Energy Sector
In the US:
Deanna R. Reitman
Commodities – Compliance and Regulatory
Glenn A. Reitman
Commodities – Finance
Commodities – Litigation and Regulatory
Commodities – International Trade
Commodities – Employment
Marc A. Horwitz
Commodities – Finance
Commodities – Energy Regulatory
Commodities – International Trade
Commodities – Litigation
Commodities – Litigation and Regulatory
Commodities – International Trade
Irene J. Sherman
Commodities – International Trade
In Latin America:
Commodities – Tax
Commodities - Energy
Juan Manuel Barros
Commodities – Energy
Commodities – Corporate