A Reduced Renewable Fuel Standard – The Philadelphia Story

Source: Jessie Stolark, Environmental and Energy Study Institute • Posted: Saturday, May 31, 2014

According to several news outlets, the Renewable Fuel Standard (RFS) 2014 Renewable Volume Obligates (RVOs) are now at the White House Office of Management and Budget (OMB) for review, and a final decision on the 2014 RVOs is expected sometime in June.  With a decision imminent, it’s worth asking how exactly the EPA got to a reduced biofuels target – despite a robust industry that met targets in many fuel categories last year and is now seeing commercial levels of advanced cellulosic fuels.  A watchdog group – the Citizens for Responsibility and Ethics in Washington (CREW) is now asking if two Philadelphia area refineries may have played a role in the administration’s decision.


In its letter to EPA inspector general Arthur Elkins, CREW asked if two refiners and their Congressional representatives had undue influence on the EPA’s unprecedented reduction.  According to CREW Executive Director Melanie Sloan, “given that the agency’s decision to lower renewable fuel standards is an unprecedented break from past practices, the public has a right to know whether this decision was based on policy or politics.”  While EPA immediately shot back that the decision was based on consultation with a wide range of stakeholders and careful analysis, a separate Reuters investigation into the role of the refiners, Members of Congress and the administration in the EPA’s proposed reduction is particularly damaging.


To understand the relationship that developed between the refineries and the White House, one must go back to 2011 and a depressed refinery industry on the east coast.  In 2011, The Carlyle Group bought two struggling Philadelphia refineries from Sunoco that produce 330,000 barrels of oil per day. Around the same time, Delta Air Lines purchased a struggling 185,000 barrel per day plant in suburban Philadelphia.  Executives from both companies and Philadelphia area Representatives Robert Brady (D-PA) and Patrick Meehan (R-PA) worked with the White House to save the refineries and the hundreds of jobs they support.  According to Reuters, the White House helped accelerate environmental reviews for the refineries and the EPA waived a prior Clean Air Act violation for the new owners.  The deal secured 1,200 jobs in the Philadelphia area and headed off gas price spikes — just before President Obama won Pennsylvania in his re-election campaign.


Fast forward to 2013 – amid fears of a rising biofuels mandate, refiners began stockpiling Renewable Identification Numbers (RINs), which certify that the refiner has either blended biofuels into their fuel stock or they have purchased RINs in order to comply with the law.  During the summer of 2013, RIN prices surged from 5 cents to over $1, and refiners without adequate blending facilities saw compliance costs triple, according to industry disclosures.  Notably, neither the Carlyle Group nor Delta’s refineries chose to blend biofuels; instead they chose to buy RINs.  Records show that representatives from both companies met with White House Chief of Staff Denis McDonough and economic adviser Ronald Minsk.  Shortly after this meeting, a dozen refinery representatives met with top White House economic adviser Gene Sperling, which centered on a 2012 study paid for by the oil industry warning that the U.S. economy would fall into a “death spiral” unless the biofuel mandates were cut.  As RIN prices climbed to $1.45, records show that additional meetings were held with the White House.   Rep. Brady also allegedly spoke with Vice President Biden on the topic, whose home state, Delaware, also contains several refineries.   During the summer of 2013, representatives of 17 refineries visited the White House Office of Management and Budget, while only 6 biofuels companies visited.  The biofuels industry only stepped up lobbying efforts as word got out that EPA was planning to cut the ethanol mandate.  In 2013, refineries spent more than $81 million on lobbying, approximately three times that of biofuel producers, according to the Center for Responsible Politics.  While the U.S. District Court of Appeals rejected Delta Air Lines petition in May that the RFS is an undue burden, the decision will have little impact on EPA’s volumetric requirements for 2014.


The 2014 EPA proposal – the very first to cut the biofuels blending mandate, is expected to be nearly 3 billion gallons lower than the original mandate.  According to EPA officials, the revised proposal, while slightly higher than EPA’s original proposal from last November, will neither appease the biofuels industry nor refiners.   The corn ethanol target is expected to be set around 13.6 billion gallons for 2014, which is 600 million gallons higher than EPA’s November proposal but still well below the 14.4 billion gallons called for in 2014 in the original law.  Overall, the advanced biofuels category is anticipated to receive a slight bump up from the November proposal to 2.2 billion gallons but biodiesel – an advanced biofuel sourced from reclaimed oils, including recycled cooking oil, animal fats and soybean oil, is rumored to remain at the original proposed level of 1.28 billion gallons, despite biodiesel production levels topping 1.8 billion gallons in 2013.


For the first time, landfill biogas and isobutanol will qualify for advanced cellulsoic fuel credits.  While their inclusion in the RFS is good news, biofuels industry insiders are worried that these advanced fuels will flood this already restricted market and cause another collapse in RIN prices – which could encourage the hoarding of “cheap” RINs and in turn could set up a déjà vu situation for industry and refiners.   EPA will also separately release a quality assurance program for renewable fuel credits – in order to end the practice known as ‘splash and dash’ whereby refiners blend small quantities of biofuels to receive renewable fuel credits.


The administration may want to carefully read the decision as laid out by the U.S. District Court of Appeals in its rejection of the Delta case earlier this month.  Delta entered the market well after the RFS was laid out as law and they had ample time to construct a robust compliance strategy.  Additionally, while the closure of refineries would result in the loss of union jobs, the biofuels industry supports more jobs than the oil industry.  According to the Political Economy Research Institute at the University of Massachusetts Amherst, for every $100,000 invested in biofuels, 16 jobs are created.   The proposed reductions have already had a chilling effect on advanced cellulosic investors and industry, and reductions in the total volume of biofuels can negatively affect farm conservation, the environment, greenhouse gas emissions and human health.