Refinery deal may slow talks on RFS changes

Source: Marc Heller, E&E News reporter • Posted: Thursday, March 15, 2018

A settlement between U.S. EPA and a struggling Philadelphia refinery to ease a requirement under the federal ethanol mandate won’t end the campaign to revamp the policy — but it may slow it.

Industry groups say that’s one fallout of EPA’s deal with Philadelphia Energy Solutions, which will allow the refinery to cut by about half its obligation to buy renewable fuel credits.

“Without action, PES and others will find themselves right back in this same situation in the future because the implementation of this portion of the program is flawed,” said the Fueling American Jobs Coalition, a group of independent refiners, small fuel retailers and labor unions pushing changes in the renewable fuel standard.

The settlement, first reported by Reuters, is subject to public comment and a judge’s approval as part of PES’s bankrupty proceedings.

It would allow the refinery’s owner, the Carlyle Group, to reduce its purchases of renewable fuel credits — called renewable identification numbers, or RINs — until it emerges from bankruptcy. The company filed for protection under Chapter 11 of the code, blaming high RIN costs for its financial troubles.

Once the deal expires, the company would again face full RIN requirements, would have to comply biannually and would face penalties for noncompliance, Reuters reported.

Refiners such as PES, which don’t blend ethanol, buy credits as a way to show compliance with the biofuel mandate.

A refining industry source told E&E News the temporary reprieve still leaves PES vulnerable to high RIN costs unless it makes “wholesale changes to its system or its business model” — improvements that ethanol advocates have said the company should have made years ago.

“This is precisely why there remains a high degree of interest in reaching a deal on administrative RFS reforms even in light of the PES settlement,” he said.

Biofuel groups criticized the agreement, accusing EPA of singling out the company for a break and weakening the RFS, a decade-old law meant to reduce dependence on foreign oil.

“We’re concerned that EPA is proposing to require that PES only satisfies a portion of its RIN obligations,” said Emily Skor, CEO of Growth Energy, an ethanol industry group. “We’re reviewing our options to ensure that it protects renewable fuels, the ag economy and the environment.”

Sen. Chuck Grassley (R-Iowa) suggested the agreement might not be fair to other refiners that face RFS requirements.

“It raises a couple of questions,” Grassley said in a statement. “How are the RIN obligations being treated compared to the other obligations of PES? Does this set an unfair precedent for other refiners that continue to act in good faith to comply with the law?”

With the PES situation addressed for now, negotiations on broader changes to the RFS — including some tweaks advocated by ethanol groups — could lose urgency.

Year-round sales of higher ethanol fuel, long sought by ethanol groups, may fall by the wayside for a time as well, said a lobbyist for one ethanol group who requested his name be withheld because discussions with EPA are ongoing.

The lobbyist said EPA’s deal with PES could signal to other refiners that a “back door” is available to companies as an alternative to meeting RFS requirements.

“The scary, dangerous part is that EPA is conceding the point to others who aren’t running to bankruptcy court,” the lobbyist said.

A refining industry source said “fruitful” discussions continue on RFS changes. The administration has raised the idea of putting controls on RIN prices in return for lifting seasonal restrictions on sales of E15, which is 15 percent ethanol (E&E Daily, March 2).

Economists at the University of Illinois said last week that lawsuits regarding the RFS since its enactment suggest that increasing the use of ethanol is the policy’s “North Star” and that actions by EPA that would reduce it might run afoul of the law.

EPA doesn’t have much leeway to change RFS regulations without input by Congress, especially if lower ethanol volumes would result, said Jonathan Coppess and Scott Irwin in the university’s Department of Agricultural and Consumer Economics’ farmdoc daily blog March 7.

“Accordingly, any of the options being negotiated that would operate to reduce demand, decrease consumption of renewable fuels, or that otherwise conflicts with the market-forcing intent of Congress, would be in violation of the statute and would likely not hold up in court,” they said.