Soaring prices fuel long-running push by Pa. officials to roll back ethanol mandate

Source: By DANIEL MOORE, Pittsburgh Post Gazette • Posted: Monday, September 6, 2021

WASHINGTON — The high-tech economic development boom around the Pittsburgh International Airport — greeted with much fanfare in recent years by local officials — runs on an elemental substance: jet fuel.

After all, the development is tied to the success of the airport, which depends on a healthy circulation of arrivals and departures.

Now, rising compliance costs for a federal renewable fuel program threatens economic growth and could lead to supply constraints on jet fuel, the head of the Pittsburgh Airport Area Chamber of Commerce warned the Biden administration in a letter last month.

The program, known as the Renewable Fuel Standard, or RFS, requires renewables to be blended into the nation’s transportation fuel supply and mandates refiners to purchase credits to prove compliance. Issues around the complex structure of the program have caused those credit prices to soar, hiking costs for refiners that produce a variety of fuels from crude oil.

Ahead of Washington’s annual update to the Renewable Fuel Standard this fall, refiners have joined the broader business community and politicians from both parties in pushing for long-sought reforms.

“The structure of the RFS is simply unsustainable in its current form,” wrote Chris Heck, president and CEO of the chamber, which spans 34 communities. “The time for action is running out.”

The RFS program was established by Congress in 2005 to reduce greenhouse gas emissions from the transportation sector, while boosting the farm belt. The U.S. Environmental Protection Agency has mandated a gradually increasing amount of renewable fuel, such as corn-derived ethanol, to be blended into the U.S. fuel supply.

In recent years, refiners have been required to blend about 15 billion gallons of ethanol into their fuel each year, along with billions of gallons of other types of biofuels. If refiners cannot meet the standards, they can purchase credits from those that do.

But critics have described the program as onerous, unnecessary and unachievable — especially as Americans drive less and most engines on the road are not designed for a fuel blend that contains more than 10% ethanol.

In recent years, the credit prices have been volatile, as traders guessed what would become of the program as federal ethanol mandates approached what can be effectively blended into the fuel supply.

The higher costs of complying with the standard could be passed along to consumers at the pump and hit mid-sized airports that rely on jet fuel.

“There are two entities paying for the [renewable credits],” Brendan Williams, head of government relations for PBF Energy, a New Jersey-based petroleum refiner and fuel supplier. “Consumers — because part of it does get passed to consumers — and merchant refineries.”

In Washington, the Renewable Fuel Standard debate has pitted two political powerhouses against each other: Midwest corn farmers against union refinery workers in places like Pennsylvania, Texas and the Northeast.

President Donald Trump’s administration, under pressure from both sides, tried to find a middle ground by issuing exemptions for small refineries, but ultimately left some 30 waiver requests pending. Last fall, Mr. Trump punted on setting 2021 blending requirements.

The Biden administration is now weighing requirements for 2021 and 2022. The EPA, facing a deadline of Nov. 30 for finalizing both figures, is reportedly considering lowering the requirements.

The EPA did not respond to a request for comment.

Pennsylvania officials from both parties have argued for years that the program is burdensome. The Biden EPA’s inbox has been flooded with letters in recent months from the Keystone State.

In July, Sen. Pat Toomey, R-Pa., joined Sen. Bob Menendez, D-N.J., in reintroducing a measure that would phase out the ethanol mandate, a bill that was co-sponsored by Sen. Dianne Feinstein, D-Calif., and Sen. Susan Collins, R-Maine.

Ms. Feinstein, echoing other Democrats and some environmental groups, argued the “federal corn ethanol mandate no longer makes sense when better, lower-carbon alternatives exist. It’s time to end the mandate and instead support more advanced biofuels and biodiesel that won’t contribute to climate change or drive up the cost of food.”

Mr. Toomey followed up with an Aug. 23 letter, signed by 16 GOP senators, that urged the EPA to set the requirements “at levels that comport with reality.”

The compliance costs “threaten the viability of these entities’ continued operations,” the letter stated.

Sen. Bob Casey, D-Pa., expressed his concern to the EPA in a May 2021 letter that noted credit prices had “fluctuated wildly.”

“Allowing [renewable credit] prices to spike to these levels makes it extraordinarily challenging for refiners to engage in midterm economic planning and budgeting — let alone to attract capital to undertake long-term major investments that create new, high-quality jobs,” Mr. Casey wrote.

Wolf weighs in

In 2017, Gov. Tom Wolf, a Democrat, filed a petition to reduce the renewable fuel standard obligations “based upon the high cost of compliance with the [RFS] and the impacts these costs have on the continued viability of the oil refining sector in the Northeast, as well as on the local and regional economies.”

Mr. Wolf noted that at least two Pennsylvania refiners were spending more annually on purchasing RINs than they do on payroll costs.

Mr. Wolf, who was unsuccessful, wrote the EPA again in February 2021 that “since my previous petitions were filed, conditions have continued to deteriorate.”

Meanwhile, the Pittsburgh-based United Steelworkers, which represents refinery workers, wrote to the EPA in February 2021 that the program needs reform that “puts working people first.”

“Oil will continue to be a fuel important to our economy in the future,” the union wrote. “Our union wants to prevent bad policy, like the unregulated [renewable credit] market, from being a major contributor to the loss of union jobs and the import of product.”

A Senate GOP aide, who agreed to speak on the condition of anonymity, said there had been unusual levels of support from Democrats on this issue, likely because it’s become undeniable that credit prices are “excruciatingly high.”

If refineries have production issues or are forced to close, there could be supply issues.

In 2019, the largest and oldest refinery on the East Coast, owned by Philadelphia Energy Solutions, declared bankruptcy and shut down after a disastrous fire at the plant.

Mr. Heck, the head of the airport chamber, said some airlines warned of jet fuel shortages at mid-sized airports like Pittsburgh International. If the government fails to do something about the skyrocketing cost of tradable credits,” he wrote, “refiners supplying needed transportation fuels — including the majority of the fuel to the Pittsburgh Airport — could close.”

“Such a situation could make airlines’ recent fuel supply warnings a permanent reality, threatening the economic viability of the entire region,” he wrote.

Mr. Heck, reached last week, said he was unavailable for comment.

Mr. Williams, of PBF Energy, said his company’s Toledo, Ohio, refinery supplies a “substantial portion” of jet fuel to the Pittsburgh International Airport.

“Pittsburgh should worry,” he said. “If these refineries go down, jet fuel might not be available for the region.”

Daniel Moore: dmoore@post-gazette.com, Twitter @PGdanielmoore

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