Why Philly oil refiners want to dump ethanol mandates

Source: By Andrew Maykuth, The Philadelphia Inquirer • Posted: Thursday, November 9, 2017

The Philadelphia region’s embattled oil refiners are stepping up a campaign to persuade the federal government to relax ethanol-blending rules for Northeast states, to ease the “severe economic harm” that Gov. Wolf says the refiners are experiencing.

Philadelphia Energy Solutions, operator of the South Philadelphia refining complex, on Tuesday urged the U.S. Environmental Protection Agency to find a “reasonable compromise” that would reduce the “exorbitant and unsustainable” cost for merchant refiners to comply with the Renewable Fuel Standard (RFS).

Last Thursday, Wolf asked Scott Pruitt, the EPA administrator, to reduce the implied amount of ethanol blended into fuel in Northeast states to 9.7 percent to alleviate the burden on independent refiners. The EPA’s current national mandate requires that 15 billion gallons of conventional ethanol be added into fuel, an implied blend of 10.7 percent.

Andrew Maykuth/Inquirer Staff

Refinery workers at Monroe Energy in Trainer attend a rally in October to urge President Trump to relax the ethanol mandate.

The ethanol lobby says aging oil refiners have failed to adapt to the biofuel mandate.

“For Gov. Wolf and refiners to unfairly blame the RFS for bad business decisions just isn’t right,” Bob Dinneen, president of the Renewable Fuels Association, said in a statement.

Congress created the RFS program to reduce greenhouse-gas emissions and expand the nation’s renewable-fuels sector while reducing reliance on imported oil. The program was authorized under the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007.

How does it work?

The RFS requires an increasing amount of fuel derived from renewable sources (biofuel) to be blended into gasoline and diesel. For gasoline blends, the current standard is 15 billion gallons of conventional corn-based ethanol.

What’s the problem?

With increasing vehicle fuel efficiency, and the anticipated growth of electric vehicles, motor-fuel consumption is in decline. Since the amount of biofuel that must be sold is fixed, the percentage of ethanol in a gallon of fuel is growing ever larger. Auto manufacturers say it threatens to surpass the 10 percent “blend wall” — the point at which ethanol could damage conventional car engines.

What is a Renewable Identification Number (RIN)?

RINs are how the government assures compliance with the law. A RIN is a credit assigned to every gallon of biofuel that enters the market. Distributors that blend fuel generate RINs. The law obligates refiners and importers of motor fuel to buy RINs, either by blending the fuel themselves or by buying the RINs on the market.

What does this have to do with independent oil refiners?

Merchant refiners such as Philadelphia Energy Solutions, Monroe Energy in Trainer, and PBF Energy, which operate refineries in Paulsboro, N.J., and Delaware City, Del., sell unblended fuel to distributors. So they must buy RINs on the market. They complain that the market is manipulated by traders, and that the 3- to 5-cent price for each RIN has increased, climbing to 90 cents in recent years, adding hundreds of millions of dollars to the refiners’ costs. The refiners and their supporters, including former Govs. Tom Corbett and Ed Rendell, say the burden threatens local jobs.

Why not obligate fuel distributors who blend the ethanol to buy the RINs instead?

The program is easier to manage and enforce if the obligated parties are the 100 or so refiners and fuel-import terminals in the country, rather than the more than 1,000 distributors that blend ethanol into motor fuel. EPA has resisted efforts to shift the point of obligation, arguing that the refiners have the financial resources and regulatory expertise to comply.

Why don’t refiners blend the ethanol themselves and generate their own RINs?

Some refiners do blend fuel at the point of sale, especially integrated oil companies that also control their own distribution systems. But merchant refiners like PES say they’re not in the business of blending fuel, which often is done at remote locations just before the fuel is distributed to retail outlets.

Why not abolish the Renewable Fuel Standard altogether?

With the growth of domestically produced oil in the last decade, many have argued that it’s time to sunset the RFSand require ethanol to compete on its own in the market. But the law’s supporters, especially in corn-growing states, say the biofuel mandate is good for the economy, national energy security, and the environment.