Governors' Biofuels Coalition

Republican Sen. Ted Cruz of Texas is not known for taking up the interests of unions.

Last week, though, the conservative firebrand found himself in Philadelphia trumpeting union jobs to labor leaders at a bankrupt refinery.

Cruz went to the city that voted for Hillary Clinton over Donald Trump by a more than 5-to-1 margin to stump for his side in a wonky policy debate that divides the Republicans in Washington like no other energy industry issue.

The bankruptcy of Philadelphia Energy Solutions, the biggest refinery on the East Coast, has become the latest flash point between proponents and opponents of a 13-year-old law mandating that fuels derived from corn and other crops be blended into the nation’s gasoline and diesel supply.

Politicians like Cruz from oil-producing states such as Texas view the plant-based fuel mandate as an unnecessary burden on refiners that destroys jobs. Meanwhile, Republicans from agricultural states — most notably, Sen. Charles E. Grassley of Iowa — regard the Renewable Fuel Standard (RFS) as essential to securing the nation’s energy independence and sustaining farming communities subject to wild swings in food prices.

Stuck in the middle is President Trump, who holds sway over any administrative action the Environmental Protection Agency takes on biofuel requirements and who would ultimately need to sign any legislation reforming the RFS. Both senators are appealing to Trump in the currency he understands best: jobs.

“This is about jobs … good union jobs, jobs that provide for your families and provide for your kids and provide for your grandkids,” Cruz told a packed gathering of refinery workers and managers at a town hall-style event in south Philadelphia on Wednesday.

Meanwhile, Grassley said this month: “Biofuels are responsible for thousands of jobs across the country. There’s no reason biofuels and other renewables can’t exist alongside conventional fuels.”

Trump will host meetings between key senators and Cabinet officials, including EPA chief Scott Pruitt and Agriculture Secretary Sonny Perdue, to discuss the RFS, according to refining industry sources. Bloomberg News first reported the planned White House meetings on Thursday evening.

The latest brouhaha over biofuels started in January when Philadelphia Energy Solutions pinned its bankruptcy in part on the high cost of meeting its obligations under RFS.

Having to meet blending requirements for corn-based ethanol and other biofuels created an “unpredictable, escalating and unintended compliance burden” costing the company $832 million between 2012 and 2017, the company told a bankruptcy court last month.

The claim has led to a flurry of clashing economic analyses, news releases and rallies from those on both sides of the ethanol debate.

Grassley’s office countered the Philadelphia refinery’s claim, arguing in a staff memorandum that the collapse in crude prices at the beginning of 2016 — along with new and more profitable pipeline routes for North Dakotan oil — choked the refinery’s profitability.

“Every independent study shows the PES bankruptcy was due to management decisions that did not work out, not the Renewable Fuel Standard,” Grassley said this week. “There’s no reason biofuels and other renewables can’t exist alongside conventional fuels.”

A different analysis from Reuters, trumpeted by Grassley’s office, pointed to another issue: hefty payouts Philadelphia Energy Solutions had to make to the Carlyle Group, a global equity firm, for an underused rail terminal meant to ship in crude oil for refining.

“If Sen. Cruz wants to make Philadelphia Energy Solutions the poster child for RFS reform, he’s chosen the wrong refinery,” said Bob Dinneen, head of the Renewable Fuels Association, the leading trade group for the U.S. ethanol industry.

“The fact of the matter is refineries have been doing pretty darn good over the past several years,” Dinneen added, even as biofuel volumes have been ratcheted up under the law.

The Fueling American Jobs Coalition, a group of independent refiners, countered that the “best judge of the primary drivers behind PES’ difficulties remains PES itself.”

“Attempts by corn-belt political staffers to ‘analyze’ the complex financial dynamics of the independent refining sector are cold comfort to those who show up at work every day to produce our country’s fuels,” the industry group added.

While Cruz took the pulpit this week, the Senate’s other member from the Lone Star State, Republican John Cornyn, began drafting legislation to reform RFS, according to a Cornyn aide.

Although the legislation is still being drafted, one source close to the refining industry said the bill probably would attempt to phase out RFS.

During the presidential campaign, Trump condemned Cruz for his ethanol stance in an attempt to appeal to primary voters in corn-growing Iowa. “I understand because Big Oil pays him a lot of money,” Trump told a crowd in late 2015. “He’s got to be oil, right? The oil companies give him a lot of money.”

Trump’s pro-ethanol position earned him the support of Grassley, Iowa’s senior senator, who appeared at a Trump rally in January 2016, months before the rest of the GOP establishment embraced Trump as the presidential nominee.

Since taking office, though, Republicans from swing states with oil and gas reserves have pitched reforming the RFS to Trump.

“I’ve brought this issue to the White House,” Rep. Lou Barletta (R-Pa.), who is running against Democratic Sen. Robert P. Casey Jr. in November, told refinery workers on Wednesday. “They understand what it means to Pennsylvania. We’re going to work and we’re not going to stop working until we find the solutions so that one person doesn’t lose their job because we’ve lost common sense in Washington.”

The last showdown between refining and farming interests over ethanol ended with transportation fuel makers frustrated they were unable to upend the status quo. Last year, the EPA kept the mandate for conventional renewable fuels, such as corn-based ethanol, steady at 15 billion gallons for 2018.

Clearly, however, the battle is not over.

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