Shock Waves from Renewable Fuel Credit Threaten Pennsylvania Refinery Jobs

A rare alliance of top elected officials from both parties, including two former Pennsylvania governors, and business and organized labor, is fighting to save thousands of high paying jobs threatened by a runaway credit system that sets the amount of biofuel (principally ethanol) that is blended with gasoline and other refined fuels.

The EPA’s renewable fuel standard (RFS) has become so costly to comply with that it’s crushing the smaller, merchant refiners in the Northeast who are obligated to buy the credits since they have no capacity to blend the ethanol with the fuel. The repercussions are being felt by businesses everywhere. In late August, the Small Retailers Coalition brought suit in federal court against the EPA over the unfair system. 

“The refineries need relief, and they need it fast,” said PMA President & CEO David N. Taylor. “The escalating cost of compliance is sending shockwaves throughout industry. It’s imperative we find a remedy before this crisis worsens and we all suffer the consequences.”

The trouble centers around the credits, Renewable Identification Number (RINs), that the obligated parties under the regulations purchase in order to cover the costs of administering the program -- or at least that’s what the EPA originally intended. But the trading houses got into the mix, and what used to cost Monroe Energy in Delaware County, a wholly owned subsidiary of Delta Airlines, $10,000 to $15,000 a day to comply is now costing $500,000 per day. That’s more money per year than the $150 million Delta spent in 2012 to buy the refinery.

“The price used to be two to three cents a credit,” said Adam Gattuso, spokesman for Monroe. “Now it’s up near one dollar. It’s been a windfall for some parties and it was never intended to be that way.”

Philadelphia Energy Solution (PES) in south Philadelphia has been hit even harder. PES refines over 300,000 barrels a day compared to Monroe’s 185,000 barrels. This year alone, PES has paid more than $300 million to comply.

In an October 20 letter to President Trump concerning the credit program, Governor Tom Wolf noted that PES employs 1,200 and Monroe nearly 500. And the governor wrote that a PA Department of Labor study showed that these jobs support nearly 30,000 other jobs in southeastern Pennsylvania.

But plans to alter the program have the corn states, the big ethanol producers, pushing back so hard that even the Trump EPA, which has rolled back other stifling regulations loaded up during the Obama years, has backed down from reducing the level of ethanol needed to blend in order to comply. 

Blending for the smaller refineries is out of the question, Gattuso said.

“Since ethanol is so corrosive, it has to be pumped into the trucks just before delivery,” he said. “But delivering to gas stations is not our market.”

The RFS was a “totally absurd” idea in the first place, says Ben Zycher, Scholar with the American Enterprise Institute, and author of numerous articles on the cost of complying with environmental rules.

“It’s not good for the environment, it’s hard on engines, it gets poor mileage and contributes to global hunger,” Zycher said.

But it’s the current standard, and business leaders and labor are working with top elected officials to reach some common ground with the corn states so that the refiners can get at least some measure of relief.

In his letter to the president, Governor Wolf urged him to ask the EPA to waive the renewable volume obligations for the Northeast, something the agency has the authority to do.

And in a recent commentary published in the Philadelphia Inquirer, former Pennsylvania governors Ed Rendell (D-Philadelphia) and Tom Corbett (R-Allegheny) cited a proposal by United Steel Workers President Leo Gerard that would move the point at which the obligation is placed to the same place where the RINs are awarded — thereby reestablishing the “virtuous cycle.”

“According to the USW, efforts to ‘move the point of obligation from refineries to all blending facilities … will create a level playing field and allow … smaller refiners to compete,’” the former governors wrote. The continued, “When gasoline prices spike, those least able to afford it — the working poor, minority, and elderly communities — get hurt the most.”

The entire Pennsylvania congressional delegation, the Philadelphia Building and Construction Trades Council and business and other labor groups are also urging Washington to come up with some remedy that gives the refiners a break. They can’t sustain the costs in a system that is being manipulated for easy profits, and one that is needlessly threatening jobs and has the potential to undermine the entire economy.