Ethanol Blog

As President Donald Trump's administration was putting the finishing touches on what appears to be a resounding round of victories on the Renewable Fuel Standard last week for biofuels and agriculture interests, Pennsylvania Democratic Gov. Tom Wolf asked the president for a waiver to the RFS.

U.S. Environmental Protection Agency Administrator Scott Pruitt last week assuaged the concerns of seven Midwest lawmakers that the agency was about to make dramatic changes to the RFS - essentially putting full support behind the biofuels industry. One of those proposals shot down by Pruitt was a proposal to attach renewable identification numbers, or RINs, to every gallon of biofuel exported. Such an action, the biofuels industry argued, would flood the market with the biofuels credits and greatly reduce prices.

Last Friday, Wolf made a waiver request saying in a letter to Trump, "As you are aware, obligated parties such as oil refiners are required to submit RIN credits in to the EPA to demonstrate compliance with the RFS. However, the merchant refiners of the Northeast are not able to acquire enough RIN credits to meet their RFS obligations because they have limited blending capacity. Therefore, they must purchase RINs on the secondary market, where prices have increased significantly.

"What was once envisioned as a low to zero cost tool necessary to measure compliance with the RFS, has increased dramatically in cost due to speculation and trading on an unregulated market."

The governor points to Philadelphia Energy Solutions and Monroe Energy as examples of companies unable to cover the costs of RFS compliance. Wolf said the two companies serve a "national security interest" and employ a combined 1,700 employees.

"If these Northeast refiners were to close, the refiners of the US Gulf Cost, which already produce 50% of the nation's refining fuel, would have to increase capacity," Wolf writes.

"As demonstrated after Hurricane Harvey, these refiners being knocked off line will lead to price spikes. Therefore, it is in the national interest of the United States that the country's refining sector not become too regionally concentrated in the Gulf of Mexico region."

Wolf asked the president to approve a waiver "until or unless the market prices deflate. Absent this waiver, the Northeast and specifically Pennsylvania will experience significant economic impacts."

Renewable Fuels Association President and CEO Bob Dinneen said in a statement that studies from both the oil and ethanol industries have shown merchant refiners recover the costs of RINs at the wholesale level. In addition, there has been little evidence that RINs prices affect prices at the pump.

"However, even if a refiner could show that RINs truly represent a cost that is not recouped, it could not demonstrate 'severe harm' to the economy," Dinneen said.

"That's because the Pennsylvania governor's RFS waiver request doesn't meet the very high threshold required by the statute and previously utilized by EPA in responding to similar requests."

The Clean Air Act allows a waiver if the EPA administrator determines the implementation of RFS requirements would severely harm the economy of a state, a region or the United States. Also, the agency is required to find that implementation of the RFS itself would severely harm the economy, "not just contribute to such harm on one sector of the economy," Dinneen said.

"The primary driver behind this waiver request is Philadelphia Energy Solutions, owner and operator of the oldest refinery in the nation. It is not the fault of the RFS or RINs that PES can't compete with newer, more efficient refineries that have better access to lower-priced, lighter crude oil sources. PES could entirely eliminate its RIN costs by investing in ethanol blending infrastructure, as other merchant refiners have done, rather than continuing to throw good money after bad in a PR and legal crusade against the RFS."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow me on Twitter @toddneeleyDTN

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