Just seven years ago, as Hurricane Sandy pounded New Jersey and New York, dedicated workers at small East Coast refineries pushed through triple shifts in pelting storms. They produced much of the only available energy capable of keeping the region’s power on. Manhattan was on life support, but these heroes kept the pulse beating until help arrived. Few think of these refining assets as critical components of our nation’s emergency response capability, but that is what they are.
That is why it is disheartening to see the future of small refineries in increasing peril as government officials wrestle over renewable fuel policies. The crux of the issue relates to federal requirements that compel corn-based ethanol to be blended into motor fuels as a way to reduce American dependence on foreign petroleum imports. There is also a laudable green energy component to the ethanol mandate, but it is arguable that as much carbon is emitted through ethanol production as would be released by fuel combustion alone.
The requirement to blend the fuel has been placed on the refineries by law but most small refineries were built decades ago and lack the capability to produce the mix. As a result, a complicated system of credits was created under the auspices of the Environmental Protection Agency (EPA), which are a lot like the infamous cap-and-trade program. These credits are quantified by assigning a unique Renewable Identification Number (RIN) to each particular unit blended and predetermined volumes of blended fuel are set as goals to be produced in a given year.
Big oil manufacturers who can blend ethanol and oil in excess of their needs can sell that excess capacity as a credit to the smaller manufacturers who cannot produce it themselves. As a result, a compliance instrument, the RIN, became a commodity without sufficient regulatory oversight. Big banks saw an opportunity and pounced, purchasing RINs, and small refiners were subjected to a shifting market that saw the cost of the credits balloon.
Small refiners, like those that sustained thousands of jobs around my former Pennsylvania district, saw their already thin margins squeezed and their viability threatened. This speculative marketplace has brought the cost of purchasing the credits to $500,000 a day for some refineries — their biggest expense after crude oil — and leading to the bankruptcy of others, including Philadelphia Energy Solutions in my backyard.
Now is an opportunity for agency heads and politicians from both parties to find a common ground solution, and there have certainly been some encouraging discussions. Regrettably though, for some, finding division seems more popular than governing.
On Feb. 4, the politics of zero-sum solutions hit close to home, when biofuels group Growth Energy sued the EPA over its issuance of small refinery exemptions (“SREs”) That’s unfortunate, because these allowances are not working against the Renewable Fuel Standard’s overarching objectives nor causing a disruption to farming communities. As Dr. Scott Irwin, the Laurence J. Norton Chair of Agricultural Marketing at the University of Illinois, wrote in a recent analysis, “The data now clearly shows that SREs under the [Renewable Fuel Standards] have not reduced physical ethanol use in the form of E10 gasoline blends.” All the SREs are doing is assisting the small refiners to stay afloat until Congress passes reforms to the Renewables Standards that will serve as a win-win for all sides.
Organizations similar in profile to Growth Energy support the Renewable Fuel Standards because they view it as a way of leveling the energy playing field, which they perceive to be rigged against farmers due to the many subsidies, carveouts, and giveaways to the oil industry. But the last thing they should want is for big oil to grow stronger as the current dynamics around RINs sinks smaller competitors.
And so it is; big corn and big oil staring each other down while big banks hope their speculation isn’t deflated by new regulations and small refiners get caught in the crossfire. It looks like there is a window to find a smart resolution, but that requires the opponents to tone down the partisan rhetoric. Members of Congress representing small refineries should be able to make a sound case for reform, but their calls won’t be listened to if some Republican analysts only call for full repeal of the Renewable Fuel Standards and label any environmental activist who supports some form of RINS as a crony for the other side.
Tone is everything, especially when dealing with a divided Congress. While the EPA should continue issuing small refinery exemptions and revising blending quotas to help alleviate the problem, Congress needs to put partisan politics aside and show leadership by coming to terms with the common ground and creating a permanent solution.
• Pat Meehan is a former Republican U.S. representative from Pennsylvania.