The battle between King Corn and Big Oil is heating up again as the two sides fight over whether the ethanol mandate popular in the farm economy is to blame for the bankruptcy of the East Coast’s largest oil refinery.
Philadelphia Energy Solutions blamed its woes on the cost of complying with the Renewable Fuel Standard when it filed for bankruptcy last month. The refiner said the biofuel mandate has cost it more than $800 million since 2012.
But the bankruptcy has become a proxy for a deeper conflict over the future of the Renewable Fuel Standard, with both sides trying to persuade Washington policymakers — and President Donald Trump — to see the program their way.
The stakes have never been higher as, on one hand, farmers see corn-based ethanol as a bright spot in an otherwise struggling agriculture economy and, on the other, oil interests see the escalating costs of complying with the fuel standard as gobbling up a huge share of refinery operating expenses.
Trump finds himself in a quandary — counting as his base of support both farmers and oil workers. He earlier had intervened on behalf of ethanol interests — but questions remain whether that will stick.
The debate spilled onto the Senate floor last week as Sen. Chuck Grassley, the Iowa Republican and top ethanol advocate, challenged Texas Sen. Ted Cruz’s decision to again stall the nomination of Iowa Agriculture Secretary Bill Northey to a federal post.
“There is a manufactured and baseless rumor that the RFS has caused an oil refinery in Pennsylvania to file for bankruptcy,” Grassley said, adding later that “taking a nominee hostage to try and force an ill-conceived policy change is only going to cause more problems for this body in the future.”
Cruz, whose home state has 100,000 jobs tied to the refinery business, sees the Northey nomination as a bargaining chip in seeking changes to the fuel mandate.
“Can you imagine running a business where you spend more than double your payroll to write a check not to buy anything, not to pay anybody, not to buy any supplies, but to simply purchase a government license?” Cruz asked.
The week before those remarks, in a Feb. 1 interview with Fox News, Environmental Protection Agency Administrator Scott Pruitt rattled the biofuel industry when he pointed to the Philadelphia Energy Solutions bankruptcy in saying there was a need for “reform.”
“The conversation on the RFS struck a new tone early this year following Philadelphia Energy Solutions’ bankruptcy announcement at the end of January,” wrote Katie Bays, senior energy analyst at Height Securities in Washington, in a report last Friday. “We expect the RFS will undergo significant changes this year through legislation, regulatory measures, or both.”
The Renewable Fuel Standard forces refiners to use biofuels — and to prove they have satisfied annual quotas with tradable credits known as Renewable Identification Numbers, or RINs. But refiners are affected unevenly by the mandate. Independent refiners that lack the infrastructure to blend biofuel — like Philadelphia Energy — must buy those RINs instead.
While oil interests largely blame the fuel standards, biofuel proponents say that Philadelphia Energy is harmed more by losing affordable access to cheap domestic crude from North Dakota than it is by the biofuel mandate that applies to refineries nationwide.
Philadelphia Energy Solutions Chief Executive Officer Gregory Gatta joined the fray on Monday, issuing a joint statement with the head of the United Steelworkers International arguing that there is room for both biofuel producers and refiners “to thrive.”
Gatta and Steelworkers head Leo Gerard said they would keep calling “for reform of the flawed RINs compliance mechanism that threatens thousands of well-paying jobs and the independent refineries that provide critical energy supply to the United States.”
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Philadelphia Energy is looking to shed some $300 million in compliance obligations tied to the fuel standard. The EPA already said it would give the refiner an extra 31 days to satisfy its obligation for 2017. But the company has asked the agency to go further and forgive its burden entirely.
Bloomberg and the McClatchy Washington Bureau contributed.