EPA Administrator Scott Pruitt may have to backtrack on promises he made to Midwest ethanol supporters if the administration wants to save refinery jobs on the East Coast.
Dozens of petitions from small refiners are landing in Pruitt’s inbox asking him to waive the renewable fuel mandate in the wake of the bankruptcy filing by the Philadelphia Energy Resources refinery.
Industry sources say the petitions will force Pruitt to decide whether to take action against the Renewable Fuel Standard in the short term. The only other option is to wait for the concerns to be hashed out in major reform legislation being crafted by Senate Majority Whip John Cornyn, R-Texas, who wants a measure to resolve all outstanding issues with the ethanol mandate.
Pruitt is legally obligated to rule on the dozens of formal Clean Air Act waiver petitions he is receiving. The mandate allows waivers for small refineries that can demonstrate that the annual requirements for blending renewable fuel and ethanol "would cause the refinery to suffer disproportionate economic hardship," according to EPA.
The refiners argue that the mandate forces them to buy expensive renewable identification number credits, or RINs, which led to the Philadelphia refinery filing for bankruptcy and hundreds of workers losing their jobs.
He also could look at relaxing enforcement. But that is sure to result in massive political blowback in Congress and in the courts, sources close to the issue say.
The ethanol industry began pushing back against the petitions Friday, sending a letter to Pruitt saying he is constrained by law on the number of petitions he can grant and to which refiners.
Renewable Fuels Association President Bob Dinneen fears Pruitt could expand the small refiner exemption to include a host of companies that don't fit under the criteria for the exemption. He said in the letter that any "ill-conceived and unauthorized expansion" of the exemption for small refiners "could destabilize the market for renewable fuels and undermine Congress’s goals for the RFS program.”
Dinneen, who is one the ethanol industry's top lobbyists, wants assurances from Pruitt that he won't carry out a policy of widespread exemptions on the dozens of petitions being filed.
"The net effect of the agency’s position, if numerous exemptions are granted, would be to reduce the volumetric RFS mandates outside of the public rulemaking process for establishing renewable volume obligations," Dinneen wrote. That means the exemptions would cut the blending requirements that refiners have to meet by using the petitions as a back-channel way of doing so.
In many ways, Pruitt’s hands are tied. He cannot go back on a deal he secured last year with the Iowa ethanol delegation in Congress to reject fundamental changes to the ethanol program and allow refiners off the hook on meeting the RFS annual blending requirements.
The feud over the fate of the standard has risen to the level of the White House, with Sen. Ted Cruz, R-Texas, trying to force a meeting of the minds with Sen. Chuck Grassley, R-Iowa, an ardent ethanol supporter, to find a solution that supports both the refiners and renewable fuels industry. But that process was unsuccessful, with Grassley's office saying the "next step is for Sen. Cruz to circulate specific proposals for consideration" where the "integrity" of the RFS is maintained. The Cornyn draft is that next step, say aides and industry sources.
Meanwhile, union groups have been upping the pressure on Pruitt in a letter campaign that continued Friday.
The latest in the growing number of groups calling on him to take action came from the pipefitters union Thursday after the steelmakers called on Pruitt to roll back the mandate.
The costly RIN credits are the primary way for small independent refiners to meet the RFS requirements, said pipefitters union boss Mark McManus. The refiners don’t have a way to blend ethanol into gasoline as do Exxon and Shell, which own both refining and retail blending infrastructure.
McManus said Philadelphia Energy's Chapter 11 bankruptcy filing is proof of the harmful effects of the RFS on the smaller classes of refiners and the need for Pruitt to address the concern soon.
"This process forces refineries to spend hundreds of millions of dollars each year to comply with the regulations," he wrote to Pruitt. "In fact, [Philadelphia Energy Solutions] has spent over $800 million since 2012 alone. These expenditures neither benefit the environment nor economy and would have been better utilized for capital investment, maintenance and modernization of facilities — all which would have put our members to work."
His comments followed a statement by the United Steelworkers union scolding Pruitt and the Trump administration for their "indifference" on the issue, calling the RFS a key contributor to the bankruptcy.
“Continued indifference by the administration and EPA will only drive more East Coast refineries into bankruptcy while thousands of good jobs that allow highly skilled workers to support their families and sustain their communities are at stake," said Kim Nibarger, the union’s National Oil Bargaining chairwoman.
Nibarger wants Pruitt to resurrect a plan put forth by former Trump adviser Carl Icahn to change the mandate’s point of obligation, which would remove the burden of meeting the ethanol standard from the refiners and place it on fuel retailers further down market.
Industry sources say resurrecting the Icahn plan is a nonstarter, especially given that federal prosecutors are looking at Icahn over conflicts of interest in peddling the RFS plan that would help refining companies he has a stake in.