U.S. President Donald Trump has called a meeting to discuss possible amendments to the Renewable Fuel Standard (RFS) as the powerful oil and corn lobbies continue to clash over biofuels policies amid high political stakes in protecting jobs in both Iowa and Pennsylvania.
However, a major overhaul of the current policies on blending corn-based ethanol and other biofuels into gasoline and diesel faces opposition from both lobbies—for different reasons—and is pitting lawmakers from the big oil states against those of the Midwest farm belt.
The meeting that President Trump has called, scheduled for Tuesday, will reportedly include Republican Senators Ted Cruz of Texas, and Chuck Grassley and Joni Ernst of Iowa. The other participants in the meeting will be Environmental Protection Agency (EPA) Administrator Scott Pruitt, Agriculture Secretary Sonny Perdue, and possibly Energy Secretary Rick Perry, Reuters reports, citing four sources familiar with the matter.
The current biofuels policies have long been the bone of contention between oil and corn states, but they recently took center stage again after Pennsylvania-based oil refiner Philadelphia Energy Solutions (PES) filed for bankruptcy protection in late January, blaming part of its financial hardships on the compliance costs with the RFS and the purchase of tradeable blending credits known as Renewable Identification Numbers, or RINs. Refiners that don’t have the infrastructure to blend biofuels, including PES, must buy the RINs.
“Today’s bankruptcy filing by Philadelphia Energy Solutions (PES) is a result of the counterproductive, job-killing, EPA-imposed Renewable Fuel Standard (RFS) that requires an excessive amount of biofuel be blended into the nation’s fuel supply,” Senator Pat Toomey (R-Pa.) said in January, commenting on PES’s hardships. Related: Venezuelan Oil Production Could Further Collapse On New U.S. Sanctions
While President Trump is a vocal supporter of the U.S. oil industry, he has said that he also supports the RFS, especially corn-based ethanol, which protects farming jobs in the Midwest.
The meeting this week is expected to focus on short-term solutions to keep the Philadelphia refinery running, and on longer-term options such as a possible cap on the price of biofuel credits or ways to get speculators out of the market, according to Reuters’ sources.
PES is asking the EPA to waive its biofuel compliance obligations, but more waivers from the agency could result in a backlash from other oil refiners that can’t get such waivers, according to Reuters.
Earlier this year, reports suggested that a total of 27 small-sized U.S. refiners—a higher number than usual—have sought waivers from the biofuels standard program from the EPA. The agency has the authority to grant waivers from the renewable fuel standard to refineries whose oil processing capacity is below 75,000 bpd.
While a possible expansion of waivers to small refiners is expected to reduce the RIN prices for oil refiners, it faces opposition from both the oil and corn industries as a possible unfair advantage for those exempt from biofuel blending costs.
Meanwhile, Republican Senators Ted Cruz of Texas and Chuck Grassley of Iowa have also addressed the bankruptcy filing of Philadelphia Energy Solutions (PES), in different ways. Related: Crashing Cushing Inventories Boost Oil Prices
Sen. Grassley published earlier this month an analysis by his energy policy staff that found that biofuels blending requirement and the cost of RINs “have little to do with the success of refineries and were not significant factors in the PES bankruptcy.”
“After reviewing the facts, I’m confident that the Renewable Fuel Standard isn’t harming refineries, that other factors are at work, and that the RFS law is working as Congress intended,” Sen. Grassley said in a statement.
Sen. Cruz, on the other hand, told refinery workers from the East Coast at a gathering at PES last week that refinery jobs are “at risk from a broken government regulation system that isn’t working that we have to fix.”
“We can fix this [and] end the massive tax from the broken RINs system. And at the same time allow corn farmers in a free and fair market to sell even more corn and for them to prosper as well,” Senator Cruz said. “I think we are making positive, productive steps toward a win-win solution.”
Senators Grassley and Cruz are expected to take part in President Trump’s meeting on Tuesday, but proposals to fix the biofuels policies are likely to face opposition from either the corn industry or oil industry camps—or both.
By Tsvetana Paraskova for Oilprice.com
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