Kirk S. Lippold is a retired naval officer who commanded the USS Cole when it survived a suicide bombing by al-Qaida in 2000. He now serves as president of Lippold Strategies, a consulting firm that does not do business with refiners.
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The largest refinery on the East Coast, Philadelphia Energy Solutions (PES), recently announced that it would declare bankruptcy. This should be seen by Pennsylvanians and other Americans as most unwelcome news, though it was no surprise to those who keep watch on the health of America’s refining industry.
The culprit: a poorly designed federal regulation called the Renewable Fuel Standard (RFS). Unless our government addresses the negative impact of the RFS on our country’s refineries, we are likely to see more of the same — creating serious employment and national security issues for the United States.
On the campaign trail in 2016, Donald Trump came to Pennsylvania and gave a major energy-policy speech outlining what a Trump presidency would do for energy workers and others involved in this critical sector of our economy. Mr. Trump promised Pennsylvania workers that he would lift “restrictions on American energy” to “increase annual wages” and create jobs. He also said his “plan includes the elimination of unnecessary regulations” to avoid “devastation for states like Pennsylvania” as part of “an America-first energy plan.” His vision was viewed by many as part of the larger U.S energy-dominance agenda that was a staple of his campaign promises.
Now, fast forward more than a year later to the pending bankruptcy of PES, a result of America’s refining sector, a critical piece of our energy infrastructure, being administratively strangled by a key provision embedded in the Renewable Fuel Standard.
The RFS forces many independent refineries to purchase expensive compliance credits called Renewable Identification Numbers if they want to continue producing fuel. This government-mandated program creates credits for ethanol production and use that are sold on an unregulated market by big integrated oil companies, large fuel retailers, Wall Street speculators and other middlemen who profit heavily from the lucrative trade in these credits.
Independent and smaller refiners such as PES are essentially captive victims in this unfair trading scheme. The only way to earn credits is to blend renewable fuel into finished products, and many refiners either don’t have the infrastructure to do this or cannot afford to build it. Stuck between government regulation and financial realities, independent refiners are forced to spend scarce cash to comply with the RFS — cash that otherwise could be used for capital investments, safety programs and employee training and bonuses.
In many cases, refiners are paying more money to acquire compliance credits than they spend on their own workforce. PES’s bankruptcy filing states that the company’s largest expense outside of its most basic input, crude oil, was the acquisition of RFS compliance credits.
Yet, so far, on Mr. Trump’s watch, little has been done to address the obvious flaws with the RFS. Led by Sen. Chuck Grassley, R-Iowa, and backed by other uncompromising corn-state politicians and their highly paid Washington, D.C., lobbyists, the corn-to-ethanol industry stymies every effort to arrive at an equitable solution that would fix the program. In fact, it has refused to consider any changes to the RFS in view of the immense profits they reap from this inherently unfair situation.
Pennsylvania’s energy workers, many of whom crossed party lines to vote for Mr. Trump, had hoped for more from their political leaders. Independent refiners contribute over 50 percent of our nation’s gasoline, home heating oil, diesel fuel, jet fuel and countless other petrochemical products. They are critical to providing jobs and bolstering our national security and should never have been subject to such extreme regulatory uncertainty.
As RFS-related expenditures continue to creep upwards, refineries have had no choice but to curtail production or shut down altogether. This heralds dire consequences for our national security because a strong and competitive refining sector is needed to ensure fuel supplies for military operations even at times when refinery capacity elsewhere in the world is denied to the United States.
The bankruptcy of PES also is a stinging blow to working-class Pennsylvanians who expected to see something better from Washington, D.C., this year. If the RFS remains a burdensome and dysfunctional government program, the fallout for our economy and our national security could be enormous.
It’s time for Mr. Trump to take the lead and find a solution to the administrative burdens inherent in the RFS program. We must bolster, not burden, America’s refining industry.
First Published: February 18, 2018, 5:00 a.m.
