Delaware City Refinery faces more financial pain after federal officials decided not to reform a system that requires the plant’s owner to pay millions of dollars a year in renewable fuel credits.
The refinery has for years been urging the U.S. Environmental Protection Agency to change a program that requires it and other independent refiners to buy the credits – called RINs – in order to comply with a regulation that’s designed to boost the use of renewable fuels like ethanol.
The refinery’s owner, PBF Energy, has complained that the cost of complying with the Renewable Fuel Standard is its second-biggest expense after the purchase of crude oil, and that it’s subject to wide swings in the price of RINs because it must buy them on a volatile open market.
But on June 3, the EPA left the credit system intact when it announced new quantities of biofuels that refiners are required to purchase this year to comply with the renewables program.
The agency also expanded the standard to include “biointermediates” – feedstocks that have been partly converted at one facility but are then processed into a qualified biofuel at another plant. It said the change may reduce biofuel production costs.
PBF has not disclosed how much RINs are likely to cost it this year but said it expects to buy about 600 million of the credits, which recently traded at about $1.60 each. The total cost came to about $165 million in 2019 and then doubled in both 2020 and 2021, said Brendan Williams, vice president of government relations.
He repeated earlier warnings that the company may eventually be forced to lay off some of the more than 500 full-time employees at the plant because of the heavy cost of buying the credits. “If the costs stay the same, it will put refining capacity and jobs at risk,” Williams said.
Refiners like Delaware City don’t have the capacity to blend biofuels into gasoline and so they must buy the credits to comply with the Renewable Fuels Standard, in contrast to bigger “integrated” refineries which earn RINs by blending, and make big profits by selling them on the open market, Williams said.
The system creates an unfair advantage for the bigger refiners while adding to the financial challenges for PBF and its peers, Williams said.
“So you mandate more ethanol than you can fit in the fuel supply. Then you have this credit system that picks winners and losers, that advantages integrated refiners over independents. That’s a recipe to drive the price of the credits way up,” he said.
Williams argued that having to buy the credits is forcing refiners like PBF to pass some of the cost on to consumers, and is adding an estimated 20-30 cents a gallon to retail gasoline prices – which are now at record highs because of the war in Ukraine and supply constraints.
“The administration had an opportunity to lower gas prices significantly and protect for the long-term America’s refining capacity. But they decided to go the other way instead,” Williams said in an interview.
The agency increased the total amount of renewable fuels that refiners are required to buy this year to 20.6 billion gallons from 18.8 billion gallons in 2021, saying the move would lessen U.S. dependence on oil and boost consumption of domestically produced biofuels.
“We are focused on providing more options for consumers at the pump, and today we are taking steps to increase the availability of homegrown biofuels,” said EPA Administrator Michael Regan, in a statement. He said the new requirements would put the RFS program back on track after years of “challenges and mismanagement.”
But PBF’s Williams said the new requirement will be impossible to achieve because neither the nation’s car fleet nor the gasoline station network have the capacity to add that much more renewable fuel, specifically ethanol.
“They mandated an unachievable amount of ethanol. As a result, the compliance permits that refiners have to buy – the price of those went up,” he said. The price of RINs jumped about 30 cents when news of the EPA’s increased requirements fueled demand for the credits, Williams said.
Criticism also came from the Fueling America’s Jobs Coalition, a campaign group representing independent refiners like Delaware City, and trade unions.
It predicted that the new regulation will result in even higher prices at the pump, and more uncertainty for independent refiners.
“Instead of providing the refining industry with relief, certainty and predictability to overcome global market disruptions, EPA’s broken biofuel mandate continues to saddle refiners with RIN volatility and financial uncertainty,” the group said in a statement.
It accused President Joe Biden of missing a “clear opportunity” to lower gasoline prices and protect the country’s refining capacity along with workers in his home state of Delaware and other states with independent refiners. The group said the Renewable Fuel Standard adds an estimated $30 billion to domestic fuel costs annually.
Delaware’s Congressional delegation said it was “disappointed” that the EPA failed to adjust its 2022 volume obligations “despite good reasons to do so.”
A statement by Sens. Tom Carper and Chris Coons, and Rep. Lisa Blunt Rochester said the RFS has already harmed independent refiners, and the new fuel mandate will create more pressure on them. It said the change would also create more uncertainty for skilled union workers that are “the backbone of our community and our regional economy.”
But the delegation said it will continue to work for a solution that provides more predictability for refiners while also speeds a transition toward more sustainable fuels.
In light of the increase in RINs prices spurred by the EPA’s announcement, PBF’s Williams said he hopes the agency will recognize the effects on independent refineries, and work for a solution.
“Our hope is that now that they’ve seen the market reaction, they recognize they will need to fix it,” he said. “We do have a lot of bipartisan support, and we’re hoping that that support, coupled with the recognition that what they did for 2022 didn’t alleviate the burden of RINs will lead to some action to address this problem.”
In an unrelated action, Delaware proposed a renewed permit under the federal Clean Air Act for the refinery to emit a certain level of air pollution. The regulation is now under review by the EPA for 45 days before being finalized.
“It is important to facilities to have up-to-date permits to operate under because the permit documents how they must operate to remain in compliance with applicable air regulations,” said DNREC Secretary Shawn Garvin.
