A Biofuels Bankruptcy

The renewable fuel standards suffocate a Philadelphia refiner.

 
 

The Philadelphia Energy Solutions oil refinery is seen in front of the Philadelphia skyline in 2014.
The Philadelphia Energy Solutions oil refinery is seen in front of the Philadelphia skyline in 2014. PHOTO: DAVID PARROTT/REUTERS
 

The East Coast’s biggest refinery filed for Chapter 11 bankruptcy protection on Sunday, and Philadelphia Energy Solutions puts the blame with the federal government’s biofuels policies. The refinery’s workers are justified in asking why the Trump Administration failed to spare them when it had the chance last fall.

For more than a decade, the Environmental Protection Agency has used compliance credits, which are created when fuel is blended, to enforce ethanol quotas. But independent refiners like Philadelphia Energy Solutions specialize in manufacturing fuel, not blending it, so the federal government requires them to buy credits to meet the mandate.

In 2017 meeting this regulatory burden cost Philadelphia Energy Solutions more than twice as much as payroll and about 1.5 times more than its average annual capital expenditures. Since 2012 the refinery has spent $832 million on credits. “The whole reason we’re filing for Chapter 11 is that this is a massive expense,” said CEO Gregory Gatta. 

No sympathy from Bob Dinneen, chief executive of the Renewable Fuels Association. He said in a statement this week that Philadelphia Energy Solutions should have simply gotten into the blending business, but “it chose a different course, slavishly pursuing a change in the law that fit its flawed business model.”

Mr. Dinneen and his members are the beneficiaries of the regulatory status quo. The government subsidizes biofuels and compels consumers to buy them. Refiners, on the other hand, are subject to the demands of bureaucrats and the market. Purchasing credits keeps the feds at bay, but it wastes cash that could otherwise be put to productive use.

With Scott Pruitt at the helm, the EPA contemplated reforming its renewable fuel standards. But after pressure from the ethanol lobby and corn-state politicians, the Trump Administration announced in October that it would leave bad enough alone.

That decision baffled Ryan O’Callaghan, president of United Steelworkers Local 10-1, which represents hundreds of Philadelphia Energy Solutions workers. “We thought President Trump was going to protect manufacturing jobs, and that’s what a refinery does,” he said. The renewable fuel standards are “like a lead weight around the company,” he added, and “we want the President to live up to his word.”

This week’s bankruptcy filing imperils the refinery and Mr. Trump’s blue-collar support in Pennsylvania.

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