The RFS is Broken and Must be Fixed

Dear Fellow Americans, Members of Congress and Staff of the EPA,

In 2007, Congress enacted a law known as the Energy Independence and Security Act, commonly known as the Renewable Fuel Standard (RFS).

The noble intention of this act was to reduce America’s reliance on foreign crude oil by increasing the use of domestic, environmentally friendly renewable fuels in our gasoline and diesel.

Unfortunately, the RFS has failed on many fronts resulting in unintended consequences that harm American businesses and, if allowed to continue, will ultimately harm consumers.

  • Rather than improve energy security, the RFS harms it by threatening the viability of merchant refiners and small refiners, who supply roughly half of all the gasoline and diesel used in the United States. American consumers will be harmed by rising gas prices if these refiners close their doors.
  • The shale oil revolution has provided America’s energy independence. Today, we export crude oil and refined products at RECORD levels.
  • We now import foreign biofuel, but the intent was to use domestic products.
  • EPA’s management of this program hinders rather than incentivizes additional biofuel use.

Because of a contrived, unregulated and often fraudulent RFS blending credit program, the fuel market has been divided into big winners and big losers. The credits used in this program are arcanely called Renewable Identification Numbers, or RINs.

Let me paraphrase a Bloomberg article that succinctly explains these credits. RINs are essentially certificates issued to prove that a gallon of gasoline or diesel has been blended with ethanol or biofuel. The burden of compliance falls on refiners and importers even though many don’t actually blend all the fuel they produce or import. Blending is done, instead, by wholesalers, marketers and retailers. Refiners must purchase RINs on the open market to prove compliance, which leaves them at the mercy of sellers who know they have a captive buyer.

Imagine that you had to pay a tax, but the only way you could pay it is to purchase a tax credit from an unscrupulous dealer who could charge you whatever they want. And, if you don’t pay the tax, you face significant penalties. You can’t make this stuff up, but that is how this program works.

So who wins and who loses due to the EPA’s Mad Max version of RINs trading?

The WINDFALL PROFIT WINNERS are:

  • Speculators, including Wall Street banks.
  • Big Oil – Chevron, Shell, BP and others (they control huge retail chains and some even have RINs trading desks).
  • Integrated Refiners – Marathon, Tesoro and others.
  • Big Retail Service Stations – 7-Eleven, Murphy USA, Casey’s and others.
  • Certain biofuel producers, who not only receive your tax dollars as subsidies, but are allowed to directly market their RINs.

Meanwhile, these are the LOSERS:

  • Independent Merchant Refiners, such as CVR Refining, Valero, HollyFrontier, Alon, PES, PBF Energy, Monroe Energy, Calumet and
    many others.
  • Small service station operators. The Mom and Pop stores that cannot blend their fuel find that large retailers are using their RINs profits to undercut them at the pump, essentially putting them out of business.
  • The American public. Not only will you pay more for fuel, but you may be forced to use a fuel that you might not want to buy.

I recently voiced a concern to our unitholders and others that, unless corrected (with a simple stroke of a pen by the EPA), the RFS could cripple merchant refiners.

In September 2016, Bloomberg reported that Phil Rinaldi, chief executive officer of Philadelphia Energy Solutions (PES), told employees in an email that PES plans to reduce personnel, cut health care benefits, freeze pension contributions and delay capital projects due to the cost of complying with the RFS – approximately $250 million this year.

RIN prices for the third quarter of 2016 were, on average, more than 40 times higher than 2007 prices, but the cost of blending has not substantially increased. Simply put, this is wrong.

Our position that the point of compliance must include all parties – refiners, importers and blenders – has been met with a vocal outcry. I guess when you are feeding at the trough of free cash, you don’t want the gravy train to stop.

The American Petroleum Institute (API), which represents BIG OIL, previously agreed that the point of obligation should also include blenders. However, API has since reversed course saying that it will “complicate” the program. Perhaps “complicate” now means “eliminating Big Oil windfall profits.”

As independent merchant refiners are forced to shut down, BIG OIL will control more of the market. Hold on to your wallets when this happens.

Big retailers aren’t investing their RIN profits in expanding renewable fuel use. Yet, they are the only ones who directly sell to the motoring public and can influence sales.

Renewable fuel lobbies are screaming like Chicken Little because they fear any change to the RFS program will open up a larger review. Their fear is that once under scrutiny, provisions of the act will be rationally changed because they are wrong or simply don’t work.

What is shocking, however, is the agency that set up this program is blatantly ignoring the problem it created.

C’mon EPA. Remember the first rule of holes – when you are in one, stop digging. Open your eyes and put down your shovels.


The EPA has the ability to fix the RFS program.

We aren’t advocating for repeal. We’re simply asking the EPA to do what it is already obligated to do and make ALL blenders – refining and non-refining – responsible for compliance. This will level the playing field for all involved, and ultimately, benefit American consumers and our fuel industry.

 There are those who claim that independent merchant refiners are trying to “shift the obligation to someone else” to avoid making investments in regulations in an effort to save money. Not only is this claim untrue, it is often used to distract regulators from dealing with the real issues with the RFS program.

I have worked in this regulated industry for 44 years. I have spent billions of dollars investing in the facilities for which I was responsible during that time. Meeting these rules is not a matter of spending money to meet environmental obligations. What is being suggested is that independent refiners must become integrated. A wholesale shift in asset ownership is not the answer nor is it feasible. Think about it – how can that be accomplished when the market is already cornered by BIG OIL and BIG RETAIL. In this instance, the EPA has created a monster and those who reap windfall profits will say anything to keep their bounty.

I’m shocked that the inspector general of the EPA has not looked into the actions of individuals inside the agency as they concocted this Machiavellian scheme. By the way, FTC and CFTC – are you listening?


WAKE UP AMERICA! YOU WILL PAY FOR THE BROKEN RFS PROGRAM!

 

Sincerely,

Jack Lipinski
Chief Executive Officer of CVR Refining