Kimberley A. Strassel: Washington’s Latest Special Favor – WSJ.com
August 9 | Posted by mrossol | ObamaAnd no one is surprised or really cares this is why Americans are so disgusted with Government, are they?
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For a glimpse at the secret, special-favors factory that Washington has become under President Obama, check out this week’s big news out of the Environmental Protection Agency. Or rather, look beyond the headlines to the corporate handout hidden within.
The big news was that the EPA issued—finally—its infamous annual quota for renewable fuels. That mandate tells the nation’s refineries how much renewable fuel (ethanol) must be blended annually into gasoline, a quota that is becoming a pernicious driver of gas prices. The EPA was supposed to release the 2013 quota last November but decided to leave the industry in panicked uncertainty until now.
The 89-page rule is dull reading, until you get to page 11. Tucked on that page is one short sentence, which reads: “EPA has approved a single small refinery/small refiner exemption for 2013, so an adjustment has been made to the standards to account for this exemption.” In English: Of the nation’s 143 refineries, one (and only one) lucky player somehow had the pull to win itself a free pass from this government burden. Not only that, the rest of the industry gets to pick up its slack.
An exemption is no small privilege. Congress, in its limited wisdom (and fealty to corn farmers), passed legislation in 2007 requiring that the U.S. use of renewable fuels increase to 36 billion gallons annually by 2022. This year’s EPA quota is 16.5 billion gallons, and the requirements keep ratcheting up even though U.S. gasoline use is falling.
This matters because for refineries to stuff ballooning amounts of ethanol into a static gas pool, they must blend it at levels of more than 10%. Since the nation’s auto makers have declared they will void the warranties of cars using gas with more than 10% ethanol, refineries face lawsuits. Most have instead turned to buying federal renewable “credits” to make up for the ethanol they don’t blend.
As demand for these credits skyrockets, so has the price—jumping from a few pennies a gallon last year to close to $1 a gallon today. Oil refiner Valero has said the credits could raise its cost by a stunning $750 million this year, a hit that will be passed on to consumers. PBF Energy just told investors that its disappointing second-quarter earnings were rooted in the mandate, noting that the $200 million it expects to fork over for ethanol credits this year will exceed the salaries and wages that it pays to operate all three of its refineries.
Some refineries are lowering production simply to mitigate the credit costs. Others are beginning to export products to avoid the mandate. Both moves could tighten U.S. supplies and lead to higher prices at the pump. Most every refinery is hurt by this rule.
So an exemption from today’s mandate is far more than a perk—it is a lifeline, an outright payday. Making this indulgence even more curious is that it is being issued by the Obama EPA, an agency that isn’t exactly known for doing favors for beastly carbon producers.
So who is the lucky dog? Who could make this happen? That’s the best part. The EPA won’t say. The agency not only refused to name the refinery in its rule, but also obscured certain numbers in the document to hide the beneficiary’s identity. An EPA press officer would not give me the name, citing “confidentiality restrictions.”
The agency did send me a 2011 document that shows it granted exemptions at that time to 13 small refineries. But that exemption applied only to 2011 and 2012—and the 13 refineries had been recommended by a public Department of Energy analysis, which laid out reasons for the exemptions. The EPA rule this week said this exemption had been granted under EPA’s authority to evaluate refineries on a “case by case” basis. The press officer said DOE was involved in the evaluation.
What was the actual process? It’s a worthy question, given that the refinery sector is no stranger to politics. As hard times have hit, politicians have become deeply involved in protecting their home-state refineries. Many are unionized, which raises the question of whether Big Labor engaged in an exemption request.
Dozens of small refineries are being crushed by the mandate, and a number have petitioned the EPA for exemptions. If “disproportionate economic hardship” is the agency’s standard, no doubt plenty would qualify. Yet only one got the nod. The rest of the industry is dying to know what is so special about this refinery, especially since the EPA is making every other refinery shoulder its burden.
The public should want to know too. Washington is rife with secret deals that reward select corporate players, and the numbers have only accelerated under this “most transparent” of administrations. If the process by which the EPA issued this exemption was aboveboard, it should have no problem divulging details. Until that time, the public might fairly assume funny business.
Write to kim@wsj.com
A version of this article appeared August 9, 2013, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: Washington’s Latest Special Favor.
Kimberley A. Strassel: Washington’s Latest Special Favor – WSJ.com.
From my collegue Neill McKinstray:
I find it interesting that the writer, in expressing concerns about an unexplained exemption from EISA regs, that he/she can’t resist bashing ethanol, or suggesting that maybe ethanol is behind the clear, pernicious and arbitrary action of Mr. Obama. (So, what else is new.)
It is also interesting that in railing about the exemption, the writer spends so much of his/her time complaining about ethanol, which he/she clearly knows very little about.
Note: RINS are FREE. While Valero is mis positioned by their own strategic choice, most of the other large refiners have admitted that RINS are not a cost. Simply blend ethanol, AS THEY WERE DIRECTED TO DO years ago by EISA, and their costs actually are LOWER.
Note: I am impressed that the writer used a word like, “pernicious” in referring to ethanol’s impact on gas prices. He/she must have take a communications class instead of a math class. The FACT is that ethanol is ~50c BELOW the price of wholesale gasoline. I graduated from Illinois, but my math isn’t that bad.
Maybe we need to remember one of the primary reasons the EPA passed the EISA. It had to do with air quality. Major oil companies were blending MTBE and other incredibly harmful aromatics into the gas we were using in our cars. (Benzine, Toluene, Zylene) These components have been proven to cause cancer. EPA thought it would be a good idea to dramatically lower the quantity of these harmful agents in our gasoline. Ethanol WAS AND IS the solution. The press unfortunately don’t write much about lives that are extended, or medical costs that are eliminated, but this is a HUGE benefit from ethanol blends.
If the writer is concerned about government favors, maybe he/she should consider how Exxon became the most profitable company on the globe….just sayin’
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Neill McKinstray
President, Ethanol Group
The Andersons, Inc.
From my collegue, Mike Irmen:
“Dozens of small refineries are being crushed by the mandate”
Seriously? Has the author not seen any refiner earning reports?
As you note, this article has half the story. They ignore the other half.
The RIN expense is a near zero sum game. Many of the non integrated refiners (Valero and PBF for example) only push refined products into the pipeline. They do not blend. They are the losers due to a business plan that doesn’t fit well with the RFS.
The integrated refiners (Shell, BP, Exxon/Mobil and Marathon for example) blend more ethanol than they are required to. They are the clear winners. There have also been dozens of earnings reports released the past couple weeks from Blenders that don’t have a RVO (Renewable Volume Requirement) that reveal windfall profits from the sale of RINS that they earn by blending buy have no obligation to retire. Those profits (theoretically) allow them to sell gasoline for less than they have to pay the refiner.
RINS are a zero sum game. Winners and losers. Are we supposed to feel sorry for Valero who reports an annual “RIN expense” of $700-$800 million, but net earnings of $3+ Billion? Same for the other refiners that are whining. They don’t hate ethanol. They hate the mandate that tells them how much they have to blend.
Ethanol DOES NOT raise prices at the pump. It does in fact lower prices at the pump. And with a sub $4.00 corn price coming, it will lower gasoline prices even more in the comoing year.
The fact that the author smells a rat may not be far off. This Administarion is full of them. (My editorial comment). But there could be legitimate reasons for this tiny refiner to be exempt. We may never know. Exempting them did not lower the ethanol requirement for 2013, but it did raise the % that the other refiners need to blend by from 9.71% to 9.74% of their domestic refined gasoline and (net) imports. Note also that the 2013 is still below the 10% blend wall.
Mike Irmen
Vice President, Commodities and Risk
Ethanol Group
The Andersons, Inc.