AFPM ’16: Industry leaders see reform of RFS as top US priority

By Ben DuBose
Digital Editor

SAN FRANCISCO -- Top officials at AFPM say they are working to resolve a "stifling regulatory regime" from the US government aimed at sectors that include refining and petrochemicals.

"The US Environmental Protection Agency's (EPA's) pace at issuing new regulations is unmatched by all other federal agencies," Chet M. Thompson, president of AFPM, said at the Annual Meeting's press conference this week. "To be clear, AFPM believes that smart, tailored and transparent regulations are appropriate. Unfortunately, the EPA doesn't always take this road.

"Too often, regulations are based on cherry-picked science, utilize tenuous statutory authority and overstate benefits while understating costs."

Since 2000, the EPA has adopted 19 rules that each have annual compliance costs of greater than $1 B, Thompson said. Of those 19, he says that 12 have been implemented in the past eight years of the Obama administration.

"That's a damaging and costly pace," Thompson said.

In the past year, issues addressed by the EPA include the announced Clean Power Plan (which has since been halted by the US Supreme Court), lower ozone standards, the lifting of the crude export ban, enhanced tank car standards for moving crude by rail, and the release of the final volume requirements for the 2014, 2015 and 2016 Renewable Fuel Standard (RFS).

"Unfortunately, the common theme among all of these problems is not the competitive marketplace, but instead the US federal government, which has placed layer upon layer of bureaucracy and cost burdens on US manufacturers and consumers," Thompson said.

The leading legislative priority in 2016 is the RFS, according to Gregory J. Goff, chairman of the AFPM board and CEO of US refiner Tesoro.

Speaking at the press conference, Goff cited an apparent inconsistency between the Corporate Average Fuel Economy (CAFE) rule, which requires vehicle manufacturers to comply with mileage standards for fuel efficiency purposes, and the RFS, which requires the use of increasing volumes of biofuels—mostly corn ethanol— that are less fuel efficient than gasoline.

"Having one rule that requires better gas mileage and another that mandates the use of a lower energy value is a contradiction," Goff said.

Goff also cited recent reports that the corn ethanol required by the RFS might actually have a negative environmental footprint compared to traditional gasoline.

"For AFPM members, Tesoro included, the RFS remains our top policy priority," he said. "The cost of this policy to refiners can't be ignored."

Goff says that renewable identification numbers (RINs) were effectively created to serve as “coin of the realm” to prove compliance by companies with blending obligations.

"In theory, the use of these RINs, which were never intended to cost more than a couple of cents to reflect transaction costs, eased compliance nationwide," Goff said. "However, these credits have become a tradable commodity on an open market that has impacted every refiner and, ultimately, every consumer. In 2015, the industry's purchase price of RINs exceeded more than $1 B. Add to that the cost to refiners to replace invalid RINs purchased in prior years from EPA-certified companies, and the costs escalate."

Goff emphasized that the US industry has, in fact, spent billions of dollars on technology and innovation over the years.

"We are an industry that has found ways to evolve for decades, or we wouldn't exist," Goff said. "So, let me be clear—after 11 years, the RFS isn't performing as Congress intended, and it is getting worse."

The stated policy goals of the RFS were to foster US energy independence, diversify alternative domestic fuel supplies and yield net environmental benefits. However, Thompson and Goff contend that the RFS has failed to achieve those goals, noting that the desired energy independence has instead been realized by increased US oil production facilitated by technological advances in drilling.

Additionally, Goff contends that the evolution of advanced biofuels has not occurred at the pace envisioned by Congress, and conventional corn ethanol is threatening to fill the space created by the mandated volumes.

"At the end of the day, advances in fuel composition and efficiency—whether conventional, alternatives or a combination—must be the result of market-driven forces, not government mandates," Goff said. "Consumers should decide their fuel choice, not the government dictating from Washington. Reform or repeal of the RFS is long overdue and must be the top priority for the industry.”

Thompson and Goff said they viewed the RFS as one of the most realistic policies for them to influence this year. While the group has not formally endorsed a presidential candidate during the primary process, Thompson says they intend to work with both parties on the issue.

"We're going to get a Republican nominee, we're going to get a Democratic nominee, and we're going to work with both of them to understand our concerns," Thompson said.

"If Ted Cruz can win in Iowa being anti-RFS, it tells me momentum is changing on RFS," he added.

While the RFS is the group's leading priority in 2016, it is not the only one. On another issue, Thompson noted that he has high hopes that Congress will continue the bipartisan progress made with the reform of the Toxic Substances Control Act (TSCA).

"This is one issue in which most of Washington agrees upon, and I'm optimistic that Congress will finally get TSCA modernization across the finish line this year," he said.

Meanwhile, a new priority for AFPM will be shining a greater spotlight on its concerns with the Jones Act. One example of this, Thompson said, is that it is now cheaper to export US crude to foreign refining competitors than it is to ship crude from the US Gulf Coast to the East Coast.

"We can't have impediments like the Jones Act, which hurts our domestic refiners' ability to get products to consumers," Thompson said. "In essence, the Jones Act is serving as a subsidy to foreign refining, and the RFS is serving as a tax on domestic refining. It's time to address these outdated policies."

Even with the policy concerns, Thompson expressed considerable optimism about the future of both the refining and petrochemical sectors. On the refining side, he noted that US refiners have invested billions of dollars to expand facilities, increase efficiency and improve flexibility.

On the petrochemical side, the US has become one of the most affordable countries in the world for production due to affordable feedstocks from the shale revolution. For that growth to reach its full potential, Thompson believes more regulatory reform is necessary.

“Moving forward, AFPM will be working on a full agenda led by commonsense regulatory reform—one based on sound science, transparency of data and legitimate cost/benefits analysis,” Thompson said. “Although progress has been made, we will continue making that case to the next administration and a new Congress.

“Another message to these policymakers, and an important one, will be focused on the enormous benefits that the refining and petrochemical industries bring to consumers and to the economy. That's what we do.”

The AFPM Annual Meeting concludes Wednesday at the Hilton Union Square in San Francisco. As the official show daily provider, stick with Hydrocarbon Processing for continued coverage.

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