Photographer: Daniel Acker/Bloomberg News

Setting the record straight: The real issue with the renewable fuel standard program is the blender loophole

August 30, 2016 Jack Lipinski

Bloomberg Government regularly publishes insights, opinion and best practices from our community of senior leaders and decision-makers. This column is written by Jack Lipinski, Chief Executive Officer of CVR Energy. 

I read with great interest the opinion column written by Mr. Brooke Coleman, executive director of the Advanced Biofuels Business Council, which was published by Bloomberg Government on Aug. 24, 2016.

What surprises me most is Mr. Coleman’s complete lack of understanding of the great damage that is being caused by flaws in the Renewable Fuel Standard (RFS) compliance program.  Furthermore, rather than factually stating the problem, he uses innuendo and inaccuracies to promote the status quo, which must be directly benefitting one or more of his members.  Windfall profits are like manna from Heaven once you have tasted it, you do not want to ever let it go.

There are a few major points that I want to correct:

First, Mr. Coleman’s comment that our majority shareholder, Mr. Carl Icahn, is anti-RFS is a complete fabrication. What Mr. Icahn has objected to is the massive RIN market distortion caused by the blender loophole.

Second, Mr. Coleman also pointed out that the super majors are the beneficiaries of the current RFS program. We absolutely agree. That is why the American Petroleum Institute is fighting our effort to change the point of obligation. The RFS is doing for the super majors what the United States antitrust enforcement agencies would not let them do for themselves – destroying their competition. When merchant and small refiners can no longer compete, the super majors will be only too happy to snap them up or let them shut down.

Third, Mr. Coleman’s suggestion that all refiners should own retail operations is like suggesting every biofuel company should own a refinery. A giant swap of ownership in infrastructure is not the solution.

To set the record straight, CVR Energy has no quarrel with the RFS. We see both sides of the issue. While we own oil refineries, we also own fertilizer plants that supply fertilizers for corn biofuel production. Our facilities supplied critical products to the agricultural community long before the RFS was enacted.

The EPA has required refiners and importers, but not blenders, to be the parties legally obligated to comply with the RFS – creating a giant loophole that is discouraging the increased use of biofuels. If the blender loophole were closed, blenders would have both a legal obligation and a financial incentive to increase biofuel use, the same as refiners and importers.

Independent merchant refiners do not control blending of the substantial majority of their fuel, yet they constitute roughly half of the country’s refining capacity.  It is irrational to think that imposing an obligation on this segment will somehow incentivize the entire industry to blend renewables.

Downstream blender/retailers are bragging to their investors about their windfall profits from selling compliance (RINs) to obligated parties and the EPA has admitted that these blender/retailers are “maximizing” their profits, rather than increasing biofuel use.

We, along with many others including Valero, Monroe, HollyFrontier, PBF Energy, Philadelphia Energy Solutions, the Small Retailers Coalition and the American Fuel & Petrochemical Manufacturers, are simply asking the EPA to close the blender loophole, making blenders such as Murphy USA and others like them invest their windfall profits in increasing biofuel use, rather than buying back stock and paying huge dividends.

Mr. Coleman, the sooner you understand that closing the blender loophole will benefit all involved in the biofuel industry, the better off we all will be. I would be more than happy to give you a lesson in biofuel blending.

The opinions presented in this column are those of the author and do not necessarily reflect the opinions of Bloomberg Government or Bloomberg LP.

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