Toledo Refining Co. says EPA regulation threatens jobs

Six years ago amid great fanfare, an investor group — Toledo Refining Co. — bought the former Sunoco refinery on Woodville Road, retaining 550 well-paying jobs at the 122-year-old facility in the process.

The Toledo Refining Co.

But the refinery and its jobs now are threatened, the company says, by a section of the EPA’s Renewable Fuel Standard that is making it very expensive for independent operations like Toledo Refining to stay in business.

“We don’t have years to wait for this to play out,” said Brendan Williams, head of energy policy and government relations for PBF Energy, which owns Toledo Refining and four other independent refineries. “It’s not something [where] we can sit around and hope that Congress or the administration address it this year.”

Toledo Refining executives and government officials, including the Toledo and Oregon mayors, will hold a news conference Monday at 10 a.m. at Government Center in Toledo to highlight the issue. They hope to generate help from Ohio’s Congressional delegation

The problem hurting the refinery is called the Renewable Identification Number system, or RINs. When the fuel standard was enacted in 2005, it sought greater use of ethanol and authorized a RIN credit for each gallon of blended gas and ethanol produced.

But the fuel standard also required refineries to be responsible for collecting and submitting RINs. Toledo Refining officials said that gave rise to an artificial market for RIN trading and purchasing by which gasoline blending firms, gas station chains, and large oil firms with gas stations began generating more RINs than they needed.

RIN values were 1 to 4 cents per gallon from 2008 through 2012 — until market forces and speculators came in to drive prices to between 35 cents and $1.05 a gallon.

As a result Toledo Refining, which doesn’t do blending or generate RINS, but is still responsible for submitting RIN credits, has to buy them. In 2016 it spent $110 million on RINs, or 66 percent of its capital budget.

“I think it’s pretty obvious that spending $100 million a year is not sustainable,” Mr. Williams said.

Toledo Refining officials want the EPA to shift the burden for collecting and submitting RINs to those that blend gas and ethanol. Officials say that would force blenders to stop making more blended gallons than needed, which they do to create extra RINs they can sell as a way to generate revenue.

Former U.S. Energy Secretary Spencer Abraham, now a PBF Energy board member, wants the EPA to shift the burden — called the Point of Obligation — to blenders.

Mr. Abraham’s department created the Renewable Fuel Standard under President George W. Bush, and said the RIN system was never meant to establish a volatile market for buying and selling credits. 

“The last thing the Bush administration and Congress was trying to create was a system where disinterested parties were going to be able to reap windfalls,” said Mr. Abraham, who runs a Washington consulting firm, the Spencer Abraham Group.

“The problem is that the way it has been set up has one set of people blending and they’re the ones that generate the RINs. But they’re not the one that have to demonstrate to the government that blending is being done. That’s role was given to the refiners,” he said.

Large integrated oil firms, like Exxon, own blending operations, Mr. Abraham, said. But independents like Toledo Refining don’t blend and “are at the mercy of the blenders or people that speculate in the RINs business,” he said.

James Stock, a Harvard professor of economics, agreed that, “Congress certainly didn’t expect the RIN price volatility that exists.”

But Mr. Stock disagrees that shifting the burden to blenders is the right solution.

If refiners pay a higher cost for RINs, they can pass that along to the consumer by charging more for the unblended gasoline they create and send to blenders, he said.

“If they really were having to eat all of this extra cost they would have been dead long ago,” Mr. Stock said. “A RIN is like a tax. When you get a notice that a tax is going along with your product, you mark up the price,” he said.

Christopher Knittel, a professor of applied economics at the Massachusetts Institute of Technology, agreed that the RIN system wasn’t meant to squeeze small refiners.

But, “what refiners often fail to realize is when RIN prices go up, so do wholesale gasoline prices. They’re getting more for their gasoline on the other side of the ledger,” he said.

A better way to tweak the system would be to cap RIN prices, Mr. Knittel said. That would neutralize speculators, he said.

Contact Jon Chavez at jchavez@theblade.com or 419-724-6128.