The petroleum era is drawing inevitably to a close. Over the next few decades most of the oil refineries in the United States will close. Car companies are quickly shifting their focus to electric vehicles (EVs), and as new EVs replace older gasoline cars, demand for gasoline and diesel will decline, slowly at first and then more quickly. Based on a recent UCS study of this transition, half of the oil refineries in the US are likely to close in the next 20 years, and half of the remaining refineries will close within a decade after that.
Refineries are major sources of pollution, and the petroleum-based gasoline, diesel and jet fuels they produce are the largest source of global warming pollution in the United States. Phasing out petroleum is essential to stabilizing the climate and will bring major health benefits to communities disproportionately harmed by pollution caused by producing and burning petroleum fuels.
Phasing out petroleum will be complicated, disruptive and will have a significant impact on workers and communities dependent on petroleum extraction and refining for jobs and tax revenue. To understand this better UCS commissioned senior energy analyst Dr. Christina Simeone to analyze the final chapters of the oldest and largest oil refinery on the East Coast. An Unrefined Ending: Lessons Learned from the Philadelphia Energy Solutions Refinery Creation and Closure. Her case study illustrates the important work that must be done to make sure the phaseout of petroleum is clean, safe and fair. It warns us that without an inclusive planning process started well in advance of a refinery closure, the situation will be exploited for the private benefit of oil companies at the expense of communities and workers.
What happens when a refinery closes?
The explosion at the Philadelphia Energy Solutions (PES) refinery in June of 2019 and subsequent bankruptcy and decommissioning marked the end of a refinery whose history goes back 150 years and predates the automobile era. The refinery is just three miles from downtown Philadelphia and grew to occupy more than two square miles along the banks of the lower Schuylkill River. The refinery was a major employer, directly providing more than 1,000 workers with high-paying, family-supporting jobs, the majority of them represented by the United Steelworkers.
The city of Philadelphia grew around the refinery, including a major airport, highways, railyards and residential communities. At the time of the explosion over 100,000 people lived within one mile of PES boundary, primarily in single family houses but also in public housing developments directly across the highway from portions of the refinery. Residents of these neighborhoods were disproportionately Black and low income (49% African-Americans, 34% white, 9% Asian and 5% Hispanic, 13% to 27% below poverty level).
The refinery was a major polluter, according to 2019 report by the City of Philadelphia it was the largest stationary source of air pollution and the largest single emitter of toxic pollutants in Philadelphia, accounting for 57% of total toxic emissions from larger sources in Philadelphia in 2016 including benzene and other known carcinogens. The environmental injustice of highly polluting oil refineries, transportation infrastructure and other industrial sites disproportionately affecting Black, brown and low income neighborhoods is not unique to the PES refinery, but is typical of the largest oil refineries.
Dr. Simeone is a long-time resident of Philadelphia, and her involvement with the oil refinery goes back many years. In 2018, while a Senior Fellow for the University of Pennsylvania Kleinman Center for Energy Policy, she wrote a report, Beyond Bankruptcy the Outlook for Philadelphia’s Neighborhood Refinery, which accurately predicted that the refinery was headed back into bankruptcy again. Dr. Simeone’s new report for UCS builds on the earlier report and draws key lessons learned.
Sunoco started planning its exit a decade before the refinery finally closed. Sunoco worked together with private equity firm Carlyle Group to create a new corporate entity called Philadelphia Energy Solutions, and together they used the threat of closure and lost jobs to repeatedly extract subsidies from the state and federal government and to gain concessions from workers. Sunoco used aggressive legal and political strategies to reduce their obligations to clean up their pollution. Sunoco transferred control to a private equity group, sometimes called a vulture capitalist, that was primarily skilled at extracting value and limiting liability rather than in the safe and efficient operation of an oil refinery. And when the well of public subsidies and bailouts ran dry, PES stopped investing in ordinary maintenance. After the explosion hastened the inevitable closure, PES used the bankruptcy process to escape promises made to their workforce while paying millions in bonuses to management.
Five key lessons learned
The key lessons Dr. Simeone draws from the closure are:
- Refineries go down fighting. Failing refineries employ aggressive legal strategies to cut costs, avoid compliance with environmental regulations and limit obligations to remediate past pollution.
- Risks increase as finances dwindle. Operational risks may increase as finances dwindle. Efforts to cut costs on safety, coupled with insufficient insurance to cover catastrophic risks, may expose neighboring communities to greater risks.
- Communications and technical capacities are critical. A trusted community advocacy organization should be adequately funded to collect data to track a refinery’s economic and operational health. This information would help the community be better prepared to respond to a potential refinery closure.
- Planning and remediation capacities are valuable. Publicizing information about site contamination and regulatory processes underway would allow local communities to effectively advocate for stringent cleanup standards paid for by the polluter to ensure beneficial future uses of the land.
- Unions are important. Union workers depend on refineries for their livelihoods, but also recognize that refineries may not always be on their side—for example, when executives push back against stricter worker safety regulations to save money or are not transparent about a refinery’s economic challenges. Community groups should work in partnership with unions to develop specific recommendations for transition assistance and avoid nebulous calls for “a just transition” that may worsen an already tense relationship.
Diverse perspectives on the past and future of the Philadelphia refinery
Dr. Simeone’s analysis informs our understanding of the history of Philadelphia’s neighborhood oil refinery, but it is just one perspective of many in a story that continues to be written. When PES shut down the refinery after the explosion, it abrupted ended the employment of hundreds of workers, leaving them without income, healthcare and severance pay, except a small amount they were able to recover through the bankruptcy process.
Local environmental group Clean Air Council has been suing the refinery over pollution for decades, and environmental justice groups like Philly Thrive are active engaged in seeking a fossil fuel free future for the refinery site. United South/Southwest – Coalition for Healthy Communities is working to negotiate a community benefits agreement with Hilco, the developer of the former PES site now rebranded as The Bellwether District.
The report describes the difficult relationship between the workers at the refinery and environmental, environmental justice and community groups with different priorities and goals for the future of the site. To achieve a fair outcome in a challenging process it is critical that all of these groups have a seat at the table to decide on the future of the refinery, the neighborhood and the city.
Planning a petroleum phaseout that works for all of us
Looking to the future, the most important lesson from Philadelphia refinery is to start planning now. Urban planners looking at the future of Southwestern Philadelphia in 2016 simply assumed that the site would remain in its present or similar use for decades into the future. Non-profit advocacy groups in the city lacked resources and capacity to engage in a long term process of building a shared vision to advocate for a better future after the refinery.
Dr. Simeone’s 2018 analysis stood out because it spoke honestly about the bleak prospects for the century-old refinery relaunched as Philadelphia Energy Solutions. Simeone’s analysis was a rare piece of impartial analysis in a discourse dominated by self-serving oil industry propaganda. Workers, policy makers and community groups often have little choice but to rely on oil industry executives for information. But the oil industry has a long and growing track record of disinformation, recently documented in a recent paper on ExxonMobil’s decades of disputing climate science even as the company’s own scientists and top decisionmakers knew just how strong the science was.
In the case of the Philadelphia refinery, Sunoco and Carlyle promised to restart the refinery on stable financial footing if only they could get a little help. Eager to avoid a painful loss of jobs, political leaders in the City of Philadelphia, the State of Pennsylvania and the Federal government provided tens of millions of dollars’ worth of direct and indirect support to keep the refinery open, including building a rail terminal to bring cheap crude oil from the Bakken in order to make the deal attractive to the vulture capitalist. But the deal was not structured to build a lasting business. In fact, Energy Transfer Partners, the parent company of Sunoco, also invested in the oil-pipeline that ultimately made the Philadelphia refinery economically uncompetitive. Energy Transfer Partners and Carlyle were gambling with other people’s money and a lot of public subsidies in a heads I win, tails you lose game that predictably ended up in bankruptcy.
In an earlier blog, I described why California Needs a Petroleum Phaseout Plan, focusing especially on the topics I know best, policies that support development of lower carbon alternatives to petroleum fuels. Without a petroleum phaseout plan that puts the interests of the public over the interests of the oil industry, these policies risk being coopted to support dead-end investments in oil refineries. Misleading advertising from oil companies gives the impression that these companies are leading the way to a future where renewable diesel, renewable natural gas, sustainable aviation fuel, green hydrogen and carbon capture can “decarbonize the oil industry” and keep oil refineries humming along for decades to come. But while our analysis suggests these technologies are likely to have a small but important role in a low carbon future, it is increasingly clear that battery electric vehicles powered predominantly by renewable electricity will render the majority of the oil industry’s products unwanted and irrelevant over the next few decades. As this occurs, the many oil refineries are going to become “distressed assets” starting the long road to either decommissioning or abandonment. We will all be a lot better off if we start planning now to responsibly unwind this massive polluting infrastructure before important decisions that affect our future end up settled by a bankruptcy judge.
Let’s get to work
The transition from petroleum powered cars and trucks to electric vehicles will not happen overnight, and while it will offer many benefits to us all, it will also be disruptive to people’s jobs and their communities. Building up the new technology, infrastructure and institutions we need to for a cleaner future is critical, but so is responsibly managing the phaseout of the petroleum industry and infrastructure. It’s clear the oil industry will not go quietly into the sunset, so we need to make sure the people are in charge and that the transition is clean, safe and fair.
A clean transition means reducing pollution from the ongoing operations of the oil industry during the transition. It means ensuring that the sites where oil industry has profited for a century are cleaned up and made safe for unrestricted future use, and not shifted to shell companies without the resources to fulfil their obligations. A clean transition also means not falling for greenwashing or wishful thinking when providing public support for technologies like renewable diesel, biomethane, hydrogen or carbon capture. Public dollars should invest in the future we need, not prop up the failing technologies of the past. A safe transition means that oil refineries and other infrastructure are subject to careful oversight, to ensure they operate as safely as possible until they are safely decommissioned. A fair transition means giving workers and communities reliable information, meaningful support, and a real seat at the table as policy makers plan for a transition that could remedy old injustices, perpetuate existing harms, or create new problems, depending on how we do it. The clock is ticking, and we know the oil industry is planning its moves, so there is no time to lose.