Regulatory Commissars

More Evidence the Ethanol Mandate Hurts the Economy

Much of the trouble has to do with a regulatory requirement known as renewable identification numbers (RINs).

Jordan Candler · Feb. 13, 2018

Oil refinery Philadelphia Energy Solutions (PES) has a serious beef with the George W. Bush-era biofuel mandate that it says has forced the company into bankruptcy. Unfortunately, other companies face a similar plight absent major regulatory changes. It’s been more than a decade now since Congress stipulated that ethanol be blended with gasoline before hitting the market. It’s a boon for farmers, but it hurts both consumers and refineries like Philadelphia Energy Solution. Much of that has to do with a regulatory requirement known as renewable identification numbers (RINs).

According to The Washington Times, “RINs work to ensure that refiners — who hold the ‘point of obligation’ under law, meaning they are responsible for blending ethanol with gas — meet the yearly biofuels quotas set by the EPA. But many refiners, such as Philadelphia Energy Solutions, don’t have the infrastructure to blend the fuels. In such circumstances, companies use a system that somewhat resembles a cap-and-trade approach: buying unused RINs from larger refineries that have blending capacity and have extra credits to spare. The price of those RINs fluctuates wildly. Just a few years ago, RINs were sold for just a few cents, but they have skyrocketed to well over $1 recently.”

This process is unfair and elicits corruption from major industry players that have better resources and can sell credits for their own benefit. As one energy-sector official explained it: “It’s picking and choosing winners within the oil industry in a way that’s causing some to go bankrupt.” Moreover, when used to support large-scale operations, that money adds up quickly. In fact, PES says crude oil accounts for its biggest expense, but, amazingly, that’s followed in second place by RIN compliance costs. Yet Renewable Fuels Association CEO Bob Dinneen asserts, “If refiners truly want lower RIN prices, the answer is really quite simple: blend more ethanol.” He added, “The very purpose of the [mandate] is to drive expanded consumption of renewable fuels, and the RIN provides a powerful incentive to do just that.”

This is a baffling and self-defeating position to take. Anyone who owns an older vehicle or lawn care equipment knows the mechanical damage that ethanol causes. Despite this, congressional leaders like Sen. Chuck Grassley (R-IA) remain diehard fans of the mandate. According to Grassley, “I’m confident that the Renewable Fuel Standard isn’t harming refineries, that other factors are at work and that the RFS law is working as Congress intended. Once these facts are known, there ought to be an end to the misleading rhetoric blaming the RFS.” Grassley is so invested in this ruse that last October he threatened to sideline Trump’s nominees unless they left the mandate alone.

Unfortunately, Grassley’s support is shared by the Trump administration. Last May, Agriculture Secretary Sonny Perdue announced the mandate would stay intact. At least EPA Administrator Scott Pruitt recognizes the RIN catastrophe. He recently said, “We need RIN reform. It’s something I’ve talked to Congress about. We have to take steps to address this, and I think there are many that understand that.”

But even he went on to explain, “This isn’t getting rid of the ethanol requirement; this is the accounting mechanism to ensure that a certain percentage of our fuel actually has ethanol. So it truly is an enforcement mechanism that is being used in ways that it really wasn’t intended. We need to get reform around that.” What all of them miss is that the RIN situation is just a symptom of a very bad law. The U.S. is awash in oil, but that production can’t be maximized unless the biofuel mandate is repealed in its entirety. At least the Philadelphia Energy Solutions ordeal provides another good reason to keep trying.

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