Trump should drain the renewable fuel standard swamp

Donald Trump ran for president last year on a clear, strong message pledging to deregulate the economy and create millions of new jobs. One key area where he can deregulate that would greatly benefit the economy at all levels is the federal Renewable Fuel Standard (RFS).

This rigged big government mandate was enacted as part of the Energy Policy Act of 2005 signed into law by President George W. Bush, and more recently implemented by agenda-driven bureaucrats appointed by President Obama. Under RFS, all transportation fuels sold must require a minimum volume of renewable fuels.

{mosads}When the federal government intervenes in the working of the economy, it creates winners and losers. This is no less true with the RFS mandates. The “point of obligation” under RFS is where refiners of gasoline  must comply with the RFS mandate to blend renewable fuels into the gasoline. Typically, this is the 10 percent ethanol you see in the gasoline that fills your tank.

During this process, a Renewable Identification Number (RIN) is assigned to the blended fuel product. The generation of the RIN at the “point of obligation” is where winners and losers, quite unnecessarily, are created due to RFS.

The major oil companies that operate large chains of gas stations and convenience stores can blend their gasoline at a per-gallon price advantage of between 10 cents to 50 cents over smaller, independent retailers. The smaller retailers who sell gasoline, but are unable to blend their own, purchase it at higher prices from the larger oil companies. Given that consumers shop around and will purchase their gas from the lowest priced seller, even an advantage of 10 cents per gallon steers most customers to the major gas station chains. RFS clearly favors the large corporate sellers of gasoline over the smaller independent gas stations.

RINs are also traded like any other commodities, including by those who are not in the business of blending fuels, and the trading of RINs has expanded rapidly “without appropriate safeguards,” according to Doug Parker, a former director of the Environmental Protection Agency’s Criminal Investigation Division. This market has expanded from $1 billion in 2010 to $15 billion in 2016. The price of RINs has surged more than 5000 percent since 2005, and they now trade at 20 times the cost of a gallon of ethanol.

The result of this exploding market in RINs trading without adequate safeguards is documented fraud. By September of last year, federal prosecutors had identified $271 million in fraud loss, as well as $71 million in seizures of illicit profits. Once again, a government program, rife with corruption and cronyism as always, results in massive levels of fraud and abuse.

Our entire economy depends on the free flow of energy, preferably at market rates, which takes place more efficiently with far less government intervention. As many as 150,000 American jobs are at danger if U.S. refiners are forced out of business. This includes truck drives, steel workers, convenience store clerks and others whose jobs depend on the energy industry. In Southern Pennsylvania alone, as many as 20,000 jobs could disappear. Most of these unemployed workers would be unable to find work in a similar field. Losing just 100 refining jobs reduces economic output by $1 billion in the local economy, and would also lead to a wave of related job losses in many other industries.

When refineries close, gas prices rise significantly. A single refinery closing in California resulted in rising gas prices in that state. As the price advantage for larger sellers of gas allows them to undercut the smaller retailers on price, more of the latter are going out of business, leaving consumers fewer choices of where to buy their gasoline. It is inevitable, that fewer options for consumers also further leads to higher prices. By forcing smaller retailers out of business, the “point of obligation” designation under RFS is not only unfair to the independent retailers, but it also a silent job killer that threatens thousands of American jobs, forcing independent refiners and smaller retailers to pay the bill for speculators profiting from the shadowy, unregulated market for these credits.

The “point of obligation” exposes consumers to volatile price spikes and allows for widespread fraud and abuse due to those who game the system in a market lacking adequate safeguards. Moving the “point of obligation” would create a level playing field between larger and smaller retailers. Larger retailers would pay their share, leading to the saving of thousands of good paying American jobs, while reducing fraud and removing the unfair advantage of larger retailers over independent retailers in the blending of gasoline.

Moving the “point of obligation” is a good first step in reforming the RFS mandate, which has led to widespread inefficiency and fraud. The RFS system is badly broken and needs reform now. The Trump administration would do a lot to uphold its pledge to implement effective deregulation and create millions of new jobs in the process by reforming RFS.

Andrew Langer (@Andrew_Langer) is president of the Institute for Liberty, a conservative public policy advocacy organization.

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