Renewable fuel standards have some ‘leaks’ we need to fill

Democrats are upset that President Trump finally ended the illegal ObamaCare “Cost Sharing Reduction” (CSR) payments to insurers. They apparently believe that the president should defy a court order and break the law by continuing to spend money that Congress never appropriated. Or maybe they are upset that Trump is embracing Obama’s pen-and-phone strategy.

Obviously, the president should act unilaterally only where legal authority permits. That was the beauty of ending the CSR payments — it represented both the legally appropriate thing to do as well as an opportunity to remove a core component of ObamaCare. And it doesn’t have to be a one-off. There’s at least one other area where the president can legally mitigate a poorly thought-out law without Congress having to lift a finger — a task the body seems to find increasingly difficult.

The Renewable Fuel Standard (RFS), or ethanol mandate, was created by the 2005 Energy Policy Act and expanded in 2007, and establishes a quota for the amount ethanol that must blended with fuel as well as mandates for certain sub-categories. The rates established by the law increase each year through 2022.

{mosads}It also established a credit trading program, where each gallon of biofuel is assigned a Renewable Identification Number (RIN). A refiner must earn RIN credits to meet its annual obligation by selling enough gallons of biofuel or by purchasing them — the credits, not the actual product — from others with a surplus. This policy often negatively effects smaller refiners, which are forced to purchase expensive credits that appreciate in cost every year to meet the government’s compliance standards.

The current requirements skirt dangerously close to the so-called “blend wall,” or the set of market conditions that limit the total percentage of ethanol that can be safely blended into gasoline without straining infrastructure and harming some existing vehicles. In short, the government is mandating the use of more ethanol than the country can bear on its own.

Politicians in 2005 and 2007 clearly had no special knowledge about the economic conditions of today, and likely only limited awareness of even then-present conditions, and thus foisted requirements on the economy that are not feasible. The only thing that prevented the RFS mandate from complete disaster is the authority that was granted to the EPA to reduce the requirements based on “inadequate domestic supply,” which it has done in recent years for certain sub-quotas like cellulosic biofuel.

The EPA also proposed in 2013 to reduce the total RFS mandate based on the blend wall, only to face heavy opposition from the ethanol lobby and their captured politicians. The final rule in 2015 partially backtracked, and today biofuel lobbyists continue to apply pressure to ensure that the RFS mandate stays in line with the statutory limit in order to benefit ethanol producers at the expense of refiners, consumers, and the overall economy.

The RFS is bad policy, but politics make scrapping it difficult. It is a classic case of defused costs versus concentrated interests. The ethanol industry is organized and motivated to keep their handouts and a bipartisan coalition of politicians from corn states are prepared to do their bidding, while drivers face smaller individual costs and have their attention divided among a host of other issues. This makes doing the right thing a challenge.

Currently, Sen. Ted Cruz (R-Texas) has a hold placed on Bill Northey’s nomination for a key Department of Agriculture position until the White House agrees to at least entertain open, reasonable discourse on the ethanol mandate. On. Nov. 14, he sent a letter to Iowa Gov. Kim Reynolds assuring her that he is committed to finding a “win-win solution” that will “help both Iowans and Texans thrive.”

Cruz may succeed in pushing a middle of the road solution, amending the RFS so that it works for everyone, including the ethanol industry. The law’s significant grant of authority to the executive branch provides opportunity for a compromise that can, at least for a while, relieve some of the pressure. Right now, RINs — the credits used to ensure compliance with the rule — are not provided for exported fuel. A regulatory change to allow exported fuel to count for RFS compliance would ease the pressure on refiners and the domestic fuel supply while not reducing the benefit to ethanol producers. And the change is environmentally neutral, since air in the U.S. is no more or less important than air anywhere else.

Ultimately, the RFS in its current form isn’t an example of good lawmaking. Congress shouldn’t write laws that are unworkable without heavy regulatory intervention, nor excessively rely on the executive branch to fill in legislative details. But President Trump has recently shown how some good policy objectives can be achieved thanks to the tendency of Congress to write legislation that is less than robust. Just as with ObamaCare, while Congress dithers the administration should act to move the RFS in the right direction.

Andrew F. Quinlan is the co-founder and president of the Center for Freedom and Prosperity (@CfandP).