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Senators Consider Renewable Fuel Standard Reform

March 23, 2018

Several U.S. senators are working on legislation to reduce the cost of complying with the Renewable Fuel Standard requirement that U.S. oil refiners blend biofuels, mainly ethanol derived from corn, into gasoline and diesel fuel.

Several U.S. senators are working on legislation to reduce the cost of complying with the Renewable Fuel Standard (RFS) requirement that U.S. oil refiners blend biofuels, mainly ethanol derived from corn, into gasoline and diesel fuel.

Continuing Waivers

The Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007 require refiners to blend increasing amounts of ethanol and other biofuels into gasoline and diesel through 2022, when the requirement is scheduled to end. The law set annual targets for specific types of biofuels while allowing EPA a waiver to set lower amounts to be blended if supplies were insufficient to hit the targets. The EPA has regularly used this waiver since the law was enacted.

In November 2017, Environmental Protection Agency Administrator Scott Pruitt set the total volume of renewable fuels for 2018 at 19.29 billion gallons, slightly more than the 19.28 billion gallons required in 2017 and far below the 26 billion gallons originally required by the 2007 law.

Credit System Established

Large, integrated oil companies have become ethanol distillers and blenders as well as oil refiners, whereas independent oil refineries that cannot produce the required blends must purchase credits called Renewable Identification Numbers (RINs). RINs are generated by refiners that produce or blend more biofuels than they need. RINs can be purchased and resold separately from the fuel itself.

As the required volume of blended fuels has increased, RINs have become much more expensive, rising from a few pennies per gallon of ethanol at the beginning of the law to nearly $1.50 per gallon now. As a result, RINs have become a significant cost, driving some refineries toward bankruptcy.

Valero, the world’s largest independent refiner, reported RIN purchases cost it approximately $750 million in 2017. Philadelphia Energy Solutions, the largest refiner in the eastern United States, says RINs cost it more than $200 million in 2017, more than double its payroll costs. The refinery filed for Chapter 11 bankruptcy in January 2017, blaming the renewable fuel mandate and the system of RIN credits it created for its demise.

Shifting Ethanol Target

Sen. Ted Cruz (R-TX) spoke out against the renewable fuel standard when he was vying for the Republican nomination for president in 2016. At the time, although Cruz said he believed the RFS hurt consumers and did not contribute to fuel security, he did not call for ending the program abruptly. Rather, instead of increasing the amount of biofuels annually blended into transportation fuels as required by the law until it lapses, Cruz suggested phasing out the mandate by decreasing the mandated renewable fuel blend amount each year until 2022.

Cruz still advocates renewable fuel reform but is now focusing on a different target: RINs. At a February 21 rally at Philadelphia Energy Solutions, Cruz called for revising the RIN program.

At the event, Cruz said RIN costs are putting tens of thousands of jobs at risk. He suggested capping the price for which RINs can be sold at 10 cents per gallon of ethanol.

“We can save these jobs,” Cruz said at the rally. “This is about jobs, … and the working men and women in this country should have a federal government that is standing with you rather than fighting against you.

“How many of you think the refinery should be wasting money on government licenses [referring to RINs] that don't create a damn thing, rather than creating jobs and paying your salaries?” Cruz said.

Reform Proposals in Play

In a March 1 meeting with President Donald Trump, Cruz, Sen. Pat Toomey (R-PA) and other legislators and stakeholders from oil-refining and ethanol-producing states proposed RFS reforms.

President Trump blessed efforts to reform the RIN system as long as they do not hurt corn farmers.

“We are encouraged that President Trump recognizes the importance of providing relief from crushing RINs costs,” said Cruz and Toomey in a joint statement after the meeting.

Marlo Lewis, a senior fellow with the Competitive Enterprise Institute, says RINs and RFS are overdue for revision.

“RFS compliance costs for Philadelphia Energy Solutions soared from $13 million in 2012 to $218 million in 2017 as RIN prices increased, contributing to the company’s bankruptcy,” Lewis said. “Allowing RINS to be generated for biofuel exports would increase the supply of RINs and lower RIN prices, helping keep refiners solvent and their workers employed.

“That in itself would be a win for ethanol producers, because they have no market without refiners to buy, blend, and sell their product,” said Lewis. “After solving the RINS problem, legislators should proceed immediately to deciding what happens to the RFS after 2022—one of those big economic and political issues only Congress is qualified to resolve.”

‘Never a Good Idea’

Instead of tinkering with RINs or phasing out the RFS mandate over time, Rob Bradley Jr., CEO of the Institute for Energy Research, says Congress should end the RFS program immediately.

“The renewable fuel mandate was never a good idea,” said Bradley. “It did nothing to improve U.S. fuel security or the environment, but it did increase energy and food prices.

“Producers have never been able meet the required supply of the different types of fuels, even as gasoline demand flattened in the last decade,” Bradley said. “Rather than phase the program out, giving its proponents and lobbyists time to rally support for continuing this boondoggle, it should be ended now, to benefit consumers, refiners, and energy markets.”

Joe Barnett (joepaulbarnett@att.net) writes from Dallas, Texas.

Article Tags
Energy Environment
Sub-topic
Energy: Ethanol
Author
Joe Barnett is managing editor of Budget & Tax News, a publication of The Heartland Institute
jbarnett@heartland.org