The Renewable Fuels Standard, which requires a certain percentage of ethanol and biofuel diesel be mixed into the nation’s fuel supply, was sold to the public largely on the basis of the mandated fuels being renewable.
The idea was to reduce dependence on foreign sources of fuel and to promote homegrown jobs and industry. But what happens to that argument when the renewable fuel is imported from foreign countries? As crazy as it sounds, that’s the situation — an unintended consequence.
The problem is one of supply and demand. The RFS created demand artificially by arbitrarily mandating production of, currently, some 15 billion gallons of renewables annually and the blending of a certain percentage of ethanol and biodiesel into the total volume of fuels that end up at your local gas station.
Refineries and distributors are required to meet their quota of renewable fuels or else buy credits from someone else — not necessarily someone who actually produces the renewables — in order to satisfy the federal obligation. There is a secondary market for these tradable credits, which are called Renewable Identification Numbers, or RINs.
Speculators have made a killing trading RINs, exploiting the federal RFS mandate much in the same way that Elon Musk has exploited similar schemes to generate cash for his electric car company. Laws on the books in states like California require every car company that wants to sell any cars in that state to sell a certain number of zero-emission vehicles, or ZEVs, which means electric cars. A car company that doesn’t make any electric cars of its own can satisfy the ZEV mandate by purchasing the credits from Tesla.
This is one of the greatest scams going, and the RIN credits work the same way.
The problem is, it has proven difficult to meet the artificial 15-billion-gallon renewable minimum. And so refiners and distributors have little choice but to import renewables, which qualify for RIN credits, or else buy RINs at speculation-driven prices.
If they fail to do one of these two things, they can’t sell any fuel at all.
At the same time, renewables made in the USA are not credited under the RIN system if they are exported. This doesn’t reduce U.S. dependence on foreign sources of fuel; it increases it by rewarding imports and punishing exports of a product that refiners wouldn’t buy in such quantities if government wasn’t forcing them.
This isn’t just a production problem either. While the feds can continue mandate ever-higher renewable fuels quotas, the market has a finite capacity to make use of these renewables.
Most gas currently sold in the U.S. is 10 percent ethanol. Higher concentrations of ethanol cannot be used in cars that aren’t designed to accommodate it. This includes almost all passenger cars made before the 2001 model year, which amounts to millions of cars likely to remain on the road for many years to come.
An easy solution presents itself: Change the regulations to allow the Renewable Fuels Standard to be met either by production and distribution of renewables internally or by exporting surplus production. This would actually create a market incentive for renewable fuels production. Producers would at least not be punished for exporting their surplus, as under the current regime. Indeed, they would be rewarded for producing as much as the market will bear.
At the same time, the artificial incentive to import foreign renewables could be tamped down by eliminating their eligibility for RINs.
That’s a win-win. Oddly, some of the major players — mostly very large, national-level refiners and distributors — are actually opposed to this common sense proposal. Perhaps because they prefer a more captive, and artificial, market for renewables as well as tradable RINs, which they can leverage and which disproportionately advantage large producers at the expense of smaller, independent refiners and distributors.
The narrow interests of these crony capitalists ought to take a back seat for once to the interests of Americans.
There is a huge export market for ethanol and other biofuels. American companies — and American workers — shouldn’t be penalized for taking advantage of it. At the same time, American drivers shouldn’t have ethanol force-fed to them, nor have to pay artificially high fuel costs driven up by credit speculation in RINs.
President Trump will reportedly be meeting with some of the major players sometime next week. As he promised to do on the campaign trail, he has a golden opportunity to put America first, even if it upsets a small band of crony capitalists.
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