The federal Renewable Fuel Standard (RFS), which mandates that ethanol and other biofuels are mixed into nearly every gallon of gasoline sold in the United States, is the perfect example of how a government program can attract the kind of swamp creatures President Trump vowed to eliminate.
Rather than reduce the number of special interest groups seeking preferential treatment, lobbyists for oil refiners and corn-ethanol producers have stepped up their attempts to influence Mr. Trump and officials at the Environmental Protection Agency (EPA) to protect those sections of the RFS that favor their industry.
The resulting uncertainty these various attempts have caused in the fuel markets has encouraged even more creatures to crawl out of the Capitol swamp to do battle with those standing ahead of them in the presidential greeting line. The end result has been chaos and uncertainty for investors and consumers.
In the past year alone we have seen the spectacle of Carl Icahn, the former regulatory czar for Mr. Trump and a major investor in the oil refiner CVR Energy, try to use his advisory position to move the point of obligation for complying with the RFS mandates down the rack from refiners to retailers.
On the other side of the issue, Big Corn spent a great amount of political capital to pressure farm-state senators to hold up the president’s nominees for the EPA until that agency agreed to protect the mandated volumes of corn-based ethanol for the coming year.
Most recently, Sen. Ted Cruz of Texas has blocked Mr. Trump’s nominees in an effort to win changes to the RFS program.
All of these attempts have resulted in a high level of uncertainty for investors. The series of moves and counter-moves has left all sides of the debate on shakier ground with Congress, which has long looked askance at the RFS’ mandates. The only way to truly protect the public interests is to stop protecting the special interests and allow the free market and consumers to determine the amount and type of biofuels should be blended into the nation’s transportation supply.
The RFS was supposed to reduce America’s dependence on foreign oil supplies and have less environmental impacts than petroleum. Unfortunately, those benefits have not proven to true. Ethanol has been shown to have a greater environmental impact over its life cycle and the rise of American energy dominance has come about thanks to innovations by domestic oil producers. Instead, a lucrative market has sprung up to trade RFS’ compliance certificates or Renewable Identification Numbers (RIN) that has distorted the fuel market.
For all of these reasons, Congress should pass comprehensive RFS reform with a sunset date and allow the marketplace — not EPA officials — to determine biofuel blend volumes. This is the only sure way to save the renewable fuels market as the other alternative Congress has oft discussed is total repeal.
The constant threat of individual changes to the program and the market uncertainty created by the RFS post-2022 — when volume levels will be left up to the discretion of the EPA administrator — should be a catalyst to bring refiners and corn-ethanol producers together to find common ground. Consider the alternative: in 2022, without a congressionally-mandated sunset date, the EPA will have wide latitude to implement the RFS as it sees fit.
Corn ethanol will no longer be able to hide behind RFS mandates. In fact, the RFS could be used against corn interests to drive a de-facto California-style low-carbon fuel standard or even to create a new subsidy for electric vehicles to the detriment of both refiners and corn ethanol producers — as well as consumers who will have fewer fuel choices and will pay more at the pump as a result.
Left alone, the RFS will continue to attract more swamp creatures looking to promote their special interests without regard to consumer choice or market forces. You don’t have to know all the details of the RFS to understand that the program becomes far more susceptible to bureaucratic changes after 2022.
Congress is best positioned to bring all stakeholders to the table and craft a transparent, permanent solution designed to protect the best interests of consumers. Swamp creatures are a hearty bunch; they can fend for themselves.
A comprehensive solution should in the short term provide market certainty and maximize growth opportunities and, in the long term, alleviate regulatory barriers to level the playing field so that the federal mandates can be allowed to expire and the free market take over.
If the ethanol and refiner interests continue to fight, they will eventually discover that the RFS will be used against them. Both sides should work together now to protect the liquid transportation fuels market from the RFS turning into a subsidy program for electric vehicles.
Now that the EPA has released the 2018-2019 renewable fuel volume obligations, it should be clear to everyone involved that stand-alone solutions do not address the long-term problems with the program.