Trump’s support for the RFS has continued into his presidency, as he has maintained his vocal advocacy for ethanol and the administration has been aggressive in pushing back against trade barriers to U.S. biofuels and seeking input on regulatory reforms that would open a new era of investment and expanded market opportunities for American biofuels.
But the president’s vision for an America First energy policy that includes energy produced above the ground as well as below does not seem to be shared by his EPA Administrator Scott Pruitt. Over the past several weeks, Pruitt’s agency has proposed a reduction in the overall RFS (even after an inter-agency review approved a slight increase in the program), issued a Notice of Data Availability seeking comment on further reductions to the program under the specious justification that potentially lower imports should be reflected by a lower volume obligation.
Now there is further talk of lowering demand for ethanol by allowing oil companies to count ethanol exports as part of their RFS obligations, even though the program was designed to spur domestic biofuels consumption.
Apparently, Pruitt, whose political aspirations in his home state of Oklahoma are becoming more well-known, has not gotten the memo from the White House that the RFS is to be protected and allowed to grow the market for biofuels, while providing consumers with more choice and savings at the pump.
The driving force behind these “adjustments” to the RFS appears to be the administrator’s desire to lower the price of Renewable Identification Numbers (RINs), the credits used by obligated parties to ease RFS compliance. Oil companies who blend more than their renewable fuel obligation are able to trade credits to those companies not meeting their obligation with physical gallons of renewable fuels.
Not surprisingly, oil companies with surplus RINs don’t want changes to the program because they have a valuable asset. Oil companies that are short on RINs are looking for any number of ways to reduce their cost of compliance. Importantly, this is the very definition of inside baseball, because consumers never see an increase or a decrease in the price of gasoline based on the price of RINs. Simply put, for every gallon of gasoline sold to a consumer using a RIN for compliance, there is an oil company whose costs have been lowered by selling the RIN. RIN sales do not impact consumer gasoline costs.
Nevertheless, Pruitt has been looking for ways to accommodate those oil companies who are short on RINs, at a potential cost to those companies who made the investments allowing them to blend more biofuels than required.
So, how does he make both sides of the oil company divide happy? He proposes to lower the overall RIN obligation. Lowering the RFS to accommodate potentially fewer imports doesn’t drive investment in domestic energy; it lowers the cost of RINs. Allowing oil companies to count gallons of exported ethanol toward their RFS obligation doesn’t expand the market for ethanol; it artificially increases the supply of RINs and, again, abrogates the intent of the RFS.
If Pruitt wants to lower the price of RINs without cannibalizing the existing biofuels industry, there is a simple solution. Allow the biofuels market to grow, meaning more physical gallons of renewable fuel would be available for compliance and RIN values would fall. That’s what the RFS was supposed to do in the first place. And the easiest and most effective way to encourage more ethanol into the market would be to allow the use of E15 year round. EPA could simply extend the existing volatility waiver available today to only 10-percent ethanol to blends of 15-percent, 20-percent, or 30-percent blends. That would be consistent with the RFS, consistent with the administration’s objective of repealing outdated regulations that hamper growth and would empower consumers to make the correct fuel choice for their vehicle and their wallet.
Ethanol is cheaper than gasoline today. More than 90 percent of the vehicles produced sold today are fully warrantied for higher than 10-percent ethanol. And refiners looking to lower their cost of compliance with the RFS could do so easily. It seems like a win, win, win.
Mick Henderson is the general manager of Commonwealth Agri-Energy LLC, which operates a 35-million-gallon per year ethanol plant in Hopkinsville, Kentucky. Henderson is also chairman of the Renewable Fuels Association board of directors.