Published August 13, 2013
Only in Washington can an expensive, unnecessary regulation be considered common sense.
The Obama administration is digging in its heels when it comes to repealing harmful energy regulations that increase consumer costs with little benefit to the environment.
The Renewable Fuel Standard (RFS) is a classic example of hugely misguided energy policy, but to the Obama administration and its environmentalist allies, the RFS is a beneficial regulation aimed at curbing emissions and safeguarding against climate change.
What they don’t say, but mean, is that it artificially drives up the cost of gasoline and when that happens, people can’t afford to drive as much. Remember how energy prices need to “skyrocket?”
Well, they are.
“The backbone of our policy is the Renewable Fuel Standard,” said top Obama energy adviser Heather Zichal at an event last week, adding that “calls to repeal the standard are nothing but shortsighted.”
Lest there be any doubters in the room, Zichal went on to add that the White House is confident the Environmental Protection Agency (EPA) can oversee the law and any subsequent market challenges.
Perhaps, however, Zichal and other RFS-proponents are the shortsighted ones.
When the RFS was enacted under the Bush administration, it hinged on the assumption that gasoline demand would rise year after year. If Americans were using more gasoline, the thinking went, blending fuel with more and more ethanol would be a fairly painless exercise: ethanol content would rise right along with consumption.
Yet policymakers never factored in a downturn in the economy and declining demand for transportation fuels that began in 2007 and continues today.
The RFS, however, abides as the law of the land, leaving Americans stuck with an adverse policy that Washington is unwilling to correct.
Unfortunately, the consequences of inaction are hitting the economy hard. For starters, refiners are up against what’s known as the “blend wall” – the point at which mandated ethanol levels exceed the amount companies are willing to use or sell to consumers.
So far, refiners have been able to comply with the RFS because the ethanol mandate – 13.2 billion gallons in 2012 – has been equal to or less than 10 percent of total gasoline consumption in the U.S.
But that’s about to change.
In order to keep up with the rising RFS mandate, the EPA has approved a new fuel blend with a higher ethanol content known as E15.
Yet refiners are reluctant to use E15, mainly because automakers have said the blend can corrode older and smaller engines. Many car companies, including Toyota, Nissan and BMW, have said car damage due to “improper fueling” voids any warranties. That’s not much of an incentive for refiners to try to sell E15 to customers.
Perhaps the the worst consequence of the RFS is the skyrocketing price of Renewable Identification Numbers (RINs), which are credits that refiners must purchase in exchange for not blending ethanol into gasoline. As with any good in limited supply that is in high demand, the prices of RIN’s are soaring.
Earlier this month they reached record highs, and currently remain near $1.40. In January 2013, prices were below 10 cents a RIN. A 1400% price increase in six months is something only the government can do.
These increased costs are being passed on to consumers.
Last week, the average cost of a gallon of regular gas was $3.64. That marked a 15-cent rise over the previous week, and 24 cents more than the average one year earlier.
Anyone claiming higher RIN prices have nothing to do with rising gas prices is either blind or fooling themselves. Moreover, corn prices are also rising due to crops being diverted from food supplies to ethanol production.
The RFS is a perfect example of a short-sighted government policy gone wrong. Its advocates can’t see beyond their intransigent commitment to the biofuels industry, which is fattening with each passing day thanks to soaring profits. Unfortunately, not everybody is reaping the benefits.
In the case of the RFS, E15 is putting American drivers in danger, while rising RIN prices are pushing up the prices of gas and food.
Congress has the opportunity to act, and work to fix a bipartisan mistake with a bipartisan solution. Indeed, it’s time to put pressure on the EPA to acknowledge the fatal flaw of the RFS – Americans are using less gasoline – and reverse course.
Recently, two different House committees held hearings on the impacts of the RFS. That the RFS is unworkable is a no-brainer. It remains to be seen if Congress or the EPA will come to their senses and help American motorists who are feeling the squeeze.