Opinion: Trump’s RFS policy aids farmers and refineries

Spencer Abraham
The Marathon petroleum refinery in southwest Detroit.

The Renewable Fuel Standard (RFS) has been the subject of much debate since its debut in 2005. Initiated in an effort to enhance U.S. energy security while maintaining the viability of the country’s core fuel refining assets, the RFS has often found itself in the crosshairs of competing policy priorities from the two sectors it affects most: agriculture and petroleum. Yet, managed correctly, this often contested government mandate can provide the basis for a rare Washington “win-win.”

Biofuels interests have pressed the issue of “small refinery exemptions” (SREs) for refineries that demonstrate disproportionate hardship from RFS compliance costs, claiming that the waivers “destroy” market demand for their product. To help understand the argument, it’s worth revisiting how Congress developed the program.

Under the RFS, America’s transportation fuel sector was tasked with blending large amounts of biofuels into standard petroleum-based fuel. The Environmental Protection Agency devised a system of credits — called Renewable Identification Numbers or RINs — to demonstrate compliance, making refineries the obligated party, regardless of whether they controlled biofuel blending. 

Where refiners had little to no control over blending, they could purchase RINs from the blenders for compliance. 

Congress wrote a safety valve into the law — the SRE program — to help smaller refineries shoulder their newfound obligation.

The RINs, designed simply as a tracking mechanism and projected to cost pennies apiece, experienced extreme price spikes and volatility as third parties began hoarding and trading them in an unregulated secondary market.

The SRE policy keeps vulnerable refineries out of jeopardy amidst this design flaw and brings RIN prices down for even those refiners seeking compliance through the purchase of RINs.

Some have said that SREs have undermined the ethanol mandate and hurt farmers. Yet an honest look at the facts shows no evidence of ethanol demand destruction from SREs. 

The government shutdown that Trump says could last “a long time” without funding for a border wall may hurt farmers by delaying the administration’s ability to steer through the approval for year-round sales of a 15 percent ethanol blend for gasoline before the summer begins. That’s up from 10 percent allowed now.

Academics close to ethanol interests throw cold water on claims of SRE-related biofuel demand destruction. University of Illinois agriculture economist Scott Irwin wrote in March, “the physical use of ethanol declined little if any due to SREs. This is not really all that surprising because … ethanol is a price competitive component in E10 gasoline blends.”

The U.S. Energy Information Administration (EIA) shows the percentage of ethanol blended into gasoline was higher the first quarter of 2019 compared to the same time period last year; despite falling RIN prices and the issuance of SREs. The domestic biodiesel market is also growing. The cries of “demand destruction” just do not show up in the numbers.

The Obama administration is proposing to reduce the amount of ethanol blended in the nation's gasoline, a blow to renewable fuel companies that have pushed to keep high volumes of their product flowing into drivers' gas tanks.

Here are the facts: 1) ethanol has proven to be economic regardless of SREs and falling RIN prices; 2) four statements of congressional intent, three court decisions, and a clear reading of the statute back the validity of the current approach to SREs; and 3) the RFS can be administered in a manner that ensures robust biofuel consumption without creating sky high compliance costs that place the refining sector at risk. 

President Trump’s current policy toward the RFS, which continues to encourage domestic biofuel production while preserving the viability of our nation’s refineries, strikes an appropriate balance between the two sides.

Thanks both to a robust biofuel sector and the game-changing production of fossil fuels here at home, U.S. energy independence is stronger than ever. We should take due care to help it stay that way for as long as possible.

Spencer Abraham is a former U.S. senator from Michigan and also served as U.S. secretary of energy during the Bush administration (2001-05). He is chairman of The Abraham Group LLC and on the board of directors of PBF Energy.