07.02.2018 0

Who is behind the scheme to keep the unsustainable RFS in place?

By Printus LeBlanc

The ethanol lobby and corn farmers are teaming up to keep the government mandated gravy train flowing into their bank accounts. After a deal was reached between the Environmental Protection Agency (EPA), several Senators, and oil refiners regarding the Renewable Fuel Standard (RFS), the deal suddenly collapsed when it got to the White House. The deal made sense for everyone involved, so the question must be asked, what happened and why?

The RFS is a government rule, established by the Energy Policy Act of 2005. The rule mandates renewable fuels, mostly corn ethanol, be blended with gasoline. Of course, this became an instant cash cow for corn farmers and ethanol refiners. The government had just mandated anyone that drives a vehicle must use their product.

But just like Obamacare didn’t do what it was supposed to do, the RFS didn’t do what it was supposed to do. The first problem is ethanol efficiency. According to the Department of Energy, E10 and E15 get 3 to 5 percent fewer miles per gallon than regular gasoline. E85, the flex fuel, gets a horrible 15 to 27 percent fewer miles per gallon. If the purpose of the RFS was to increase fuel economy, it failed by adding ethanol.

The accounting system for keeping track of biofuels was another mistake. Each gallon of biofuel is assigned a Renewable Identification Number (RIN) that consists of numbers and letters. The RINS go towards the Renewable Volume Obligation (RVO) assigned to each refinery by the EPA. The price of a RIN fluctuates wildly. In one seven-month period during 2013, the price ranged from $.07-$1.43 per RIN.

The extra RIN cost is an enormous burden for many small and independent refineries. Since they do not have the blending capability, they must purchase the RINs. The extra cost drove Philadelphia Energy Solutions (PES) into Chapter 11 bankruptcy in January. The refinery, just outside Philadelphia, refined 335,000 barrels per day, making it the largest on the east coast. In 2017, PES spent $218 million on RINs, the second largest expenditure behind crude oil.

The cost is also being passed on to the consumers. A Congressional Budget Office study produced in 2014 found the RFS between $0.13 and $0.26 per gallon of regular gasoline and $0.30 to $0.51 for diesel.

The RFS diminishes fuel economy, puts refiners into bankruptcy, and increases the price of gasoline at the pump. Why on earth is this abomination to capitalism still running? The only answer to that question must be “special interests.”

King Corn and the ethanol industry are extremely powerful. Iowa’s unique position as the first caucus in presidential nominating contest gives the corn industry disproportionate power in Washington D.C. When combined with Senator Chuck Grassley’s (R-Iowa) long tenure and the high esteem his colleges hold him in, King Corn has a huge political advantage.

Americans for Limited Government President Rick Manning recently remarked on the excellent job Grassley is doing stating, “Senate Judiciary Committee Chairman Chuck Grassley has been the point of the spear for restoring the constitutional rule of law into our federal courts.  The importance of his ushering Neil Gorsuch through the Senate to the Supreme Court has been made all the more apparent this week with critical decisions on the president’s ability to declare national security risks at our border, the right of public employees to opt-out of union membership and the ending of California’s efforts to force Christian pregnancy providers to advertise abortion services being just three examples of the transformative fruits of Chairman Grassley’s efforts.”

But that doesn’t mean the corn industry should be able to bankrupt other industries because the federal government insists on burning food instead of selling it around the world.

Something no one has been able to answer, is how does the previously agreed to deal hurt farmers and ethanol refiners? Nothing changes for King Corn and the ethanol producers. The corn will still be grown, the corn will still be turned into ethanol, and the ethanol will still be blended with gasoline. The corn farmers and ethanol refiners will still get paid if the RINs system is adjusted as the deal suggested.

Two groups are benefiting from the manipulation of RIN prices. Big oil producers with blending facilities and Wall Street. Big oil companies hoard RINs, raising the price for non-blending facilities. This allows them to add a cost to their competitor thanks to a government program.

Wall Street is also heavily involved in the manipulation of RINs. JPMorgan Chase has amassed a substantial amount of RINs in the past, according to a New York Times article. The banks would hold on the RINs and drive up the price of the imaginary product. Wall Street will always find a way to speculate on a product, especially if the government creates the product.

Sen. Joni Ernst (R-Iowa) ran a wonderful campaign to get elected to in 2014 midterms. Ernst famously ran a campaign ad boasting of her skill at castrating pigs on the farm; hinting D.C. was full of pigs. There is no bigger pig in D.C. than King Corn. Will the Senator live up to her campaign video?

Printus LeBlanc is a contributing editor at Americans for Limited Government.

 

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