By Rick Manning
The Biden administration’s continued war on oil and American energy independence continues unabated, and just as the coal industry has been harmed more by the expectation by investors that new coal electricity generation could be shut down, our nation’s oil refining capacity is stalled for the same reason.
In June of 2022, Chevron CEO Mike Wirth noted in response to a question about the future of new oil refining that, “There hasn’t been a refinery built in this country since the 1970s.” Wirth continued by opining, “I personally don’t believe there will be a new petroleum refinery ever built in this country again.”
When the CEO of a major U.S. oil refiner rejects the notion of additional refining capacity being developed in the U.S. that should send major alarm bells to policy makers about our nation’s energy future.
Wirth further explained, “But what we’ve seen over the last two years are shutdowns. We’ve seen refineries closed. We’ve seen units come down. We’ve seen refineries being repurposed to become bio refineries. And we live in a world where the policy, the stated policy of the U.S. government is to reduce demand for the products that refiners produce.”
He continued, “At every level of the system, the policy of our government is to reduce demand, and so it’s very hard in a business where investments have a payout period of a decade or more, and the stated policy of the government for a long time has been to reduce demand for your products.”
A very dire assessment, which requires a complete redirection of our nation’s energy priorities over an extended period of time to attract the capitol and commitment necessary to expand oil capacity to meet minimal economic growth over the next two decades.
However, one part of Wirth’s statement is readily fixable – the repurposing of refineries to become bio refineries. These bio-refineries are where ethanol is blended, a heavily subsidized corn-based grain alcohol which is mixed with oil based gasoline. The federal Renewable Fuel Standard law mandates the production of bio-fuels rewarding refineries which make ethanol by awarding them credits, known as Renewable Identification Numbers (RIN), that serve as currency for the program. Produce lots of ethanol, get credits, which other refineries that produce other oil based fuel products like kerosene or jet fuel are required by the government to purchase.
Designed to create a market subsidy for the production of ethanol under the guise of making the fuels our cars burn less reliant on foreign oil, the artificial value of RIN credits have created cost pressures on smaller non-bio fuel oil refiners.
Over the past few years, the Government Accounting Office (GAO) and the Environmental Protection Agency (EPA) have been at war over the impact of RINs on small refiners. The GAO points to the increased burden this system places on small refiners, while not surprisingly, the EPA argues against changes to the program.
One thing that is clear is that the very purpose of the RINs program no longer exists. The program was set up to incentivize refiners to add bio-fuels to gasoline so that the non-existent bio-fuels refining industry could be jump started.
Now, due to a variety of government subsidies, the bio-refining sector is well-established, and presumably if it is market competitive, providing RINs credits for bio-fuel production is no longer needed.
As a result, Congress can agree or disagree with either the GAO or EPA on harm done by the RINs credit system, but they should all be able to agree that the bio-fuel refining industry no longer is dependent upon the government thumb on the scale that the credits represent.
What is needed, according to the Chevron CEO, is to expand our nation’s refinery capacity toward bio-fuels, and if we are going to be truthful, the transition of some refineries away from bio-fuel production.
It is time to end the RINs credit system, and let the bio-fuel industry compete in the marketplace. This would ensure that the market allocated the use of our currently hamstrung petroleum refining system to produce the fuels which America needs now, while policymakers attempt to unwind the regulatory morass which is preventing new, needed refineries from being built ensuring our energy independence for decades to come.
Rick Manning is the President of Americans for Limited Government.
