If President Trump wants an American energy boom, he can’t submit to the ethanol lobby. In late November, Environment Protection Agency Administrator Scott Pruitt rejected changing the Renewable Fuel Standard’s (RFS) point of obligation, the minimum percentage of ethanol the EPA requires gas producers to blend in. That’s good for the ethanol lobby and bad for middle America, but there’s still hope for reform.
Last week, the White House finally accepted Sen. Ted Cruz’s (R-Texas) invitation to discuss politically feasible solutions to amend the RFS that may work for everyone, and met Thursday. At a minimum, the Trump administration must permit exports to count towards the RFS compliance system to not compromise significant gross domestic product growth for a bureaucratic mandate.
The RFS, an initiative started under the Bush administration and greatly expanded during the Obama years, requires that 15 billion gallons of American fuel contain biofuel. A Midwestern caucus of senators lobbying on behalf of the ethanol industry pushed for the decree. This crony capitalism has resulted in big-money special interests getting special treatment from Washington. In other words, the RFS is the definition of the DC swamp at work.
The Mandate Doesn’t Achieve Its Supposed Aims
There are many problems with Washington’s ethanol mandates. Perhaps the primary one is that the policy’s major objective—protecting the environment—has failed. A study from the University of Michigan’s John DiCicco found that biofuels create more, not less, greenhouse gas emissions because they simply cannot absorb as many. The University of Tennessee similarly determined that the first decade of the RFS “created more problems than solutions” for the environment.
So no, prioritizing ethanol does not safeguard the Earth. However, per a Stanford University study, high volumes of it in our fuel may increase mortality, asthma, and hospital visits by 4 percent, all while E10 gives everyday Americans 4 percent less miles per gallon, since ethanol contains approximately one-third less energy.
The income inequality ethanol policy stimulates is just as deplorable. The current RFS ethanol mandate permits three options: that American refineries and distributors produce their own renewable mix, purchase credits called Renewable Identification Numbers (RINs) from an outside company to relieve themselves of the blending responsibility, or import renewables from foreign firms that can be assigned RINs. In other words, small American refineries and distributors must pay out to big oil companies or overseas companies when they can’t produce their own renewable mixes.
Paying for RINs credits takes a toll on small and medium-sized refineries. RINs credits are subject to a volatile Wall Street-backed secondary market, often resulting in price hikes that can reach up to 200 percent. RINs seem to be far more favorable to Wall Street than to Midwestern states like Iowa, but the ethanol lobby is very powerful in those states regardless. They take money from lower- and mid-sized refineries and middle-income American families and redistribute it to billionaires and foreign producers. Nothing about the policy truly puts the average American first.
At the Very Least, We Need a Compromise
That’s why Americans need Beltway politicians to come to a compromise. By assigning RINs credits to include exports of U.S. mixed fuel production, the point of obligation would remain, but some benefit would finally come to the American economy. Income inequality concerns would also be mitigated, since small refiners would not be as dependent on Wall Street. This change would create a far better scenario than the present one, where American firms are essentially paying their competitors to meet the EPA’s RFS requirements.
Per one report, this would generate more than 25,000 new American jobs and increase U.S. exports by 1.2 billion gallons. For an administration that loves to cite economic data figures and espouse the need for “fair trade,” implementing this simple amendment—which would not even reduce the nation’s annual biofuel mix quotas—should not be controversial. America will come first for once as government restrictions that prioritize foreign imports over U.S. exports end.
Former Rep. Ron Paul (R-Texas), who won the Iowa caucus right before Cruz, also endorsed this compromise, saying “It would shock [him] if this opportunity to beat back the RFS red tape did not at least intrigue the Trump administration.”
Most free market conservatives may hope for a full repeal of the RFS. Indeed, it’s an economically unsound and immoral bureaucratic mandate from Washington. Although Pruitt announced the EPA would not reform the RFS’s point of obligation, they are still hearing out a compromise that will fix some of the problems—a step in the right direction.
Cruz and Paul’s past Iowa victories show that free-market gains should never be sacrificed for political purposes. The Trump administration must pounce on this opportunity to better the economy and reduce restrictions on the free market by making the RFS more export-friendly for 2018.