Consumers Pay the Price as Congress Dithers on Renewable Fuel Reform

David Williams

9/13/2013 12:01:00 AM - David Williams

What many Americans may not know is that the substance that is poured into millions of American fuel tanks every year can no longer be classified as gasoline.

Due to legislation passed in 2007, the government requires that millions of gallons of ethanol be blended into gasoline each year to create a form of biofuel. The legislation was passed on the premise that the demand for gasoline would increase over time, making fuel more expensive. And, by mandating that ethanol be blended into gasoline, legislators believed that the country would become less reliant on traditional fuels, driving prices down in the process. But the idea backfired and consumers and taxpayers are suffering.

A funny (but not unexpected) thing happened along the way to the pump. Rather than Americans guzzling down an increasing amount of gasoline, new technologies were invented that revolutionized fuel efficiency. In turn, there has been a decrease in demand for fuel, meaning that the legislation was based on a faulty premise.

Now, instead of using common sense and logic by calling on Congress to reform or repeal the legislation, President Obama has been using the mandate to pedal his green energy agenda, which not surprisingly relies on higher fuel prices.

The president and the Environmental Protection Agency (EPA) have been using an obscure market created by the biofuel legislation to artificially increase the price of fuel and strengthen support among environmental groups more interested in eradicating fossil fuels than helping families to get to school and work in a cost-effective manner. Taxpayers are also affected as the government's fleet of more than 600,000 owned or leased vehicles guzzle more of the expensive fuel.

The EPA requires that Renewable Identification Numbers (RINs) be attached to each gallon of biofuel produced to ensure that oil refiners are complying with the EPA’s mandate. But not all refineries have the capacity to blend ethanol with gasoline, which is why an open market was created where RIN credits can be bought and sold. Under the mandate, each refinery is obligated to blend a minimum amount of biofuels into their gasoline supply or buy additional RIN credits on the open market. Those that exceed this minimum can sell their outstanding credits.

Speculators, looking to make a quick buck, have been hoarding these RIN credits. These speculators rightfully believe that despite its obvious problems, the Obama Administration will do little to change the biofuel mandate and that credits will become increasingly scarce in coming years, meaning prices will continue to rise. This has prevented the small refineries with a legitimate need for the RIN credits from obtaining them. The byproduct quite obviously has been prices have gone through the roof. At the beginning of the year, the price of RINs was under ten cents, but today that price has increased by as much as 2,000 percent. The Heritage Foundation notes that the increasing price of RINs is “driving up domestic prices and inflicting huge costs on the American economy.”

President Obama and the EPA know that greedy speculators are driving up RIN prices and have yet to reveal the identities of RIN credit holders in hopes that they will continue to drive the price of gasoline up. This allows the Obama Administration to exert an unofficial tax on gas without expending the political capital required to pass such a tax in Congress. This pleases environmentalists because the costs are being passed onto Americans in the form of rising gasoline prices.

Compounding the problem is the massive amount of fraud in the RIN market. In fact, the EPA does not proactively enforce the authenticity of RIN credits and oil refiners end up wasting millions of dollars purchasing fake RINs only to realize that they have been duped after submitting them to the EPA. The Wall Street Journal reports that “[r]efiners have been ripped off to the tune of $200 million so far by crooks and government fines, which consumers ultimately pay for at the pump.”

Last month, the EPA took steps to address the rising price of RINs and gave refiners an extra four months to reach the 16.5 billion gallons of renewable fuel required. Unfortunately, the EPA has merely stalled the inevitable instead of making the structural changes necessary to alleviate rising RIN prices over the long-term. In the short term, small- and medium-sized independent refineries forced to purchase increasingly expensive RINs will likely have to lay off workers, and in the long term, these refineries will be in the exact same position that they were prior to the EPA’s actions: forced to shut down.

At the very least, President Obama should release the names of RIN credit holders and create a more transparent marketplace. But what the President really needs to do is step back from his war on gasoline and work with Congress to make meaningful reforms and/or eliminate this archaic policy; otherwise, American families will face the consequences in the form of higher gas prices when they can least afford them just as more workers lose their jobs.