Bolstering American Industry Through Reforming the Renewable Fuel Standard

Erich Reimer
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Posted: Oct 20, 2017 12:01 AM
Bolstering American Industry Through Reforming the Renewable Fuel Standard

One of the major reasons behind President Trump’s victory in November was his promise to restore opportunity, prosperity, and jobs to American workers. As his administration begins to look for ways to bolster growth in industries that can provide jobs to many middle-class Americans, one likely candidate is current restrictive federal policies regarding renewable energy and biofuels.

One of the most noteworthy programs of recent years to attempt to promote private sector investment in renewable energy is the “Renewable Fuel Standard” (RFS). Created in 2005 and administered by the EPA, it requires that certain biofuel quotas be met for refiners and importers, with significant fines if not met.

Understanding that many companies may wish to vary their own reliance on biofuels, which include products such as ethanol, the program also offers companies the ability to trade renewable energy credits (called a “RIN”) in a secondary market.

However, this policy faces many gaping holes that have ballooned in recent years, with a significant impact on the American worker.

First and foremost is what kind of biofuels production and distribution counts towards the RFS quotas. At the moment, any kind of biofuel that is exported overseas does not count towards the RFS requirement.

Furthermore, renewable energy production in the United States is extremely volatile at the moment, and there is not always a ready supply of biofuel to utilize, resulting in artificially overpriced RIN credits or refineries and distributors having to purchase biofuel from foreign sources.

The end result of all this is that American workers are hurt as refineries and producers are required to pay large amounts of cash to purchase overpriced renewable energy tax credits or send money to foreign biofuels producers, all instead of investing in jobs and infrastructure here within the United States.

As with many federal environmental policies, the Renewable Fuel Standard was an interesting market-based idea that has turned out terribly wrong in many ways.

Rather than serving as a private-sector incentive to promote renewable energy investment, it has instead turned out to be largely fueling a speculative trading market that saps the ability of many fuel producers to hire more workers and expand their own operations.

And the problem is only getting worse for American producers and workers. In 2012, the cost of a RIN credit was just two to three cents compared to over 80 cents now.

There have already been significant protests this year by both workers involved in the petroleum industry as well as by politicians from both sides of the aisle, from former Pennsylvania Governors Tom Corbett (R) and Ed Rendell (D), to Congressman Bob Brady (D), Pat Meehan (R), and several others.

Whatever one’s belief in renewable energy itself, it is clear from the economic and financial evidence that the RFS program as currently structured neither supports renewable fuels or supports economic development.

It appears that the program has primarily been a quasi-securities market, in the process both threatening the jobs of the 181,000 Americans who work in the petroleum extraction industry as of September 2017, according to the Department of Labor, as well as countless other derivative industries.

If the Trump Administration wants to continue to fulfill its campaign promise of restoring opportunity to American workers, a good place to start would be by considering the discretionary executive action he has with the RFS program to expand the kind of fuel distribution activities qualify for the renewable fuels quota. Including keeping RINs attached to biofuel exports

While it seemingly would be a small change, nonetheless it would ease the pressure on the high RINs prices that are hurting American workers and refineries. And it would reduce the RFS program’s excesses by allowing producers and distributors to no longer have to subsidize an artificially bloated environmental credit market as well as foreign biofuels producers.

Rather, those funds could go to keeping thousands of Americans employed and be spent in ways that actually support real biofuels development and integration, rather than the current lip (or cash) service to it.

Whatever the case, it is clear that the current RFS program isn’t working as intended, either for biofuels development or American economic prosperity. President Trump has an enormous opportunity to promote both economic security for middle-class Americans as well as real renewable fuels development by looking into executive reform of the RFS program.