Like everyone, U.S. oil companies have been hit hard by the pandemic, and they are looking for relief. . Oil companies have requested special access to a $600 billion lending facility at the Federal Reserve, and the administration seems keen to deliver. The president just announced that the Secretary of Energy and Secretary of the Treasury would make funds available, and the Department of Energy is also floating a $7 billion plan to pay drillers to leave oil in the ground.
Unfortunately, at least one faction of the industry — a group of refiners that traditionally profit when crude feedstocks are cheap — is angling for much more than a financial bailout. They are using the pandemic as cover to cannibalize markets vital to U.S. biofuel producers and farmers.
Their plan, outlined in letter from several oil-patch governors, would require the Environmental Protection Agency (EPA) to halt enforcement of the Renewable Fuel Standard (RFS). It would allow refiners to stop offering biofuel blends at the fuel pump, eliminating the market for U.S. ethanol and biodiesel and decimating demand for billions of bushels of corn and soybeans used to make renewable motor fuel.
With half the nation’s 200-plus biofuel plants already offline, thousands of rural workers facing layoffs, and millions of U.S. farmers on financial life support, the destruction of the RFS would be an economic death knell for rural America.
It’s hard to imagine why refiners would expect the Trump administration to take the request seriously. The misguided plan would inflict incredible collateral damage on our economy, our energy security, and to the President’s prospects with rural voters. Notably, the courts rejected similar abuse in 2016. Even former EPA Administrator Scott Pruitt, who scorned American farmers, rejected a similar plan back in 2017.
Nevertheless, refiners saw the current health crisis as a political opportunity and went for a kill. Fortunately, farm state champions are pushing back. Governors from Kansas, Iowa, Nebraska, South Dakota and Minnesota condemned the oil-backed plan. They wrote, “Using this global pandemic as an excuse to undercut the RFS is not just illegal; it would also sever the economic lifeline that renewable fuels provide for farmers, workers and rural communities across the Midwest.”
Aside from the sheer audacity, the refinery-backed plan also suffers from a major flaw — it wouldn’t change the economic situation of a single refinery. They claim that lifting the RFS would eliminate the costs associated with biofuel credits known as RINs, which are used to demonstrate compliance with the nation’s biofuel targets. Refiners that refuse to produce biofuel blends can purchase RINs from those that blend more ethanol or biodiesel into the fuel mix. In turn, when they sell a gallon of fuel, that RIN price is reflected in their returns. The oil industry’s own reports show that “there is no economic harm to RIN purchasers, even if RIN prices are high, because those costs are recouped in the gasoline blend stock and diesel.”
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Even in a fictional scenario where costs aren’t automatically recouped, a detailed EPA analysis found that “all obligated parties, including the small refiners subject to the RFS program, would be affected at less than 1 percent of their sales (i.e., the estimated costs of compliance with the rule would be less than 1 percent of their sales) even when we did not consider their potential to recover RIN costs — with the estimated cost-to-sales percentages ranging from -0.04 percent (a cost savings) to 0.006 percent.”
Clearly, a 0.006 percent savings isn’t going to protect any refinery jobs, but refineries are betting that DC policymakers don’t know the difference between RINs values and compliance costs. They open one side of a ledger and hope that no one asks to see the next page.
Meanwhile, the nation’s biggest oil lobby, American Petroleum Institute, is calling on the EPA to simply cut 770 million gallons of biofuel out of the 2020 targets. Earlier this year, regulators approved a modest bump in biofuels to addresses a small fraction of the four billion gallons lost to secretive EPA refinery exemptions. The courts have since sided against the handouts, but the EPA has refused to implement the decision. Now, API says the agency should rip away the few gallons clawed back by U.S. farmers. It’s a baseless argument with one goal: blocking competition at the fuel pump.
Keep in mind, collapsing demand for motor fuel is just as hard on the nation’s biofuel producers. RFS targets enforced by the EPA are based on a percentage of each gallon sold — so if refiners make less fuel, their obligations under the law shrink at an equal rate. Meanwhile, biofuel producers across the heartland are closing their doors, as even their modest 10 percent share of the market has been cut in half.
Biofuel advocates are focused on their own survival. Iowa Sen. Chuck Grassley summed it up, saying “[T]here ought to be parity for all liquid fuels. So I look forward to working with (Agriculture) Secretary (Sonny) Perdue to make sure that our biofuels industry gets through this crisis so that we can continue to use America’s (home) grown energy in our gas tanks.”
Parity makes sense, but refinery lobbyists want more. The Trump EPA should reject the latest anti-biofuel pitch because it’s bad policy, but more than that, it’s an insulting attempt to capitalize on a health crisis to make an end run around the truth.
Former Missouri Sen. Jim Talent spearheaded the Renewable Fuel Standard in 2005. He currently serves as co-chair of Americans for Energy Security and Innovation.