Energy & Environment at The Hill

Changing RFS obligation would line refiners’ pockets, increase gas prices

Greg Nash

Oklahoma Attorney General Scott Pruitt is now confirmed as the administrator of the Environmental Protection Agency (EPA). One of his first tasks will be to decide whether to restructure the Renewable Fuel Standard (RFS) – which ensures a minimum volume of renewable fuels, like ethanol, are blended with fossil fuels, like gasoline.

The marriage of renewable and fossil fuels since the RFS was established more than a decade ago has lowered the cost of gasoline and diesel, supported domestic agricultural products, improved air quality by reducing emissions, and reduced our nation’s reliance on foreign oil. In other words, the RFS has worked as intended.

{mosads}But now it’s under threat.

Some of the refiners and importers who control the chemical characteristics of fossil fuels want to change the rules of the regulatory game by saddling other businesses—fuel blenders, marketers, and retailers (like mom and pop gas stations)—with their compliance costs.

Most people call that “passing the buck.” In this case, it’s passed on to you, the consumer, not only in the form of higher fuel prices at the pump, but also as higher prices on any goods that move by diesel. Nearly all products are transported using diesel fuel, by rail and or truck. This change would hurt the hard-working middle class the most.

Changing the rules would also discourage the use of renewable fuel and punish the companies that have played by the rules over the last decade. In fact, just a handful of companies will benefit from a change. They have no interest in renewable energy or in seeing it benefit American consumers at the pump. 

This small group points to only one side of the balance sheet to make the case for why its compliance costs should shift to others. Those refiners claim that companies that blend fuels are receiving windfall profits from selling renewable fuel credits, called RINs. The truth is that when refiners sell petroleum products they factor in the cost of RINs as well as the cost of crude oil, utilities and labor. Refiners price fuels with and without renewable components included. When a blender buys the renewable and fossil fuels separately, the RIN must be sold to reduce the cost of the product and make the resulting blend competitive. RINs are not a windfall, but a necessary and properly functioning component of total fuel costs.

This small special interest group is lobbying to change the point of obligation to anyone but them, but shifting the point of obligation is the fastest route to destroying the RFS program without an act of Congress. Renewable fuel blending has increased because refiners and importers, as obligated parties, brought to market fossil fuels, which are amenable to renewable fuel blending.

Without an obligation, these same companies have no incentive to make available fossil fuel products that blend with renewable fuels, because renewable fuels compete directly for market share with fossil fuel products. The resulting shortfall in blending, and the burden on retailers in a setting where compliance is impossible, would result in chaos in the fuel markets, higher prices at the pumps, and an end to the RFS.

Additionally, shifting the point of obligation from relatively few refiners and importers to a plethora of blenders and distributors creates a regulatory nightmare, which is at odds with a Republican agenda. The EPA would need to create a larger enforcement program to handle a more complex network of obligated parties, exhausting more tax payer dollars on resources and man hours.

Most refiners don’t think the point of obligation should shift to wholesalers and retailers. And neither do a diverse group of associations representing the vast majority of the fuel industry, as well as end users such as truck and rail companies that buy diesel fuel. These groups rarely agree on anything unanimously. But they all agree on this.

Administrator Pruitt must preserve the RFS and ensure it continues to work as intended. The point of obligation should remain with refiners and importers because that is most fair to the businesses that have played by the rules for years, to investors who have supported our nation’s long-term energy strategy, and, most of all, to the American people who don’t need another appointed bureaucrat trying to increase their cost of living to appease a special interest.

Bryce Rawers is Director of Fuel Procurement at Chronister Oil Company DBA Qik’n’EZ


The views expressed by this author are their own and are not the views of The Hill.

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