The Trump administration gets ethanol reform right

At the end of 2017, a number of President Trump’s nominations to important government positions were held up by lawmakers that were pressing for reform of the U.S. Renewable Fuel Standard (RFS).

In a letter addressed to the Trump administration, the nine senators, amongst which Sen. Ted Cruz, R-Texas, suggested a meeting,

“We request that within the next three weeks, you convene a meeting regarding the RFS and pro-jobs policies with us, our Senate colleagues who previously lobbied you on behalf of the ethanol industry, and relevant members of your administration to discuss a pathway forward toward a mutually agreeable solution that will also save refining jobs and help unleash an American energy renaissance.”

Under current rules, which date back to 2005, most gasoline must contain 10 percent ethanol. Small and independent refineries, which do not blend, get out of their regulatory requirement by purchasing surplus Renewable Identification Numbers (RINs) — which the government uses to measure compliance with the mandate — from larger competitors.

None of this produced ethanol mix is necessary for the said producers, which makes the RFS effectively a tax on small businesses, at the benefit of larger ones who receive a production guarantee for their product.

Adding to that, RINs price hikes over the years have shown that it is outside Wall Street investors who actually benefit the most from this crony system. Purchasing these RINs now cost more than double some refiners’ payrolls and is leading to refinery bankruptcies that jeopardize America’s energy security.

It makes no sense from a jobs, business, or environmental perspective to support the current framework.

The middle ground between abolishing the RFS completely and expanding the program, as requested by the senators who lobby on behalf of the industry, is amending the RFS system to attach RINs credits to exported biofuel. And that is the compromise that seems to have been found.

Until now, credits could not be gathered when exporting overseas, which created the perverted situation in which the government gave foreign producers an advantage over those in the domestic orbit. By providing RINs for exports sent to regions such as China, Mexico, and Europe, which are consistently keen on the use of ethanol, the Trump administration will boost agricultural production in the United States and reduce its trade deficit.

Most small and independent refiners will still have to purchase RINs credits, but the new higher supply of credits should drastically reduce their cost — saving jobs and America’s energy security while appeasing both refiners and corn farmers alike.

Sen. Cruz celebrated the move on Twitter:

Ultimately, the system of the RFS has little to do with free-market economics and should be done away with entirely. However, this move taken by the Trump administration is a step in the right direction and shows that in a number of areas the president is actually doing something to drain the infamous swamp.


This article was first published by Newsmax.

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About Bill Wirtz

My name is Bill, I'm from Luxembourg and I write about the virtues of a free society. I favour individual and economic freedom and I believe in the capabilities people can develop when they have to take their own responsibilities.

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