Each year, the Environmental Protection Agency (EPA) requires that drivers put an amalgam of gasoline and ethanol into their cars. Congress passed this requirement in 2007 in order to combat rising gas prices, hoping that requiring a biofuel blend would lower the price of gas in the long run. Roughly six years later, the policy has become a victim of unintended consequences and actually done the opposite.
At the time the legislation was drafted, lawmakers believed that gasoline prices would spiral out of control and the gasoline supply would shrink as consumers demanded more of the product. However, car companies, also worried about the increasing prices of gas and its impact on future customers, developed fuel efficient cars. This led to Americans consuming less gasoline than lawmakers expected and in turn there was a stark decrease in demand for gasoline. Concurrently, new drilling technologies helped increase the gasoline supply by 1.3 million barrels per day between 2005 and last year, according to USA Today. In effect, the biofuel legislation was based off of a completely false premise.
In order to monitor and ensure that the perquisite amount of ethanol is being blended with gasoline, the EPA established a tracking system called Renewable Identification Numbers (RIN). An RIN is a 38 digit serial number that that is assigned to each gallon of blended biofuel. RINs are eventually submitted to the EPA as proof that an oil refinery met the biofuel requirements. Not all oil refineries have the expensive technology required to produce the gasoline-ethanol mixture mandated by the EPA, so as a result the RIN market was established that allows small independent refineries to purchase RINs from large refineries that create an excess amount of biofuel.
Up until recently, the EPA has consistently raised the production requirement of biofuel each year and refiners have hit what is known as “the blend wall.” There is only a certain amount of ethanol that refineries can blend with gasoline before the product becomes unusable by everyday consumers, which means that there is a limited supply of RINs available.
Rather than reacting to the decrease in demand for gasoline, President Obama and the EPA have utilized the RIN market to declare a covert war on oil. In the past, the president has made it clear that he is willing to wage a war on fossil fuels and other energy sources, like coal, in the name of global warming. The president has been raising the EPA’s mandate to artificially drive the price of RINs up and thereby create public support for alternative energies. Speculators have added to the problem by purchasing RINs in large volumes and hoarding them, preventing refiners from obtaining them. The end result has been skyrocketing prices for RINs, which have increased by as much as 2,000 percent over the past six months.
Making matters worse is that the RIN market is ripe with fraud. In fact, the EPA estimates that some 140 million RINs are fraudulent or invalid. Yet, the EPA has balked at proactive enforcement and has put regulation into the hands of oil refineries, which collectively have little power to enforce the validity of RINs. This massive amount of market fraud has led to an increase in the price for the RINs that are legitimate.
The impact of RINs’ rising price is not something that is confined to policy wonks. Every day Americans will face the brunt of the burden imposed by higher RINs. The American Fuel And Petrochemical Manufacturers (AFPM) President Charles T. Drevna has said that if the price of RINs continue to increase, then “consumers can expect the cost of producing gasoline will continue to increase.”
The rapidly increasing costs of purchasing RINs is quickly becoming a national security issue as well. Oil refineries are finding it cheaper and more profitable to export their product to countries that do not have a biofuel mandate. It is not in our country’s best interest to be sending one of our most precious resources abroad.
Seeing as how this obscure market will have serious ramifications on Americans throughout the country, as well as our national security priorities, the president should step in and work with Congress to reform or bring an end to this subversive and antiquated policy.
Stephen DeMaura is the president of Americans for Job Security.