The Federal Renewable Fuels Mandate Should be Revamped

The Federal Renewable Fuels Mandate Should be Revamped

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It is easy to criticize government programs, especially in an election year.   In uncertain economic times, people are quick to criticize programs that they think spend too much money, even when that money is being spent to help citizens get access to important and costly good or services—like healthcare, or education.

With most programs being harshly scrutinized, how can we justify having a large-scale government program that is raising the costs of a basic good, disproportionately harming minorities, and putting small businesses in jeopardy?

Welcome to the federal renewable fuels mandate. Even if you’ve never heard of it, you’ve encountered it firsthand a million times. This government program is responsible for putting a large percentage of renewable fuels (like ethanol) into the gasoline we pump into our cars.

What this program was set up to accomplish is a reduction in the amount of climate-changing greenhouse gas emissions that we create when we drive our cars. What this program did not intend to accomplish—but managed to do anyway—is create a whole host of inequities behind the scenes in the market for producing and selling gasoline.

The program works by forcing refiners (who turn crude oil into petroleum) and importers (who bring in gasoline from overseas) to collect renewable fuel credits in line with the gasoline they bring into the marketplace. These credits (also known as RINs) are generated when a renewable fuel is blended into the petroleum to make the gasoline we buy at the pump.

This is where the problems start—refiners and importers oftentimes do not blend gasoline. Other companies do. And in order to meet their renewable fuels obligation, refiners and importers have to purchase these credits, which get more and more expensive every year. Which is good news if you’re a big fuel convenience store retail chain and blend your own fuels, since you can sell your credits, or RINs, for lots of money to refiners and importers. But it’s bad news for everyone else, including consumers.

High RINs prices come with a high cost. Roughly half of the gasoline and diesel made in the U.S. comes from small and medium-size refineries that are not affiliate with a major brand-name oil company. These independent refiners are struggling to meet the constantly escalating costs of purchasing RINs. Their owners are warning of the risk of consolidation in their industry, which would concentrate refineries in fewer hands, and lead to higher prices at the pump that harm consumers.

The high RIN prices have another impact altogether. They hurt small “Mom and Pop” convenience stores—those who aren’t part of the big brand-name franchise chains enjoying these windfall profits by blending fuel and selling the credits. So while the small guys watch their competitors’ parent companies get rich and figure out what to do with their money, they’re stuck in the same old position. And who gets hit in particular? According to the U.S. Census, two out of every five gasoline station convenience stores in America are minority-owned.

There’s one other big effect from effectively penalizing refiners and importers for sending gasoline into the U.S. market: they might decide not to bother. When a refiner exports gasoline instead of selling it here, they are not obligated to buy credits. If an importer feels too much of a pinch from buying renewable credits for the gasoline they bring in, they might find another country to sell to. The renewable program is creating incentives for higher gasoline exports and lower gasoline imports, potentially throwing the whole market out of whack and leading to higher prices in the U.S.

In the end, who gets hurt most when the price of a basic good like gasoline goes up? You guessed it: minority communities, who are more subject to being in a position of having to choose between one necessity or another. When gasoline prices go up, tough decisions come up about paying for food, housing, healthcare, you name it.

Luckily, there is a way to fix this program without junking it altogether. Force the blenders to collect the RINs instead of being free to sell them to other parties. It would bring the cost down and eliminate all the artificial price pressures currently distorting the U.S. gasoline market. Given all the downsides of this program 14878526_t580for American households, don’t we owe it to ourselves to try and fix it?

Billy Mitchell is Democratic member of the Georgia House ofRepresentatives, serving since 2003. Mitchell previously served on the Stone Mountain City Council

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