Renewable Fuel Standards Equal Major Profits for Some at Expense of Small...

Renewable Fuel Standards Equal Major Profits for Some at Expense of Small Minority Businesses

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The American economy is built around small businesses that manage to overcome a slew of tough challenges every day. Competitors can be ruthless, and copycats are sure to spring up if your idea is any good. A typical entrepreneur who starts up a small business has to devote what feels like their whole life to getting it off the ground. And on top of all that, one out of every three new start-ups fails to survive its first two years in business.

But there’s one obstacle that small businesses trying to succeed in the hotly competitive gasoline retail convenience store market never thought they’d have to deal with: the federal renewable fuels standard (RFS), a U.S. government program meant to increase the amount of renewable fuel (like ethanol) that gets blended into our gasoline. Thanks to the RFS, small independent gasoline retailers are facing more challenges from their competitors than they used to.

Here’s why. Refiners, whose job is to turn crude oil into pure gasoline, and importers, who bring gasoline in from somewhere overseas, are both required by the government to satisfy renewable fuel obligations. The more they refine or import, the higher those obligations become.

The problem is, refiners and importers are not necessarily the ones who blend renewable fuels into pure gasoline to make the final product you buy at the pump. A group of entirely different players, fuel blenders, might be doing that job—and for good reason. Fuel blenders earn valuable renewable fuels credits (also known as RINs) for blending renewable fuel into pure gasoline. And unlike refiners and importers, fuel blenders have no government-imposed renewable fuel obligations.

So what do fuel blenders do with all those renewable credits, or RINs? They turn around and sell them to refiners and importers who need to hit their renewable fuel obligations. These days, with the government ratcheting up renewable fuel requirements each year, the value of those RINs has gone through the roof—handing fuel blenders a major windfall profit.

Here’s the problem for independent gasoline retailers: a big chunk of those lucky fuel blenders just happen to own their competitors, brand-name retail convenience store chains who might be selling gasoline right up the street. So if your small gasoline retail business doesn’t happen to be part of a big convenience store chain, you might be competing with someone whose parent company is sitting on a pile of cash thanks to the renewable fuel program. Making matters worse, this uneven competitive environment has a disproportionate effect on minority groups. According to the U.S. Census, 42.4% of gasoline station convenience stores are minority-owned.

Small business owners know better than anyone that an unforeseen advantage being handed to your competitor can matter … a lot. The sky’s the limit on what those competitors can do with that money. Purchase new convenience stores that squeeze out your customers? Invest in bells and whistles that make their operation seem more inviting? The possibilities are endless, but one thing is clear: none of them work out in favor of the independent retailer.

Other than shaking your fist at the government, what can be done to undo this needless disadvantage for an unlucky group of small businesses? Believe it or not, the answer is relatively simple. The government can change the way the program works by making blenders obligated to turn in renewable fuel credits. Since they’re the ones who generate them in the first place, it only seems fair. The incentive to blend renewable fuel will remain strong enough to fulfill the goals of the program, but will do so without arbitrarily making a small group of companies rich off a government program, and messing up competition in the retail fuel market in so doing.

Despite the odds, small businesses keep on popping up and managing to prosper—embodying the very essence of the American dream in doing so. Let’s make sure we’re not needlessly standing in the way of their success.

Steve Hightower, a serial entrepreneur, is the President and CEO of Hightowers Petroleum, Co., and has developed HPC to become one of the premier marketers of gasoline and diesel fuels in America.

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