You RIN Some, You Lose Some
Donald Trump is willing to risk a trade war to protect steelworkers, so you’d think he’d also stand up to Chuck Grassley, Joni Ernst and Deb Fischer. But last fall the corn-state Senators strong-armed the Trump Administration into preserving ethanol policies that have jeopardized hundreds of steelworkers’ jobs and driven the East Coast’s biggest refinery into bankruptcy. The Administration now has the opportunity to mitigate this regulatory wrong.
The Environmental Protection Agency enforces its biofuels quotas with compliance credits known as “renewable identification numbers,” or RIN s, which are created when ethanol is mixed with gasoline. Independent refiners often lack the ability to blend, so they’re forced to buy credits to comply. RINs holders know they hold the pricing power, and the cost of biofuels credits has skyrocketed.
The credits cost more than the total pay and benefits for Philadelphia Energy Solutions’ 692 unionized steelworkers. The refinery has spent $832 million on RINs since 2012, and CEO Gregory Gatta said that “massive expense” prompted Philadelphia Energy Solutions’ Chapter 11 filing in January. Unless the feds offer RIN relief, the refinery’s future looks bleak.
“Our job’s up in the air,” says Mike Gioquindo, a Trump voter and member of Steelworkers Local 10-1. “I have a daughter who’s about to start college. I don’t know if I can help her out. We have another daughter, and we have to support her, too. I’m 54 years old, and I don’t know if I can start another career at this age making the good wages that we make. So we need some help from President Trump on RINs.”
Mr. Trump has held three recent meetings on biofuels. Senators Grassley, Ernst and Fischer typically demand unconditional surrender on ethanol, so it’s a good sign the President has also heard from Senators Ted Cruz and Pat Toomey, whose constituents are feeling the pain of current policy. One compromise on offer would impose a RIN price cap or offer a waiver that would allow independent refiners to buy credits directly from the federal government when market prices rose too high. In exchange the ethanol lobby would get a pass to blend biofuels year-round, producing fuel with higher levels of ethanol per gallon.
This compromise is far from perfect, preserving the artificial market for RINs. Businesses are still forced to spend money on compliance that could be put to more productive use elsewhere. Pure gasoline can fuel a car further than biofuel blends, so as ethanol levels rise, consumers get fewer miles per gallon. Fuel that contains more than 10% ethanol is also corrosive to many engines. Consumers will either pay more for gas with lower-ethanol blends or take their chances with their vehicles.
The compromise is especially cynical when it comes to the environment. The corn lobby sold Washington on ethanol by marketing it as a cleaner fuel source. That claim was always dubious, given that biofuels are carbon-intensive to produce and transport. Ethanol evaporates faster than gas, releasing smog-causing pollutants. That evaporation is accelerated in warm weather, which is why the EPA has historically limited ethanol blending to cooler months. But corn states are apparently willing to give up green credibility in exchange for higher ethanol profits.
The core problem is that the federal government has distorted the energy market by using subsidies and mandates to support biofuels. The solution is to end this political favoritism. But if the Trump Administration lacks the political fortitude to stand up to the ethanol lobby, at least it can limit the most destructive effects. When policy is this bad, almost anything is an improvement over the status quo.
Appeared in the March 13, 2018, print edition.