Earlier this month, President Trump provided hope he will add yet another bullet point to his growing list of accomplishments.
On Feb. 12, Trump’s Environmental Protection Agency (EPA) signaled to farmers and blue-collar refinery workers that the administration will soon release a draft rule that puts American workers at the heart of our energy policies.
The first way the EPA is expected to do this is by lifting burdensome restrictions on the production and sale of ethanol. Prior to the EPA’s decision, Big Oil benefited from the EPA’s arbitrary regulations on the sale of high-ethanol gasoline. Passed due to claims that ethanol exacerbated smog, these laws prohibited producers from selling E15 - mixtures of gas that contain 15 percent ethanol - during the summer months of the year. In reality, the rules against the production of ethanol-rich gasoline only allowed Big Oil to consolidate its influence over the energy marketplace, damaging America’s biofuel industry in the process.
The Trump administration’s anticipated deregulation of the ethanol industry couldn’t have come at a better time. In 2019, U.S. farm income was expected to have fallen 50 percent from its 2013 high point. The EPA’s move to increase ethanol production will not only lessen the influence of Big Oil, but it will also reinvigorate the country’s farm industry.
According to Trump, “We want to eliminate the intrusive rules that undermine [farmers’] ability to earn a living, and we will protect the corn-based ethanol and biofuels that power our country.” Removing red tape with respect to E15 sales will do just that.
But the Trump Administration doesn’t seem to be stopping there. In a win for small and independent refiners across the nation, the EPA’s new draft rule will also reportedly curb biofuel credit speculation, a tool used by large oil companies to disadvantage smaller, local refineries.
Here’s how it works: According to the U.S. Renewable Fuel Standard (RFS), oil refiners must mix a set amount of biofuel into their fuel to meet the government-mandated requirements. The government then assigns each gallon of fuel that meets this threshold a Renewable Identification Number (RIN) to ensure the oil refiners are holding up their end of the bargain. Similar to a system of cap and trade, these RINs can be bought, sold and speculated upon, much like transferring rights to a gallon of renewable fuel.
The problem is that most small, local refiners don’t blend their fuel with ethanol, since the mixture degrades quickly and they are not in the blending business to begin with. Only large companies like BP and Shell have the infrastructure to sell directly to consumers by mixing their fuel with ethanol at the gas station pump. Big oil companies, therefore, have a substantial competitive advantage due to their ability to blend onsite, while independent refineries have no choice but to purchase excess RINs to compensate for their inability to mix the fuel.
Consequently, Big Oil holds the local refineries over a barrel, forcing the smaller companies to purchase the RINs from them at exorbitant rates - prices that started at a few pennies a credit when the RFS began and have risen to a high of close to $1.50. After crude oil, these RINs are refiners’ biggest operating costs.
The price-rigging has become so extreme that it has caused some refineries to declare bankruptcy, weeding out competition and allowing Big Oil to expand its influence. Unsurprisingly, the large oil companies have lobbied to keep the status quo in place, but the EPA’s expected plan to curb biofuel credit speculation will serve as a much-needed crackdown against this malicious business practice.
The Trump administration’s draft rule is much more than just a decisive victory over crony capitalism. It is a huge win for the men and women that propelled the president into office. By expanding the sales of ethanol blends and curbing biofuel credit speculation, the president will pave the way for an economic revival for American farmers, northeast refiners, the forgotten men and women of Middle America, and the United States energy industry at large.
Matt Mackowiak is president of Austin, Texas, and Washington, D.C.-based Potomac Strategy Group. He’s a Republican consultant, a Bush administration and Bush-Cheney re-election campaign veteran and former press secretary to two U.S. senators.