Trump schedules meeting on biofuels mandate

Fuel Fix:

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The session is set to include Iowa's two senators -- Chuck Grassley and Joni Ernst -- who have opposed policy changes they see as weakening the biofuel mandate. Also slated to attend: Senator Ted Cruz of Texas and Senator Pat Toomey of Pennsylvania, who have argued that the high costs of complying with the current policy threatens the viability of some refiners.

The biofuel mandate is politically treacherous for the president because it divides two important political constituencies: Iowa farmers growing corn for ethanol and Pennsylvania laborers who work in that state's four oil refineries. Trump won both states in 2016.

The dispute intensified last month with the bankruptcy filing of Philadelphia Energy Solutions LLC, which supplies more than a quarter of the East Coast's crude refining capacity. Chief Executive Officer Greg Gatta has blamed much of the refining company's troubles on the cost of fulfilling annual biofuel quotas, specifically the refiner's need to buy tradable credits to prove it has complied with the mandate.

The cost of those credits, known as Renewable Identification Numbers, or RINs, has been volatile in recent years, straining independent refiners like Philadelphia Energy Solutions that lack the infrastructure to blend biofuel and generate those credits themselves. Instead, they are forced to buy them from other sellers -- including other oil companies as well as traders who have no tangible connection to the American fuels market.

Four state governors have formally asked the EPA to pare biofuel quotas and some small refineries have petitioned the agency for exemptions.

The White House meetings are set to focus on possible administrative changes that could lessen compliance costs, including a potential cap on RINs prices, possibly with the EPA selling its own credits whenever costs hit some newly established ceilings. Cruz has proposed a 10-cent cap on the cost of the credits -- representing just a fraction of their current value.

RINs tracking 2018 ethanol consumption targets fell 2.9 percent to 66 cents apiece Thursday, according to data compiled by Bloomberg. Prices for the variety tracking 2018 biodiesel quotas slipped 2.4 percent to 83 cents.

Participants also are likely to discuss the EPA's authority to grant a waiver that would allow E15 gasoline containing 15 percent ethanol to be sold year round. A waiver of environmental requirements already applies to gasoline containing 10 percent ethanol, but not higher ethanol blends, effectively barring their sale from June 1 until September 15 in areas where smog is a problem.

Biofuel supporters have argued the current limitation on E15 unfairly throttles the market for ethanol and should be lifted.
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The RIN's provide no benefit whatsoever to consumers.  They reward the agribusiness rent seekers and speculators.  The original rationale for ethanol no longer exists since the perceived scarcity of fossil fuels no longer is valid.

If the government allows E15 it should also allow fuel with no ethanol in it and let the consumer decide.  There should also be a warning label on E15 that the product can damage engines in certain vehicles as well as engines used on tools like chains saws and lawnmowers.  It should also disclose that the more ethanol in the gas the less efficient the operation meaning that your mileage will suffer.

The best solution would be to not require refineries to waste money on the RIN mandates and instead give them incentives to invest in changing their operation to use the light crude that is produced by shale well.  This would benefit not only consumers, but would also enhance US energy independence since the US would no longer need to import heavy crude.