Environmental Illusion and a Public Swindle

According to environmentalists and the Renewable Fuels Association, the ethanol mandate in the Clean Air Act as modified by the Energy Policy Acts of 2005 and 2007 has resulted in cleaner air and a reduction in greenhouse gas emissions.  In reality, the mandate has produced no real environmental benefits while enriching corn farmers, large retailers, and ethanol manufacturers and imposing unnecessary and unreasonable costs on fuel producers and auto manufacturers.  It has also had a negative effect on food prices.

Just recently, the largest refinery on the east coast—Philadelphia Energy Solutions– filed for bankruptcy protection because of the prohibitive costs of obtaining EPA compliance credits—RINs.  According to a Wall street Journal editorial, Philadelphia Energy Solutions has spent $832 million on purchasing credits since 2012.  This is 1.5 times its average annual capital expenditures and twice its payroll costs.

EPA will claim that imposing the compliance burden at the refinery level ensures a high degree of compliance because of the relatively small number of refineries in the US–137.  The problem is that there is a big difference between independent refineries and those that are integrated or large convenience store chains.  The latter have blending capabilities that provide an economic advantage who are also blenders. Independent refineries must buy RIN credits; the others generate  RIN credits through blending that can be banked or sold.  Think about it.  An independent refiner incurs a cost; large retailers like Circle K and Sheetz create an asset through blending that can be sold.

It is only common sense to provide a level playing field for the point of obligation.  Moving this point from the refinery gate to the point of blending might complicate EPA’s compliance tracking but it would not discriminate among refiners.

A much better solution would be to simply abolish the renewable fuel standard since it accomplishes nothing.  The ethanol—oxygenate mandate—is a creation of the Clean Air Act Amendments of 1990 that was designed to secure votes for passage from farm state members.  It was not needed, and Congress knew this at the time, to meet tailpipe emission standards to reduce ozone causing chemicals.  And, it has been shown by analysis after analysis that it does nothing to positively impact global warming or reduce imports.

The renewable fuel standard is simply another example of the Bootlegger and Baptist collusion.  Farmers, commodity traders, and ethanol manufacturers benefit by having money transferred from consumers by embracing environmental benefits that don’t exist and politicians who support the standard are considered good stewards of the environment.  It’s just a sophisticated swindle.

Author: billo38@icloud.com

Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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