A debate about the federal Renewable Fuel Standard, or RFS, is affecting Wyoming refineries, independent gas stations and the jobs they support.
The RFS law mandates injection of a national volume of ethanol into gasoline. Each year, EPA issues renewable fuel percentage standards that, when taken times each refiner’s petroleum fuel volumes, defines that refiner’s obligation — its share of the national renewable fuel volumes. The national volumes are achieved if every refiner meets its obligation.
Blenders, however, are not obligated. Every blender exceeds its individual obligation with the first drop of ethanol it blends.
At issue is whether the duty to inject or blend ethanol should belong to refiners or to truck rack wholesalers who actually do the blending. Should this “point of obligation” be the refinery, as the rule mandates, or the truck rack?
Refiners often cannot blend because their fuel is sold before it reaches the truck racks where blending is done. At stake are many millions of dollars in costs and disadvantages currently imposed on the nation’s and Wyoming’s small and independent refiners and independent gas stations.
Crucial to this debate are Renewable Identification Numbers, or RINs, the currency of RFS compliance. RINs are like a box top for ethanol. When ethanol is blended into gasoline, RINs are separated from the ethanol and surrendered to EPA as proof of blending. If a refiner cannot meet its obligation, it must purchase RINs from blenders to make up the deficit. Blenders are free to sell all RINs they separate.
EPA argues refiners who buy RINs recover those costs in the price of bulk fuel sold to rack blenders. In turn, blenders recover this price increase when they sell RINs to refiners. The voices of the American Petroleum Institute, whose members blend more fuel than they refine; the biofuel industry and others oppose moving the obligation to blenders, claiming EPA’s rule got it right.
They are wrong. The rule harms mom-and-pop stations and independent and small refiners, impedes RFS’ progress and is illegal. Here’s why.
1. Big Oil and blenders have no compliance costs. In fact, bulk fuel prices that recover compliance costs for independent refiners are bad for Big Oil and blenders. Every Big Oil RIN purchase is offset with a RIN sale by its truck rack blenders. Furthermore, Big Oil and blender companies purchase and blend more bulk fuel than they refine and need to minimize those costs. On the other hand, independent and small refiners recover RIN costs only through bulk fuel prices. Competition from Big Oil limits that option.
Given this tension, full RIN costs are not reflected in bulk fuel prices; small refiners recover only part of that cost. Prices I reviewed for 2014-2015 at Mitchell, South Dakota, confirm this. Refiners did not recover 23 percent of their RIN costs. In addition, mom-and-pop gas stations had a 4.1 cent per gallon disadvantage compared with rack discounts blenders could offer their owned or branded stations. EPA should replicate this study to confirm these results.
Blenders do not pay refiners’ RIN costs, as EPA hypothesizes, and discounts largely never reach mom-and-pops. RINs finance unfair competition for Big Oil and other blenders. Unless addressed, consumer costs will increase as independent refiners and small gas stations close.
2. The rule inhibits biofuel blending. Big Oil has extra RINs and blenders are not obligated. When EPA raises biofuel standards, Big Oil can sell lower blends, comply with extra RINS, ignore biofuel increases and exacerbate RIN shortages, raising RIN costs for independent and small refiners. Blenders, being unobligated, are under no legal compulsion to increase blending. If blending were obligated, Big Oil and blenders wouldn’t have extra RINs to delay biofuel increases. Defending a rule that impedes biofuels is not in ethanol’s best interests.
3. The current rule authorizes illegal RINs. Now, blenders get RINs for blending the tiniest amount of ethanol. Yet, the Clean Air Act commands, “The regulations ... shall provide ... credits by any person that refines, blends, or imports gasoline that contains a quantity of renewable fuel ... greater than the quantity required under paragraph (2)”.
“Paragraph (2)” specifies national quantities; paragraph (3) individual obligations. If Congress wanted RINs awarded for exceeding individual obligations, the statute would not say “greater than the quantity required under Paragraph (2).” Individual obligation RINs are not legal until national quantities are exceeded. Obligating blenders fixes this.
The point of obligation damages mom-and-pop gas stations and independent and small refiners, advantages Big Oil and blenders, delays biofuel increases and authorizes illegal RINs. The rule is a pernicious and seductive potion. No one should drink it.