Yesterday, a group of senators wrote a letter to President Trump regarding the January 24 decision by the U.S. Court of Appeals for the Tenth Circuit that found the EPA improperly exceeded its statutory authority in exempting three refineries from the Renewable Fuel Standard (RFS). The letter recycled several time-worn scare tactics, including disproven canards about renewable identification numbers (RINs), which are credits used to demonstrate compliance with the RFS. Notably, one of the letter’s assertions about the impact of RINs on refiners has been specifically refuted by both the court and the EPA.
The senators’ letter starts by claiming, “If allowed to stand, the decision will put a dozen small refineries in the Tenth Circuit under severe financial strain and thousands of jobs at risk. If applied nationally, it will jeopardize nearly all small refineries. More widely, the decision will dramatically increase RFS compliance costs for refineries of all sizes and raise gasoline prices for American drivers.”
However, in its decision, the Court pointed out that the EPA has for years acknowledged that refiners recoup their RIN purchase costs, stating as recently as March 2019 that “RIN prices generally reflected market fundamentals and that obligated parties (including parties that purchase separated RINs) recover the cost of RINs in the market price of gasoline and diesel fuel they sell.” Despite this, the court stated, “The EPA did not analyze the possibility of RIN cost recoupment when it granted the Refineries’ extension petitions.” How can refiners claim they are being “harmed” when everyone knows they pass RIN costs on to their customers at the terminal?
Nor have RIN prices raised gasoline prices. A retrospective analysis conducted after a multiyear period when both high and low RIN prices had been experienced concluded, “Changes in RIN prices have not caused changes in retail gasoline prices.” On the contrary, a study conducted last year determined that the RFS has lowered gasoline prices by an average of 22 cents per gallon in recent years and saved the typical American household $250 annually.
Put simply, refineries—many of which are part of very large corporations—will not be in jeopardy from having to comply with a 15-year-old law, and gasoline prices will not increase for American drivers as a result of RFS compliance.
The senators’ letter ends, “Since the decision, the price of RFS compliance credits … has already tripled. If your administration does not appeal the decision, RIN prices will increase exponentially.”
While RIN prices have increased since the court’s ruling, this is reflective of prices having been artificially suppressed by the massive number of RINs reinstated by the EPA in connection with exemptions over the last few years (Exhibit 1). Notably, a significant portion of the increase occurred on Wednesday, when ethanol (D6) RIN prices were curiously bid up an unusual 17% on the day before the senators’ letter was released and a reported White House meeting was to be held. However, it is important to take a longer-term view: RIN prices remain nearly two-thirds below the levels experienced in late 2017, just prior to the start of the large-scale granting of exemptions.
Additionally, allowing RIN prices to reflect market conditions is essential to the expansion of higher ethanol blends such as E15 and E85, which in turn facilitates compliance with the RFS and acts as a governor on RIN prices.
More broadly, a return to compliance will ensure that America reaps the full benefits of the RFS. In 2019, the ethanol industry supported nearly 350,000 jobs and added $43 billion to our gross domestic product, while displacing more than 500 million barrels of imported oil. The use of ethanol reduced carbon dioxide-equivalent greenhouse gas emissions by more than 50 million metric tons— reducing emissions by 35 to 50% compared to gasoline.
Don’t be distracted from the big picture by talking points that echo those of the refining industry and ignore the real damage that has been occurring: the harm to the biofuels industry from refinery exemptions that the court thoroughly discredited.