Trump to repeal the Big Refinery tax?
Good news: If President Donald Trump is true to his word, the price of gas at the pump is about to get significantly cheaper.
Multiple reports state that Trump is considering changing the point of obligation of the Renewable Fuels Standard (RFS) so that major oil companies can no longer take advantage of the American people. Let's hope he does, because the point of obligation in its current form has done nothing but shuffle wealth from the rich to the poor.
Today, the RFS requires that all transportation fuels have a minimum volume of renewable fuels. Right now, that "point of obligation" is set at 10 percent ethanol, something most of us see posted clearly on the gas pumps. Once the fuel is blended, a Renewable Identification Number (RIN) is assigned to the mixture before it is ready to be sold.
But herein lies the problem: complying with this ethanol mandate – in effect, an unnecessary hidden tax on production – is much easier for the biggest gas station chains, which can do so at a 10- to 50-percent price advantage over smaller manufacturers. This forces the smaller manufacturers to buy RINs from the bigger ones. Essentially, they are just purchasing government credits from large refineries stating that they have supplied an approved amount of renewable fuel even though they did not actually do any of the renewable production themselves.
As a result of this protectionist "Big Refinery tax," the cost of RINs has appreciated by as much as 5,000 percent since the point of obligation's creation – 20 times the cost of a gallon of ethanol – and price volatility has unfortunately become a pillar of this program. Smaller manufacturers have had no choice but to shuffle the costs associated with this hidden production tax onto American consumers in the form of higher gas prices.
Translation: We pay more at the pump to fulfill a draconian government mandate while the big oil refineries pump our hard-earned money into their bank accounts.
This hidden tax has even put nearly 150,000 American jobs at jeopardy because many U.S. refiners are now at risk of insolvency. Fewer refiners means less competition – and less competition means even higher prices for American consumers. In short, the point of obligation in its current form causes a windmill effect, which allows big refiners to undercut competition and oversell American consumers more and more each day as market competition declines.
This doesn't even account for the rampant fraud associated with the program. Last year, federal prosecutors identified approximately $300 million's worth of misuse. Doug Parker, the EPA's criminal enforcement division head, estimates that the cost of consumer fraud from RINs is approaching $1 billion. He said, "The regulatory status quo in this program will deprive the American public of the full energy, consumer, and environmental benefits the founding statutes sought to provide while continuing to expose U.S. taxpayers to ongoing fraud."
If President Trump truly wants to drain the RFS swamp, then he should at the very least keep his word to consider moving the point of obligation away from refiners and onto smaller blenders and retailers so that some semblance of market prices and competition is restored back to the market. The American people are counting on him to do so.