OPEC IN IOWA: Will Grassley And Ernst Prevent Lower Gas Prices?

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Andrew F. Quinlan President, Center for Freedom and Prosperity
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Do Sen. Chuck Grassley and Sen. Joni Ernst, Republicans from Iowa, want Americans to pay more for fuel at the pump?

Whether they know it or not, that will inevitably be the implication if the White House takes their advice of refraining from moving forward with its recently-announced Renewable Fuel Standard reform proposal.

Ever since Congress passed the Energy Independence & Security Act of 2007, the federal government has required refiners to mix ethanol into their gasoline and earn Renewable Identification Number (RINs) credits for doing so. Those that cannot blend can purchase other refiners’ surplus RINs credits — either from them directly or through an intermediary, such as a hedge fund — to satisfy the government mandate.

Not only was the policy’s selling point of helping the environment wrong, but it has also put a financial toll to the tune of nearly a half-million dollars a day on small and medium-sized refineries — a burden that they have had no choice but to pass in part onto consumers.

As The New York Times reported, “Distributing gasoline with greater levels of ethanol is more costly and corrodes gas station pumps and tanks. Raising the ethanol levels in gasoline, therefore, would require gas stations across America to install new systems. Therefore, refiners have turned to RINs to meet their government obligations rather than blend more ethanol into gasoline.”

The problem is that the RINs system helps the United States’ biggest oil companies at the expense of everyone else because it’s the large ones that own the terminals where the blending takes place. Since it’s challenging for the rest of the country to do the same as these large oil companies, they have managed to get away with increasing the price of RINs from just pennies each at the start of the program — a tolerable but unnecessary burden — to over a dollar.

Refineries can only eat the costs of this mandate for so long. As RINs credits become more expensive, it puts upward pressure on the price of gasoline — a reality that the Times reported has been admitted by “industry analysts, executives and even researchers at the investment banks” which trade these credits.

Clearly, this severe regulatory consequence should not be tolerated by an administration that espouses to support the free market — not today, not tomorrow, not ever.

For that reason, the Trump administration reportedly concocted a reform measure to push the price of RINs and gasoline downward.

Exports do not currently count towards refiners’ compliance with the ethanol mandate even though imports do. The plan that the White House backed last month will fix this by attaching RINs credits to exported U.S. fuel, lowering costs by increasing the number of RINs on the marketplace.

While political realities may have prevented the administration from taking the most efficient option of touching the ethanol mandate, this policy change will still lower RINs and gasoline prices and thus be of significant help to Americans nationwide.

Unfortunately, special interests are jeopardizing the security of the White House’s proposal.

Although the administration did not even lower the ethanol mandate, Iowa senators Chuck Grassley and Joni Ernst still aren’t happy. Ernst remarked that Environmental Protection Agency Administrator Scott Pruitt “is breaking our president’s promises to farmers” and “is about as swampy as you get here in Washington, D.C.” Grassley followed suit by saying that Pruitt “has betrayed the president.”

Apparently, their misleading talking points about harming farmers paid off. Shortly afterward the White House delayed its long-expected RFS announcement, although Pruitt reportedly mentioned that they have not yet taken reform off the table.

Now is the time for President Trump to show some backbone and do what’s right, not cater to the interests of a small group of special interests. The status quo may suit the country’s largest oil firms, which formed the misnamed Main Street Energy Alliance pressuring the Trump administration to leave the law as-is; however, it is not working for anyone else — not the refiners that are hitting bankruptcy and certainly not the American people that want lower pump prices. Here’s hoping that the president is listening.

Andrew F. Quinlan is the co-founder and president of the Center for Freedom and Prosperity (@cfandp).

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.