Diesel prices are going up and you can thank the White House for that

We recently learned that there would be no slowing down the Renewable Fuel Standard (RFS) under the leadership of Donald Trump and Scott Pruitt at the EPA. So what’s that going to mean for the American economy? One area to keep an eye on is fuel prices which have recently been driven to crowd-pleasing lows because of surging American energy production. But with the RFS still going strong, requirements for biodiesel in particular are likely to cause problems.

One aspect of this complicated puzzle is the fact that the United States is now proposing even higher anti-dumping duties on imported biodiesel. This started in August and the trend is likely to continue. (NACS)

Earlier this week, the U.S. Department of Commerce imposed preliminary duties on biodiesel shipments from Argentina and Indonesia. This is the result of a trade case brought by the National Biodiesel Board and 15 domestic biodiesel producers. The National Biodiesel Board received early notification because the trade association is a party to the trade case. The department has not yet formally announced this decision in the Federal Register.

The agency found that Argentina and Indonesia set up subsidies in violation of international trade laws and that penalties are needed to even out prices. This ruling is preliminary, which means that companies importing biodiesel from Argentina and Indonesia will have to pay a cash deposit on the imports to the United States to cover potential future penalties. Cash deposit rates will range from 50.29% to 64.17% of the value of Argentinian biodiesel and from 41.06% to 68.28% for product from Indonesia.

Foreign countries heavily subsidizing their exports is always bad for the American economy (one reason we need smarter trade deals), but in this case we’ve been shooting ourselves in the foot. There’s no reason for any significant demand for biodiesel in the United States other than the Renewable Fuel Standard mandates. We wouldn’t need to worry about imposing tarrifs such as this if we weren’t importing it.

The fact is that our imports of crude oil and LNG (natural gas products) have plummeted since 2009, but our imports of biodiesel have gone up by a factor of seven in the same time period. This chart is from Smarter Fuel Future.

Why does this matter? Because even without imposing duties on the imports, biodiesel is already stupidly more expensive than petroleum diesel. (On average $1.36 more per gallon.) Considering how much of it we import, it’s only going to get more expensive with these new duties being imposed.

Again, we wouldn’t be using all of this biodiesel if it weren’t for the Renewable Fuel Standard. As demand goes down, supply goes up and prices go down. But right now, we’re in the reverse situation because the government has created an artificial demand for biodiesel and Argentina and Indonesia are only all too glad to supply it.

Here’s a quote from Marlo Lewis at the Competitive Enterprise Institute which should give everyone pause:

This sort of cheating is inevitable when the U.S. government subsidizes domestic biofuel companies via the RFS, which forces consumers to buy biodiesel in increasing quantities, whether they want to or not. The RFS is a reversion to Soviet-style central planning. Tariffs on subsidized imports further subsidize U.S. biofuel manufacturers. Result: U.S. consumers get fleeced twice.

And we’re doing all of this for what? To keep the Senators and congressmen from a few corn producing states happy? I understand that President Trump promised to support the RFS on the campaign trail when he was trying to win in Iowa, but every leader is obligated to at least look at new information when it becomes available and may sometimes need to modify their positions. The RFS is a horrible deal for America. It always has been. And we have the chance to do something about it if a bit of sanity can prevail at the White House.

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