This morning, I was reading an interesting article by Ned Ryun at Real Clear Politics about one casualty of the coronavirus pandemic that doesn’t draw much press coverage. The energy industry, especially the oil and gas sector, has been hit particularly hard recently by a combination of factors. Of course, the disease is a major concern because neither drilling for nor refining oil are jobs one can do from home. The same goes for natural gas.
At the same time, oil prices have completely cratered as demand has slumped and Russia engages in a price war with Saudi Arabia over production volumes. (They reached a tentative deal on production today, but most industry experts predict that the proposed levels won’t do enough.) With that in mind, there is definitely something the government could do to help. As Ryun points out, some of the pressure on this massive industry and all the jobs it produces could be eased by finally doing away with the Renewable Fuel Standard.
To add to this problematic situation, small and large U.S. refineries are getting punished under an unrealistic Renewable Fuel Standard mandate. So in the middle of an economic downturn, as our energy sector is under tremendous stress, we are continuing the madness of unnecessary regulations on a key aspect of our economy (one that should also be considered a national security issue). These RFS mandates imposed on this core industry in America impose a heavy cost of RFS compliance credits (RINs) that is then draining cash from American-owned businesses at a time when draining cash can, and actually may, lead to bankruptcy.
How did we even get to this point? The RFS goes back to the 1970s when Americans were worried about running out of gasoline. Mario Loyola wrote in The Atlantic on Nov. 23, 2019, “With experts warning that the world was quickly running out of oil, the shocks of ’73 and ’79 led President Jimmy Carter to call for wartime-style rationing of fuel and other draconian measures to avoid a ‘national catastrophe.’”
The oil and gas industry hasn’t come to Congress with its hat in its hand, asking for a bailout. And really… can you imagine the conniption fits that Pelosi and Schumer would experience if they did? Such a proposal would never make it past the Democratic Majority in the House.
So why not do something different that’s long overdue anyway? Keep in mind that the original idea of the RFS wasn’t based on helping the environment, though that was an additional “benefit” that was claimed. The system was designed to protect us from oil embargos by making us less dependent on foreign oil. But those days are now ancient history. Oil production is not only up across the globe, but America is now among the world’s leaders in oil and gas production. We’re now a net energy exporter. The majority of reasons offered for implementing the RFS simply don’t exist anymore.
So could it be done? Perhaps, but it would be most easily accomplished in two stages. Getting buy-in from the Democrats would be a steep hill to climb under the best of circumstances, but if enough jobs are at stake we might be able to build some leverage. In the meantime, however, the President could instruct the EPA to issue immediate waivers to all of the refineries in the country, relieving them from ethanol blending requirements and the associated burden on many companies to purchase RIN credits at tremendous expense.
As an initial measure, this could be defined as a temporary relief effort until the pandemic passes and things return to some semblance of normal. And during that period, congressional Republicans could be negotiating with Democrats over a path to eventually doing away with the RFS entirely. The other obstacle to overcome is the President. He’s been so dedicated to keeping the King Corn people in the midwest happy that he’s refused to address the ethanol issue beyond just issuing some waivers to smaller refineries.
If Donald Trump can’t be convinced to support the idea, the battle is essentially lost because nobody else will go along with it. So this is really the ideal time to at least make the attempt.