When there is a political issue where conservative Republican Senator Ted Cruz is advocating reform that benefits blue-collar union members, it's a strong indication a bipartisan win-win-win is in the cards for American industry, jobs, and consumers.
The issue at hand is reforming the current (and flawed) Renewable Fuel Standard (RFS), which was implemented by the Environmental Protection Agency (EPA) in 2005 and is advocated by small retailers, mom & pop owners of gas stations, independent U.S.-based oil refiners, and union workers.
According to an April 25, 2018 Wall Street Journal article titled "Trump Faces Pressure to Choose Sides in Fight Between Corn Growers and Oil Refiners," the 2005 law mandates that refineries blend around 10 percent ethanol (derived from plants) into their fuel. If they don't or can't, they must buy credits from other producers that do to satisfy their blending obligations. As the Wall Street Journal article points out, the ethanol blending mandate was created to reduce carbon emissions at a time when the price of oil was soaring. We also smartly wanted to reduce the demand of imported oil to become more independent. After all, what's the point in celebrating Independence Day on July 4th if we are inter-dependent? Because we like fireworks? Hardly.
Here's how the system currently works: Oil refiners either earn credits (called RINs) by blending ethanol into their diesel or gasoline, or they can purchase "blending credits" (RINs) to show the EPA they are complying with their obligations.
Part of the problem is that independent refining companies often don't have the ability or capacity to blend, so they are forced to buy the RIN credits instead. All too often, they buy these credits from larger and richer multi-national corporations. RIN holders have the power of the pricing of the RINs, and they know it.
RIN prices were low when the original 2005 law was created, but the costs for the RIN credits are much higher now, putting smaller oil refiners in a financial bind. For example, in March, independent refiner Philadelphia Energy Solutions filed for bankruptcy when its compliance costs related to the Renewable Fuel Standard skyrocketed in 2016 to $231 million.
Independent American companies should not be allowed to go bankrupt simply because they can't afford to comply with cost mandates that larger and richer multi-national corporations can more easily afford.
American farmers are understandably concerned about RIN reform, as the 10 percent ethanol mandate creates a market for their corn. And they are concerned about Trump's tough talk on trade with China, as China has threatened to retaliate against U.S. import tariffs that might affect exports of American farmers.
Some have suggested China might switch to Brazil or other countries that export soybeans as a way to retaliate, but the fact is that the rest of the world doesn't produce enough soybeans for China to stop importing from the U.S. And if Brazil, for example, was to divert exports of their soybeans from other countries to China, then those other countries would need to find other exporters of soybeans, like the United States.
No American industry wants their goods to be subjected to retaliatory tariffs. However, we must keep in mind that we want fair competition is all areas of trade. An April 5, 2018 Wall Street Journal article detailed that despite President Trump's trade policy decisions on Trans-Pacific Partnership and the North American Free Trade Agreement (both are well-liked in the agricultural industry) farmers still say they generally support the president. As U.S. Trade Representative Robert Lighthizer recently said, "It's not possible to take the position that, because of soybean farmers, we're not going to stick up for our rights in a whole variety of ways."
According to a recent diverse study detailing the relationship between the prices of RINs and their effect on ethanol blending, RIN reform will not significantly change the demand for ethanol - an important market for U.S. corn. Prices for RINs, even when they have risen dramatically, have not impacted the demand farmers need for blending ethanol.
Recent public surveys show that a majority of Americans are on board with the proposed reforms. Two recent polls of random voters in Pennsylvania and Iowa show that more than 50 percent support changes that will both protect American corn farmers and advance the interests of middle-class, blue-collar workers.
Advocates of this domestic-driven reform maintain, and I agree, that this will level the playing field for smaller retailers, protect American jobs, and protect consumers from price spikes at the gas pump. This is the kind of reform that we need, and that we should all be supporting.