Gasoline prices remain stubbornly high—above $3.35 a gallon nationwide on average—and will likely go higher when the summer driving season arrives. Yet rather than take steps to help, the Biden administration has blamed Russia’s invasion of Ukraine and the oil companies, badgering them to produce more.
As any Econ 101 student knows, gas prices are determined by supply and demand. Instead of encouraging more supply, though, the administration keeps poisoning the atmosphere for investment in traditional fuels.
In the latest example, the Environmental Protection Agency has just proposed a change to the Renewable Fuel Standard that will once again push supplies of fuel lower and make it more expensive. The EPA is creating a new way to comply with RFS by allowing auto companies to generate “eRINs” they will sell to oil refiners. This should be raising alarm bells in every agricultural and oil-producing state and at every gas pump in the country.
Right now, oil refiners have to obtain and submit renewable identification numbers, or RINs, at the end of every year to prove that they’ve blended sufficient biofuels like ethanol and biodiesel into petroleum fuels. The birth of the modern RFS in the Energy Independence and Security Act of 2007 used this tool to diversify America’s fuel—blending American-produced ethanol from American-grown corn.
The EPA’s proposal, however, opens the door for the RFS to be dominated by EVs—taking money from gasoline and diesel customers and sending it to auto companies that make EVs. Such a transformation will further hamstring producers of our transportation fuels (farmers, blenders and refiners), hit consumers with higher costs, and endanger our national security by making us more dependent on China, which dominates the EV supply chain.
One can immediately see the problem. Farmers and biofuel makers have invested billions of dollars to build plants, terminals and trucks to blend ethanol, biodiesel and renewable diesel. These U.S.-produced fuels will be drastically reduced—if not altogether eliminated—in an all-electric future.
A study by the Agricultural Retailers of America showed EVs could cost farmers $27 billion in income in just 2050 alone and reduce biofuels by 60% (biodiesel) to 90% (ethanol). In the interim, investments will flow from traditional fuels and biofuels to EVs. That would be fine if it were driven by consumer demand. But this is happening only because of government policy.
Refiners, too, are facing higher costs and lower demand thanks to eRINs. EV mandates of 50% to 100% electric cars and enormous subsidies like those in the misnamed Inflation Reduction Act cast a huge shadow on the investment climate for refining. Those effects are exacerbated by a new climate disclosure rule from the Securities and Exchange Commission and the progressive push for environmental, social and governance considerations.
President Biden scolded refining companies to “work with my administration to bring forward concrete, near-term solutions that address the crisis.” He’s essentially looking for companies to row upstream against a current he’s accelerating. The SEC’s and the EPA’s moves will depress investment, continuing a pattern of lowering America’s refining capacity, which has lost about a million barrels a day in the last two years after having risen nearly every year since 1994. Less refining capacity means lower supply, which means higher prices.
That leads to the second major group that will suffer because of eRINs: consumers. Undoubtedly, consumers will pay more for gasoline as the newly limited supply struggles to keep up with demand. They’ll also pay more to help cover the refiners’ eRIN costs. Worse, customers will be paying more for their gas-powered cars in addition to their fuel.
Automakers have to cross-subsidize EVs by charging more for traditional cars to cover the cost of EVs. This and previous administrations have acknowledged that aggressive fuel economy standards and zero-emission-vehicle mandate cost consumers thousands at the showroom. eRIN revenue could help automakers a little, but it’s not nearly enough to close the gap, which some companies have said approaches $14,000 per vehicle. Unfortunately, the ultimate beneficiary of the forced switch to EVs is going to be China, which dominates the EV supply chain.
That brings up the third harm from this eRIN proposal: Instead of increasing American energy security—the stated purpose of the RFS—this proposal encourages automakers to make cars with Chinese batteries (about 75% of worldwide battery production) or with Chinese-mined or Chinese-processed minerals (more than half the world’s processing of lithium, cobalt and graphite). It is unclear whether the United States can open mining and processing inside its borders: Right now, there is only one lithium mine in the United States, and it accounts for less than 2% of the global supply.
At a time when the United States has become a major exporter of liquid fuels—an unthinkable dream for every president from Richard Nixon to Barack Obama — we are about to throw it all away and put all our transportation eggs in a basket made in China.
The path forward is clear: The EPA should scrap this eRIN proposal for the good of America’s producers and consumers, as well as our national security. If the agency doesn’t, Congress must stop it.
Courtesy of The Heritage Foundation.
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