Battle of the Biofuels: Big Corn vs Big Oil

By: Kelli Liegel

Big Oil and Big Corn cannot seem to compromise on the Renewable Fuel Standard (RFS) and the subsequent export-subsidies on RINs (Renewable Identification Number) that the Environmental Protection Agency Administrator Scott Pruitt has proposed. The corn industry claims that Mr. Pruitt’s adverse export-subsidy proposals will drive corn prices down and crush farmers throughout the nation. Oil refineries, on the other hand, insist that RFS regulations are costly and putting them out of business. Amid this controversy are President Donald Trump, who has a strong support base of farmers, and Mr. Pruitt, a man with close ties to the oil industry.

In 2005, the Renewable Fuel Standard was passed with substantial bipartisan support and the intention of opening the liquid fuel market to the corn industry. The RFS requires oil producers and fuel importers to blend renewable fuels like ethanol, a derivative of corn, to reduce CO2 emissions, create jobs, and bolster U.S. energy security. To regulate RFS compliance, Renewable Identification Numbers were created to ensure oil producers met their annual volume quotas. The concept is quite simple: the more oil refineries blend renewable fuels, the more RINs they accumulate to sell in the marketplace at a profit.  

This is where the friction kicks in.

In recent months, President Trump has negotiated with both the corn and oil industries in response to Scott Pruitt’s proposal to make exported gallons of RINs applicable toward the annual volume quotas the RFS requires. This proposition warrants serious concern not only for farmers, but addresses a potential statutory violation as well. Mr. Pruitt may be new to the EPA, but the agency has ruled in the past that “if a gallon of ethanol is produced in the U.S. but consumed outside of the U.S., the RIN associated with that gallon is not valid for RFS compliance purposes.” For farmers, allowing exported gallons of ethanol to count towards RFS compliance floods the market with RINs, which subsequently drives prices down. These economics drive farmers out of business and deny them fair access to the liquid fuel market. If oil producers wish to drive RIN prices down, the simple solution is to blend more than required by the RFS.

Farmers have already felt the impact of Mr. Pruitt’s leadership with a hefty quarterly loss at the beginning of 2018. Reuters reported in April that “prices of renewable fuel credits slumped 35.7 percent in the first three months of 2018, their biggest quarterly loss in a year, on uncertainty over the future of U.S. biofuels policy.” If the markets are any indicator, it’s evident that providing oil refineries relief through RIN export-subsidies negatively affects U.S. farmers.

Among the myriad issues Mr. Pruitt’s export-subsidies create, it’s worth noting the irony this conflict presents. After all, the Administrator of the EPA, an agency geared towards protecting our environment, should be fighting for environmental policy that encourages biofuel production and the reduction of CO2 emissions, not creating breaks for oil refineries who already receive hefty subsidies from the U.S. government. If the U.S. wishes to increase energy independence and security, as well as preserve our environment, Mr. Pruitt and President Trump should continue to make the liquid fuel market accessible to corn producers by encouraging compliance with the RFS.

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