The Cost of The RFS is Too Big to Ignore

In recent weeks, five governors have sent letters to the EPA asking for a waiver of the 2020 blending mandates from the Renewable Fuel Standard (RFS) concerned about the economic damage they inflict on a refining industry already reeling from the Wuhan coronavirus pandemic.  The RFS mandates the blending of various types of “renewable” fuels into the national gas supply regardless of demand. But the blending requirements for 2020, set in late 2019, obviously did not account for the crisis currently gripping the US. With most of the country under varying levels of lockdown orders, people are not driving or flying and demand for transportation fuels has collapsed.  At this time of crisis, the last thing the refining industry needs is the compliance costs of the RFS.

Even in good times, compliance costs for the RFS mandate are substantial.  Some small refineries spend more money on RFS compliance than they do on their entire payroll.  Billions of dollars a year are spent to buy compliance credits. The situation today is certainly not good times.  Gasoline demand has fallen by nearly half in just a month.  Airline traffic is down more than 90% from normal.  The ongoing uncertainty with how and when the economy will be able to restart means it is impossible for refiners to plan for the rest of the year.

As the pandemic crisis has spread, we have seen numerous regulations relaxed or waived in response.  Licensing rules for out of state doctors, trucking regulations, FDA approvals, alcohol sales rules, telemedicine restrictions, and on and on.  All the waived regulations have always imposed costs, slowed research, or limited economic activity, usually to protect some special interest group.  In good economic times people may accept these costs, but a crisis exposes them as mindlessly harmful.

The RFS is a perfect example of this kind of special interest regulation.  It was created to prop up the corn ethanol industry, not because of consumer demand.  The costs the program imposes are thus politically driven, not economic, harming refiners and increasing gas costs for most Americans.  But the political nature of the costs makes relief straightforward: government imposes the costs, so government can reduce them.

Maybe in the best of times, we could overlook this special interest handout, but times like these should make us question all-cost, no-benefit mandates like the RFS.  EPA should waive the 2020 mandated volumes. Sparing the refining industry of this kind of pointless compliance during a crisis should be a no-brainer. And when we begin to restart our economy, every American should question why one niche industry should have the government mandating the purchase of its product at the expense of the rest of the country in the first place.

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