Commentary: Trump should end Renewable Fuel Standard

By David Williams

President-elect Donald Trump's promise to "drain the swamp" is getting an early test from a surprising source: one of his closest friends.

Billionaire investor and long-time Trump confidant Carl Icahn is calling for changes to the Renewable Fuel Standard (RFS), the federal law requiring gasoline manufacturers to incorporate renewable fuels like ethanol into their blends. It just so happens that Icahn would reap massive financial rewards from his proposed "fix."

The Trump White House must push back. If it's truly committed to ending crony capitalism and protecting taxpayers, it should go even further and work to end the RFS entirely. This is a fundamentally ill-conceived policy that has failed to help the environment or the economy and has cost taxpayers billions of dollars.

Icahn's proposal centers on the definition of "obligated parties," which is the official government term for the entities required to blend in renewables. Right now, obligated parties are limited to petroleum refineries and importers. And the volume they have to add in steadily ratchets up each year; in 2017, they'll be required to blend 19.28 billion gallons, nearly a 1.2 billion-gallon increase over 2016.

If the refiners and importers blend in more than required, they're rewarded with "credits." Those credits can then be sold to other refiners and importers.

Today, companies along the supply chain - like marketers and gas-station chains, which don't produce the gasoline blends since that's the refiner's job - are exempted from this system. But under Icahn's proposal change, such companies would be required to purchase a set amount of credits every year.

Icahn claims the market for these credits is broken, recently writing that it's rife with "manipulation, speculation, and fraud."

Icahn is correct about one aspect of the market, the price of these credits has certainly spiked. The average cost of a credit has jumped from just one penny in 2012 to nearly a dollar today. Icahn's proposal would expand the definition of "obligated party" to include virtually every firm along the supply route, moving the obligation beyond refiners and gasoline and diesel importers to include local fuel distributors that would be obligated to manufacture their own renewable blends or purchase credits.

Icahn didn't launch this campaign out of the goodness of his heart; he wants a handout. He's a large investor in CVR Refining, a mid-size refinery that is an obligated party. The company has to spend hundreds of millions of dollars on credits, and its stock has plummeted 60 percent over the last three years. Removing CVR from the obligated party definition would dramatically cut down on CVR's expenses and net Icahn a massive windfall while those that invested to comply with the law are left in a less competitive position and the smaller companies are burdened with having to comply with the burdensome RFS.

Plus, this change would create new costs for taxpayers. Regulators would have to register and monitor at least 200 additional companies. And it would complicate what's already a boondoggle.

The real solution isn't faux reform; it's repeal. The RFS is costing taxpayers up to $2 billion annually - and it hasn't accomplished anything.

The primary aim of the RFS was to reduce America's dependence on foreign oil. That goal has been realized, but no thanks to renewables. Innovative drilling techniques such as fracking have opened up vast new swaths of oil reserves buried under American soil. Because of these techniques, our daily oil production has jumped from 6 million to 9 million barrels each day. Meanwhile, cars are becoming more fuel efficient each year. Imports have been steadily falling.

Ethanol, the most popular renewable fuel, is derived from corn. To meet the RFS targets, nearly 40 percent of the national corn crop has been dedicated to ethanol production. That has driven up demand for corn that goes into cereal, syrup, and countless other basic food items. Those products have, in turn, become more expensive, and average American families have been hit with bigger grocery bills; it's estimated that the RFS has increased the consumer price index for food by 25 percent. Taxpayers are also on the hook for higher food prices with taxpayer-subsidized feeding programs like food stamps.

The Renewable Fuel Standard is exactly the kind of ill-conceived government program that Trump promised to end. He needs to look past his friendship with Icahn, reject this phony reform campaign, and work with Congress to dismantle the RFS entirely.

David Williams is president of the Taxpayers Protection Alliance. davidwilliams@protectingtaxpayers.org