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Awful Renewable Fuel Standard Is Doomed

The Environmental Protection Agency (EPA) recently waived Renewable Fuel Standard (RFS) requirement for Andeavor, one of the nation’s largest oil refineries. Andeavor’s exemption tolls a death knell for the RFS and its crony backers.

Following recent court precedent, the EPA granted Andeavor “hardship waivers” for the three smallest of the company’s ten oil refineries. This is the first time a large and financially sound oil company received waivers, abandoning the Obama administration’s illegally strict definition of hardship. Basically, the EPA is admitting that the RFS is an abject failure. It’s one massive hardship that needs to be waived.

Thanks to the RFS, oil refineries are forced by law to purchase “RINs credits,” which are subsidy payments to ethanol companies. RINs credits subsidize the production of ethanol and biofuels, which Congress requires to be mixed with gasoline. The RFS was supposed to help America achieve energy independence and reduce climate change, but it does neither. Instead, it makes fuel expensive and inefficient while bankrupting oil refiners. You can read FreedomWorks explanation of the RFS and its dastard problems here.

Andeavor’s hardship waiver derives from the US Court of Appeals Tenth Circuit decision in Sinclair Wyoming Refining v. EPA. The RFS allows hardship exemptions for “small refineries,” defined as operations producing 75,000 BPD (barrels per day) in the most recent calendar year. Small refineries must petition to the EPA to receive hardship waivers. However, the Obama administration skewered the law and created its own definition of hardship.

Instead of granting waivers to refineries beneath the 75,000 BDP quota, the Obama admin used long-term viability as its standard for hardship. All hardship waiver petitioners were subject to Department of Energy review for the RFS’ impact on their financial stability. Only firms that DOE demonstrated to be nonviable in the long-term received waivers. But the Tenth Circuit struck this interpretation down in Sinclair, instead allowing waivers to any petitioner beneath the quota.

Now, with circuit court precedent set in stone, EPA Administrator Scott Pruitt is draining the RFS swamp. Andeavor is the first of many small refinery operators that earns hardship waivers regardless of its financial outlook. Pruitt granted 25 small refinery hardship waivers this year so far. Andeavor drew $1.6 billion in profits last year, and without mandatory RINs purchases, it should perform better all else constant. Its fuel prices should drop too, delivering cheaper energy to consumers. Companies such as Exxon and Chevron may apply for their own waivers.

With more waivers, Administrator Pruitt ensures that the RFS’ reign of ruining American energy is over. Too many consumers and producers alike have been pilfered by the predatory ethanol lobby. As more companies receive waivers, American energy will be freer from mandatory ethanol blending. Prices will drop and consumers will use their resources as they see fit. Fewer dollars will go to corporate welfare ploys like subsidized ethanol and instead provide prosperity. Yet, waivers do have some problems. One such trouble is that some future oil refinery production will be incentivized to switch to small facilities. Since the RFS still applies to production above 75,000 BPD, companies may abandon future plans for large refineries due to RFS compliance costs. Instead, if a company builds multiple small refineries producing less than 75,000 BPD instead of a large one, it could save money in compliance costs in some circumstances.

In a perfect world, companies would build production facilities based on profit-maximizing behavior. But instead, the RFS and hardship waiver system will distort production processes to avoid senseless government rules.

Awful, distortionary policies like the RFS ruin markets and hurt consumers. Thankfully, hardship waivers are the light at the end of the tunnel for American energy. More waivers will circumvent fake market favors for ethanol. The ethanol lobby and its cronies will suffer as their revenues shrink. America will have cheaper prices and better fuel.

EPA Administrator Scott Pruitt can unleash American energy by waiving damaging RFS costs wherever possible according to the law.