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Still Boondogglin'
Biofuel Boondoggle Besets Struggling US Refiners

These are difficult days for producers of crude oil and refined petroleum products. Refiners are already¬†contending with shrinking profit margins as a result of falling crude oil prices, but their problems don’t end there: the costs of complying with U.S. biofuel mandates are set to hit a record high this year. Talk about terrible timing. Reuters reports:

The top 10 U.S. independent refiners look set to take a record hit on renewable fuel credits this year. They spent $1.1 billion on the credits in the first half of the year, just short of a record $1.3 billion in all of 2013.¬†These “merchant refiners” are required to blend biofuels like ethanol with gasoline or other petroleum products, or else meet those obligations by purchasing paper “credits” called Renewable Identification Numbers (RINs) in an opaque market.

Meeting these standards once cost just pennies a gallon. But costs have risen in recent years and become a pressure point for independent refiners and fuel importers.

The largest oil refiner in the United States has already lodged complaints about being price-gouged by Uncle Sam, but this is a problem for the entire refining industry. The 2007 Renewable Fuel Standard was meant to improve U.S. energy security and help save the planet by incentivizing the production and subsequent blending of domestically-sourced ethanol, sourced almost entirely from crops of corn. Unfortunately, things haven’t worked out as planned, as this system of mandates has led to higher global food prices (starving the world’s poor), gouged American drivers for billions of dollars every year at the pump, and has arguably been a net negative for the environment.

Let’s add to that long list of failures the notable fact that refiners are finding that the cost of compliance continues to rise year after year. This is an expensive, foolhardy boondoggle that pleases exactly one constituency (the U.S. corn industry), and it’s high time we reformed or repealed the whole thing.

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