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Opinion: Changing the Renewable Fuel Standard Is Crucial to Revitalizing American Manufacturing

The Renewable Fuel Standard, or RFS, was developed during my tenure as Energy Secretary and has helped diversify America's fuel supplies. The credit program EPA created to ensure RFS compliance, due to changes in the oil industry, now merely serves to subsidize global oil companies and gasoline retail chains at the expense of independent American refiners and small fuel retailers.

This unbalanced system threatens American manufacturing jobs in states like Ohio, Pennsylvania, and my home state of Michigan. Eventually, it will result in higher gas prices. Fortunately, EPA can prevent this by making a simple change in the program.

Enacted in 2005, and expanded in 2007, the RFS requires auto fuels to contain a certain amount of biofuel. EPA created credits, called Renewable Identification Numbers, or RINs, to account for the biofuels and ensure compliance. When ethanol is blended into a gallon of gasoline the blender is assigned one RIN credit. The RIN credit is “detached” from the ethanol and submitted to the EPA to show program compliance. The RIN can also be “banked” for future use or sold on the open market.

The problem began when EPA placed the “Point of Obligation” — or responsibility for collecting and submitting RINs — on refiners. This structure would have made sense if the oil industry only consisted of highly integrated and large companies that controlled most of the fuel supply chain. Then, the refiners would be the blenders and having them responsible for submitting the RINs credits would make sense. However, a significant portion of the refining industry consists of independent refiners that do not engage in any oil production, nor do they own terminals where biofuel is blended into gasoline.

Unfortunately, the RIN program does not reflect these marketplace realities. Large international oil companies that own more blending facilities than refineries generate more RINs than they need for compliance. The situation results in a government created subsidy for these global giants who are generating surplus RINs in their blending operations. Independent refiners with no blending operations must buy these RINs from the big blenders — regardless of price — to comply with the law.

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