People all across the United States have by now seen American Petroleum Institute (API) ads targeting the Renewable Fuel Standard, or RFS. While these 15-second TV ads have focused generally on problems with the federal biofuels mandate, they have overlooked one of the most troubling aspects of the program: the damage that EPA implementation decisions have inflicted on our national security. Even if the RFS remains in place, the trading program that mandates compliance with it must be fixed in order to maintain a strong domestic refining sector.
The Environmental Protection Agency (EPA) frequently points to national security in its justification for environmental programs. Yet, in spite of the rote frequency with which EPA makes these claims, it has failed to provide any specific or credible analysis to verify the security case for them. If any such meaningful analysis were done, it would likely find that the RFS compliance program with its controversial and costly Renewable Identification Number (RIN) market poses a serious threat to one of the most important components of our national security: a robust United States refining sector.
Put simply, to demonstrate compliance under the current program, refiners must submit RINs, which are unique identifiers that correspond with a batch of biofuels. These identifiers are created not by refiners but instead by those entities that blend biofuels into refined gasoline and then are bought and sold on an unregulated market.
These unregulated RINs, however, must then be submitted to the EPA only by refiners who must demonstrate compliance with the standard. This tortuous market structure has resulted in significant consequences as the cost of compliance by only refiners has skyrocketed and as renewable fuels have not reached the level of market penetration envisioned by Congress.
Once generated, RINs can be sold to any number of parties, including speculators, who are not subject to any oversight. As a result, the RIN market has emerged as the largest unregulated commodities market in the United States. This status opens up the potential for fraud and has caused considerable volatility and corresponding financial harm. Price spikes, delays, and uncertainty have come to characterize the RIN marketplace. For refiners, RIN-related financial exposure is growing and often exceeds labor costs, maintenance costs, and logistics.
As expenditures continue to creep upwards, refineries could have no choice but to curtail production or shutdown altogether. This heralds dire consequences for our national security because a strong and competitive refining sector provides the United States with significant and often under-appreciated national security benefits.
Robust domestic refining is necessary to effectively process crude oil into gasoline, diesel, jet fuel, and other refined products and petrochemicals, which are central parts of our national security. Military assets mobilize on petroleum products; they do not run on crude. So, outcomes that could undermine our strong refining base directly constrain the operational flexibility necessary for the modern projection of force.
I have testified before House and Senate Committees on the importance of strong refining assets to our national security. Just this summer, I also provided comments to the EPA that, on almost every front, the RINs program makes it difficult for RFS to achieve its core mission of creating energy security and independence for the United States. Aside from the impact on our domestic refining base, the RINs mechanism also needlessly facilitates the export of gasoline, stimulates dependence on foreign ethanol, and directly increases risks to our military.
While the American Petroleum Institute supports general legislative changes to the RFS, their position fails to embrace important administrative reforms to the RINs program like changing its point of obligation. Changes like these would protect consumers and small businesses. It would also make the program better support our national security objectives by shoring up the domestic refining base — a critical lynchpin to preparedness and mobilization logistics. API implores us to “tell Congress” to “fix” the RFS. In my view, we should also be telling EPA to work towards fixing the program itself.
Retired U.S. Navy Commander Kirk S. Lippold spent 26 years in the Navy and was in command of the USS Cole in 2000 when it was attacked in Aden, Yemen, harbor by al-Qaida terrorist suicide bombers, killing 17 U.S. sailors and wounding more than three dozen. He is the founder and President of Lippold Strategies, a leadership and national security consulting firm.
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