I am always interested in diverse policy positions that affect my business. Differing opinions are necessary to arrive at good decisions. In order for opinions to advance the dialogue, however, they should be rooted in fact. Recently, the dialogue regarding the “point of obligation” contained within the Renewable Fuels Standard (RFS) is being distorted by special interests and opinions rather than facts. This was the case when Andrew Langer of the Institute for Liberty recently wrote in these pages about the RFS.
It is my intent to draw scrutiny to these factual problems so that reasonable dialogue can continue. My perspective comes from over 30 years in the fuels business. Currently, I am chief supply officer of RaceTrac Petroleum, a fuel retailer and operator of more than 700 convenience stores from Texas to Virginia. I am also the president of Metroplex Energy, a fuel supply and trading company and subsidiary of RaceTrac. These positions provide me with a unique perspective. RaceTrac is not an obligated party under the RFS, while Metroplex is an obligated party for a portion of its business. Under current law, refiners, fuel component blenders and importers are obligated parties.
{mosads}This has been the case for almost a decade. The market has completely adapted to this set of regulations. Mr. Langer asserted in his April 29 article that 150,000 jobs would be lost if the point of obligation, or the point at which gasoline refiners must comply with the RFS mandate to blend renewable fuels into gasoline, was not changed. Many of the jobs, he claims, would be in trucking and the convenience store industry. However, both the American Trucking Association and the National Association of Convenience Stores oppose changing the point of obligation.
Rather than “draining the swamp” as Langer suggests, his new regulatory framework would engorge it. Indeed, a myriad of new regulations would be required to enforce a program that would have significantly more regulated parties. Many of these would be small businesses, which would be unable to handle this new regulatory burden. Changing the point of obligation would actually cause the very job losses that Langer fears.
Additionally, Langer asserts that Renewable Identification Numbers (RINS) are generated at the point of obligation. This is simply wrong. Biofuel manufacturers create RINS and are not the obligated party. Obligated parties must acquire RINS based on their fuel production to demonstrate compliance with the RFS. Furthermore, the claims that RINS are traded at 20 times the value of a gallon of ethanol is not accurate. Ethanol RINS peaked at approximately $1.50 per gallon and are currently trading at approximately $.50 per gallon, far below the value of ethanol.
Finally, Langer claims that major oil companies run large chains of stations, and argues that changing the point of obligation would reduce fraud. However, over 96 percent of retail fuel outlets are owned by independent businesses, not the refineries. The only fraud that has been uncovered in connection with this program happened at the biofuel producer point and not at the obligated party level.
Finally, changing the point of obligations would not level the regulatory playing field. It would simply burden the businesses least able to accommodate a new regulatory “swamp” and force them to pay higher prices for the fuel they resell. Changing the regulation would disrupt the fuel distribution system thereby increasing fuel prices. Additional regulated entities would further burden EPA and increase potential for fraud.
It is clear that the winners in this change would be merchant refiners while the losers would be independent business and the consumers who would pay more for their fuel.
Max McBrayer is the chief supply office at RaceTrac Petroleum, a chain of gasoline stations and convenience stores across the Southern United States.
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