President Trump’s new rule on the year-round sale of E-15 ethanol-blended gasoline may be a huge gift to Midwestern corn producers (and Iowa politicians), but it doesn’t stand to work out that well for jobs in another decisive election state.
In an interview Thursday with CRTV, Sen. Pat Toomey, R-Penn., explained how the new rule by itself could end up hurting jobs in his home state.
“Whenever you’re dealing with changing the rules on ethanol, it seems you me, you ought to address the heart of the problem,” he said of the ethanol mandate. “This is a disastrous policy, an invention of the government that leads to these huge costs that are essentially unmanageable for merchant refiners in particular.”
Toomey would know a thing or two about how the mandate and its regulations affect refiners; there are two big ones in Pennsylvania that have had a rough time under the current regulatory scheme. And they won’t get any relief under the new rule, he says.
In a recent press release, Toomey called the move a “missed opportunity” because the administration didn’t couple it with any regulatory changes on renewable fuel standards.
“The opportunity for a deal here,” Toomey explained to me, “was some movement on E-15 in exchange for some limit on this horrendous artificial government invention called RINs.”
Renewable Identification Numbers are artificial, government-created credits that basically function as the “currency” of the ethanol mandate program. If a refinery doesn’t have the capacity to generate them by making renewable fuels, it has to buy them.
In some cases, the cost of compliance created by the system outpaces the company’s payroll, and that can lead to bankruptcy. Philadelphia Energy Solutions — the largest refiner on the East Coast — had to file for Chapter 11 bankruptcy earlier this year.
“They have no ability to generate RINs and no ability to blend ethanol; they therefore have to go out and buy these RINs, this completely artificial construct,” Toomey explained of PES and the other large Pennsylvania refiner, Monroe Energy. He adds that this scenario is “devastatingly expensive” and unsustainable.
“The danger is that at some point the investors decide this is not a viable business model and they close down a huge refinery,” which would mean an end to thousands of Pennsylvania jobs if that were to happen, Toomey explained.
But the Keystone State senator has a few ideas to address the situation.
“What we should do is we should have no ethanol mandate, let’s just be honest,” Toomey says. Noting that there is a natural demand for a “certain amount” of ethanol to be blended into gasoline, he adds that the market should determine the percentage rather than having “the government mandating an artificial amount of ethanol to be sold.”
However, Toomey acknowledges that it’s hard move the political needle on that and says that a good intermediate step to accompany this new administration rule would be to set a cap on RIN prices, which would keep compliance costs down and “minimize the damage” in the refining sector.
“There’s nothing natural, normal, or market-oriented about RINs,” Toomey says. “They’re entirely an artificial government creation.”
“If the cost is low enough, then this terrible policy doesn’t matter very much.”
And there is, of course, the fact that Pennsylvania is a critical swing state in presidential elections. Trump won the Keystone State in 2016, but putting its jobs in danger isn’t the best way to try for a repeat performance.
“Anything that can be linked directly to job loss would be problematic for whoever is deemed to be responsible for that job loss,” Toomey said when asked how endangering Pennsylvania jobs might play in his electorally critical state during the next presidential election.
And while Toomey also concedes that the potential damage to his state’s refining industry would likely be ameliorated by the backdrop of the “extremely strong” Trump economy, “that’s no reason to do damage at the margin and within particular industries.”
“Honestly, in the scheme of things, most voters will probably have something else as a higher priority,” Toomey concluded of the electoral consequences. “Unless you’re one of the unfortunate folks whose job is jeopardized by this, in which case, of course, it’s the number-one issue.”