Originally published in the Sunday Providence Journal, December 4, 2022
This fall Rhode Islanders were hit with their own October surprise: a near 50% increase in their monthly electric bills to go along with this year’s record-high gas prices. And it all beings with failed state and federal public policy.
Unfortunately, energy costs will keep rising, with natural gas prices to rise about 9.6% annually. With many families now facing difficult “heating or eating” decisions, Rhode Islanders should know how energy prices got this high and what policymakers can do to remedy the situation.
Beyond the hyper-inflation and the geopolitical turmoil in Ukraine, President Biden is pointing the finger at major oil companies’ greed for excessive profits. His mis-informed statements reveal the President’s lack of understanding of the underlying root causes. In reality, overzealous green energy policies have artificially forced Big Oil and big electricity firms to hike the cost of energy on Rhode Island’s families and businesses. It is now painfully clear that such activist government policies must be repealed or reformed, not the oil companies themselves.
But, one major cost-driving issue rarely spoken of is the Renewable Fuel Standard, a 2007 federal law that requires oil refiners to blend ethanol into their gasoline. The theory was that ethanol would reduce carbon emissions; but this theory has been proven false. A study commissioned by the National Wildlife Federation and U.S. Department of Energy found that ethanol is at least 24% more carbon-intensive than gasoline.
One original congressional sponsor of RFS is even calling his legislation a “well-intended flop.”
Rather than protect the environment, the RFS has unwittingly allowed big oil companies to increase the price of gas for us all. Here’s how.
Blending ethanol into fuel isn’t easy. Most refineries can’t do it, as only the very largest refineries have the technology. So little-guy refineries are forced to purchase ethanol-mixed gas from big guys via something called Renewable Identification Numbers. RINs are digital IDs the government assigns to every gallon of ethanol-mixed fuel; tokens that must be purchased in order to produce this fuel.
And with near-monopoly power over these RIN tokens, greatly coveted by smaller refineries, Big Oil has driven up the price of tokens, originally just pennies per gallon, to almost $2 per gallon. These high RIN costs add 20-30 cents per gallon to wholesale prices, in turn driving up retail fuel and heating prices.
It’s not the retail sale of gasoline where Big Oil makes obscene profits, it’s on these RIN tokens; some experts estimating as much as a $1 billion windfall.
While this ethanol regulatory scheme has lined Big Oil pockets, it has decimated smaller refineries, who must pay millions in tributes for the tokens. The resulting “crack spread” (the difference between what refiners pay for crude oil and the benchmark wholesale price for gasoline and diesel) has recently become as high as 30-50 percent.
While wrong about the specific reasons, President Biden was accidentally correct that excessive profits are driving high gasoline prices. Counterproductive federal regulations have inadvertently become a major boon for Big Oil and a costly bust for energy consumers. This is not fair. RFS reforms must be made in Congress.
A similar electricity scheme is also costing Rhode Islanders. Artificially driving up prices to never-before-seen levels are misguided renewable portfolio standards as well as our state’s membership in the Regional Greenhouse Gas Initiative. RGGI, a cap-and-trade system that forces power producers to buy ‘tokens’ in order produce electricity, then pass those extra costs along to consumers. RGGI also purposefully limits supply.
Rather than complain about industry greed, state and federal lawmakers must understand that their own harmful public policy is at the core of these astronomically high energy prices. Energy policy reforms are the best way to mitigate the energy crisis that currently faces Rhode Island and the nation at large.
Mike Stenhouse is CEO for the nonpartisan RI Center for Freedom & Prosperity.