OPINION:
In a moment that surprised approximately no one, President Donald Trump recently complained that oil companies are making too much money, and they ought to give some of it back. Left unsaid, of course, is that oil companies are making money because of increased prices for the product they sell. Those increased prices are a direct result of a conflict that the companies did not start and almost certainly would rather not have.
This follows on the president’s order to the Justice Department in June to investigate big oil companies for not bringing gasoline prices down fast enough, as crude oil prices temporarily dropped. For context, the average U.S. retail gasoline price is now north of $4 per gallon, up from less than $3 per gallon before the United States launched attacks against Iran in February.
The American Petroleum Institute gave it the old college try, noting that prices are the result of global supply and demand, and continued uncertainty around the Strait of Hormuz. In other words, the fault, dear Brutus, is not in our stars, but in ourselves.
The good news is that if the current administration is concerned about gasoline prices, there is a simple, immediate solution: Suspend the ethanol mandate (also known as the Renewable Fuel Standard). That mandate requires refineries to blend an amount of ethanol and other bio-based fuels into the gasoline supply equal to about 10% of the total fuel consumed each year.
It will probably not surprise you to discover that this government mandate, like all government attempts to “manage” the marketplace, increases costs and reduces performance. According to some, the ethanol mandate costs drivers and their families about 45 cents per gallon, or, if you like big numbers, the total annual economic cost is projected at about $88 billion.
To put those 45 cents per gallon that the farmers make off of each gallon into context, the federal government takes a bit more than 18 cents per gallon in taxes. State governments take anywhere from 71 cents (California, of course) to 9 cents (Alaska) per gallon; the average is around 33 cents.
What do refiners make per gallon? According to the Energy Information Administration, refiners, on average, earn less than 10 cents per gallon.
There are about 1.6 million farms in the United States, and they receive, on average, $13,000 each year from taxpayers. The average for the bigger farms is more like $65,000 a year. That doesn’t even count programs like the ethanol mandate. We all admire and respect our farmers. At some point, though, it seems reasonable to conclude that they get enough from taxpayers.
This Thursday morning, the Senate Committee on Agriculture will consider the Farm Bill. As part of that, they will make changes to the ethanol mandate that will place a greater economic burden on drivers, families, businesses, local institutions on fixed budgets, such as schools and hospitals, and the poor and elderly.
There are those who will benefit from these changes. These changes will give increased government-driven assistance to American farmers. They will help foreign-owned companies (from places like Israel and Canada) that have broken up their operations into numerous small refineries, which are exempt from the mandate. Some will shift the burden of compliance from these smaller refineries to larger American refining companies.
In rearranging these particular incentives, the Senate (and their friends in the administration) are, perversely, providing incentives for small refineries to stay small. That seems unwise and is probably unwitting.
You know who won’t benefit? American consumers. The entire ethanol racket is designed to transfer cash from the driving public to farmers. The Senate Committee on Agriculture is all teed up on Thursday to accelerate and exacerbate that process.
So, the next time someone in the government complains about oil companies making too much money, remember that the government itself is helping to increase those prices, because, at least to them, farmers are more important than drivers.
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