Ethanol Mandates Mean Big Profits for Big Oil - $Oil $UNG $SPY $XLE $UWTI $BP $RDS.A $CVX

By Bob Adelmann

When the Energy Independence and Security Act of 2007 was signed into law by then-President George W. Bush, it was well-intended: It would increase America’s oil independence and reduce dependence on foreign oil, it would produce cleaner air, and it would help farmers.

The Act required refiners to add ethanol to every gallon of gasoline they produced. If a refiner decided it couldn’t (too costly) or wouldn’t (internal decision) do so, it would be required to buy ethanol credits. Those credits, called RINs (for Renewable Identification Numbers), are now being traded and reaping hundreds of millions of dollars in gains for the big oil companies. According to the New York Times, the Act has “inadvertently become a multi-billion-dollar windfall for some of the world’s biggest oil companies. . . .”

This is the perverse result of intervening in a complex system by politicians suffering from the hubristic belief that they can fully control the world around them. As free-market economist Milton Freedman famously stated, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”

Surprisingly, Exxon Mobil Corporation is the only one of the big oil producers that has the right idea: Don’t try to fix it; just repeal the entire program. For politicians, however, the temptation to “fix” a program they themselves installed may just be too much of a temptation. Which is another of those unintended consequences of government interference in places where it doesn’t belong.

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