A Postindustrial columnist, farmer, and candidate for Michigan’s State Senate writes about the rising cost of diesel and who is to blame.
I have been asked dozens of times by my rural friends and neighbors how the price of diesel got out of control. Many of us remember when it was half the price of gasoline.
With gasoline at $4.50 in Michigan, diesel should be at $2.25. Instead, it is at $6.50. Surely this must be the fault of Democrats?
There is a lot of blame to go around
A lot of fingers have been in the pot, stirring up the price of diesel.
It started with three Republican presidents. Nixon and his price controls. President Reagan increased the federal tax on diesel to be 30% higher than gasoline. It was President Bush who mandated Ultra Low Sulfur Diesel through the EPA.
This requires more refining and reduces lubricity, which then requires an additive. President Bush also started the biomass diesel push in his 2007 energy bill. This is where environmentalists and soybean and corn farmers aligned for a brief moment.
It was President Obama who mandated DEF (diesel emission fluid) in vehicles in 2009, which crushed diesel sales in the US – the last diesel being sold in 2019.
With volume gone, gas stations naturally had to charge more for diesel to maintain profitability on an underground tank dedicated to diesel.
President Obama’s EPA then foolishly mandated DEF in farm equipment, an insignificant contributor to pollution at less than 1%.
DEF systems are notoriously unreliable, and farmers don’t have access to truck stops if something goes awry. Think of a combine used 1 week per year. It makes no sense to put a fragile system on that piece of equipment.
The system can gum up just by sitting in storage (farm equipment manufacturers loved it because repairs are expensive).
There were farmers who were in the middle of a harvest who suddenly couldn’t complete the harvest because a sensor or injector failed. This made no sense.
By 2000, environmentalists were well on their way to shutting down US refineries and blocking the construction of new ones. 30 have closed since 2000, and we haven’t built a new one since the 1970s.
China has built 34 mega refineries since 2000, capable of refining any crude.
This means all our refineries are operating at capacity, with no room for breakdowns or routine maintenance.
It also means that refiners are making money hand over fist. Lots of demand and a fixed supply.
Meanwhile, Trump’s EPA increased the biodiesel mandate by 60% earlier this year. The president views this as “plow baby, plow” for energy security.
The problem is that this is a credit-trading system, and there aren’t enough credits to go around yet. The required credit price has more than doubled, and that’s reflected at the pump. This is simple accounting: the price of diesel is increasing. The diesel doesn’t necessarily contain any biomass.
I have a friend who owns a small oil company and blends fuels. If he sells diesel overseas, he makes three times what he makes domestically.
Naturally, he keeps his loyal domestic customers happy but tries to export the rest. The second benefit of exporting is that our biomass diesel requirements do not apply to exports.
The compliance and administrative headache goes away if you simply sell your diesel overseas. It creates a perverse incentive to sell in foreign markets rather than US markets.
Who is most at fault here?
You decide. Like most things, it is complicated.
I caution Democrats from leaning too hard into the blame game.
Perception is reality, and there is a lot of blame that can be laid at the feet of environmentalists and Democrats. Be very careful here.
