What mandates imply

June 4, 2012
Oil and health care have something in common, but you’ll have to take a curvy ride through this little exposition to see why.

Oil and health care have something in common, but you’ll have to take a curvy ride through this little exposition to see why.

This month, the US Supreme Court will disclose its decision in a challenge to the Patient Protection and Affordable Care Act, the landmark health-care reform bill passed in 2010. At issue is the so-called individual mandate, which requires Americans to buy health insurance if their employers don’t provide it, whether or not they want to.

Opponents of the law think forcing people to buy something they don’t want is unconstitutional. Supporters obviously disagree. An open question is whether the whole law collapses if the Supreme Court rejects the individual mandate.

Another interesting question is what happens to President Obama’s reelection prospects if the signature legislative achievement of his first term in office flunks the legal test. But this isn’t a political column. It’s also not a legal analysis. Justices of the nation’s highest court will thrash out the legalities.

Sellers for buyers

The focus here is on what’s implied by a mandate to buy something. For example, mandated buyers need assurance that there are sellers.

In the matter of health insurance, this seems not to be a problem. Indeed, the insurance industry largely supported the 2010 reform bill, even though the measure imposes tough requirements on the business, because the individual mandate would so greatly expand its market.

With energy, mandated transactions work in the opposite direction. Congress requires sales rather than purchases of the energy forms for which it wishes to create markets.

Requiring companies to sell something seems not to raise the same degree of legal discomfort that requiring individuals to buy something does.

Logically, though, sales imply purchases. With renewable portfolio standards, for example, the law doesn’t require power companies merely to offer electricity generated by wind turbines or photovoltaic plants for sale. It tells them to, by gosh, sell it. Mandated sales imply the existence of buyers. Indeed, when power companies sell the mandated electricity from wind and solar sources, someone buys it whether they want to or not. A purchase mandate is implicit in the sales requirement.

Is there a constitutional issue here?

Well, no, probably not. Economics probably washes out whatever legal burbles might exist here. Most users of electricity don’t know or care how the current that illuminates their homes and conditions their air originates as long as it’s affordable. Nobody notices the high costs of electric power from wind and solar sources, which gets subsidized one way or another and rolled in with costs of cheaper electricity. Nobody’s likely to make a Supreme Court case out of that. In one energy area, though—an area close to the oil business—logic and law collide.

A mandate to sell something implies not only the existence of buyers but also of the stuff that’s supposed to be sold. Requiring somebody to sell something nonexistent isn’t logical. It isn’t fair. It isn’t right. It shouldn’t be legal. But that’s happening with ethanol made from cellulose.

According to a 2007 energy law, refiners are supposed to sell a total of 500 million gal of cellulosic ethanol in gasoline this year—and as much as 2.5 billion gal to the extent cellulosic ethanol might satisfy another mandated category called “advanced biofuel.”

But the gasoline additive exists in nowhere near those amounts. Nobody’s making it commercially.

The law lets the Environmental Protection Agency lower the requirement under these conditions. The agency exercised that authority last year, requiring refiners to blend a total of 6.6 million gal of cellulosic biofuel instead of the 2011 statutory volume of 250 million gal. But that was still roughly 6.6 million gal more cellulosic biofuel than was available. The American Petroleum Institute asked EPA to eliminate the mandate. On May 25, EPA denied the request.

A tax?

Refiners unable to meet the mandate have to buy credits. For an industry as large as refining, the financial hit isn’t large. But by requiring the sale of something that doesn’t exist and thereby forcing sellers to incur a cost, EPA is, in effect, imposing a tax.

According to the US Constitution, the Executive Branch doesn’t impose taxes. Congress does.

When the Judicial Branch finishes with the individual mandate in the health-care law, it might usefully turn its attention to this offense to reason and fairness.

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About the Author

Bob Tippee | Editor

Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.