A bipartisan group of senators introduced legislation on July 20th that would eliminate the corn ethanol volume mandate that requires oil refiners to blend corn-based ethanol into their fuel mix. The biofuel mandates have forced fuel suppliers to mix billions of gallons of ethanol into gasoline and diesel. Senators Pat Toomey and Bob Menendez, representing the oil refining states of Pennsylvania and New Jersey, correctly claim that the mandates raise fuel costs and pose a threat to refinery jobs. Democratic Senator Dianne Feinstein from California and Republican Senator Susan Collins from Maine also joined Toomey and Menendez in introducing the bill.
Congress originally created the Renewable Fuel Standard (RFS) program under the Energy Policy Act of 2005, and it was later expanded under the Energy Independence and Security Act of 2007. The program was ostensibly conceived to reduce dependence on foreign oil, a justification that the fracking revolution later rendered moot. Proponents of the RFS have since shifted their arguments to claim that the program’s purpose is to reduce fuel costs as well as greenhouse gas emissions.
The RFS requires refineries to blend their fuel with biofuels, with the largest portion coming from corn-based ethanol. Under the law, the EPA sets annual quotas for conventional renewable fuel (usually corn-based ethanol), advanced ethanol alternatives made from non-edible material and biodiesel. These quotas are then translated into blending requirements for individual refiners. Companies that do not meet their blending mandates must buy Renewable Identification Numbers (RINs) to cover the difference, unless they are small refineries that qualify for hardship waivers. The original statute lists specific volumes of each biofuel category through the year 2022. In subsequent years, annual mandates will be set at the discretion of the EPA. The program has allowed the amount of ethanol blended into the country’s fuel supply to far surpass levels which would occur in a free-market. Currently, most motor gasoline sold in the US contains ten percent ethanol (E10).
Costs of the RFS
According to the Government Accountability Office (GAO), the RFS has failed to achieve all of the program’s stated goals in that it has not lowered gasoline prices or significantly reduced greenhouse gas emissions. Fuel costs for Americans are artificially inflated due to the low energy content of ethanol, and also by the high costs faced by fuel companies trying to comply with ill-conceived fuel regulations, such as the need to buy RINs if they have not blended sufficient ethanol into gasoline. Ethanol is advertised as a positive blend to gasoline because it is cheaper and supposedly helps reduce emissions of air toxics, but that is not the entire story. Although it is true that ethanol is cheaper and its blending with the pure gasoline does drive the price down, a gallon of gasoline provides one third more energy than a gallon of ethanol. Simply put, although ethanol is slightly cheaper, it burns away faster making the effect of ethanol on the price of gas a net increase. Current rules under the program require an increasing volume of biofuels in gasoline until 2022, putting a further burden on petroleum refiners. The RFS has additional environmental costs because it incentivizes the development of more farmland.
In addition to higher fuel costs, required increases will push refiners against a “blend wall” beyond which their products can cause harm to vehicle performance and costly damage to engines and catalytic converters. Ethanol can be corrosive to rubber, gas tanks, and other materials making the blended gasoline especially harmful to smaller engines such as those in boats and lawnmowers. The plant-based alcohol also attracts and bonds with the water in the air forming a brown goo that works to clog up pumps and filters. The mandates and subsidies imposed by the government cause a problem because citizen’s vehicles will ultimately receive the brunt of the damage. Along with this, ethanol is an alcohol, and alcohol is a highly corrosive substance over time. Ethanol is extremely harmful in older cars and engines because it can start to dislodge the build-up of carbon deposits from inside the engine.
Who Benefits from the RFS?
Industrial corn farmers are the primary beneficiaries of the RFS because it boosts demand for the products that they produce. The costs, though, are passed onto everyone else in the form of lower quality gasoline. This is a typical feature of government programs in that the RFS concentrates benefits on well-organized interest groups and transfers the costs to everyone else. Moreover, government officials often benefit themselves with the subsidies they hand out to such groups. This is because the direct beneficiaries tend to support the politicians who funnel them money. Politicians are reluctant to strike programs such as the RFS, lest they lose the support of these key groups of voters and donors. This is evident based on the amount of money the biofuel industry showers on lawmakers. During the 2008 through 2014 election cycles (a period when the most heated political battles over the RFS occurred), the industry gave federal lawmakers $10.9 million in campaign contributions. In terms of direct lobbying, from 2008 to 2014, the industry spent $188 million on lobbying federal lawmakers on a number of items, including the RFS.
The RFS is an inefficient, counterproductive way to reduce emissions from transportation and a harm to consumers in that it raises fuel costs. It is time to eliminate the RFS.