Senate Hearing Exposes Flawed Ethanol Mandate

Image: Flickr/snake.eyes

The Senate Environment and Public Works (EPW) Committee held a hearing this week on the Renewable Fuel Standard (RFS). The hearing comes on the heels of the Environmental Protection Agency’s (EPA) proposal to reduce the total volume obligation for 2014.

Testifying at the hearing, American Fuel & Petrochemical Manufacturers (AFPM) President Charles Drevna explained some of the flaws with the RFS:

In addition to the technological innovations in oil and gas production leading to an energy renaissance in the U.S., we now know that the RFS is raising food and fuel costs, increasing GHG emissions, reversing advancements in air and water quality, and increasing the likelihood of engine damage. While the law is flawed at its core, its implementation has demonstrated the extent of the mandate’s unworkability.

Drevna is spot on. The RFS was premised on the assumption that America’s energy resources were scarce and dwindling. When Congress expanded the RFS in 2007, U.S. oil production was declining, while domestic gasoline consumption was rising, prompting Congress to mandate the use of ethanol. Six years later, America’s domestic energy renaissance—driven by increased production of shale energy resources on state and private lands—has resulted in the highest levels of domestic oil production in 25 years. Meanwhile, gasoline consumption has leveled off, not risen, due to more fuel efficient vehicles and Americans simply driving less. America’s new energy landscape is no longer one of scarcity, but rather of abundance.

In addition to flawed assumptions, the RFS causes unintended consequences that harm almost anyone who eats food or drives cars. The vast majority of ethanol in the U.S. is derived from corn. Mandating ever-rising volumes of ethanol as fuel increases demand for corn, thereby increasing its cost. Indeed, corn prices have risen about 70 percent since the RFS was passed—driving up the price of feed for cows, chicken, and hogs.

As the National Council of Chain Restaurants (NCCR) explains in a new advocacy campaign, the RFS imposes enormous costs on fast food chains. Wendy’s franchisee Mark Behm tells NCCR that the ethanol mandate has prevented him from expanding operations and forced him to cut benefits for his employees. White Castle President Lisa Ingram says flatly, “We’re not out there creating new jobs because of RFS.”

The RFS not only makes food more expensive, but it also raises gasoline prices. A gallon of ethanol is less energy dense than a gallon of gasoline. This means that as the ethanol content of gasoline increases, fuel economy decreases. Indeed, the energy-adjusted price of E85—ethanol that contains up to 85 percent ethanol—is currently almost 80 cents higher than conventional gasoline that contains about 10 percent ethanol.

In his testimony, Drevna praised the EPA’s proposal to cut the 2014 RFS as a short-term fix, but stressed that congressional action is necessary to provide long-term relief to Americans.

AFPM believes a two-step process is needed to alleviate the problems. Although it should go further, EPA is undertaking the first step to reduce the 2014 mandates using its discretionary waiver authority. This authority is merely a band-aid, however, as EPA’s authority extends only a year at a time. Ultimately, Congress needs to take action to begin rolling back this unworkable and anti-consumer mandate – and soon.

The RFS is a fatally flawed policy that makes food and fuel more expensive, harms vehicle engines, and distorts the market. By forcing motorists to consume fuels that bureaucrats deem worthy, as opposed to what makes the most economic sense, the RFS takes important choices about how to balance food and fuel conflicts out of the hands of American families. The EPA’s proposal may provide temporary relief, but the only workable long-term solution is to end the RFS.

IER Policy Associate Alex Fitzsimmons authored this post.