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RAHALL CANNOT ESCAPE HIS RECORD

January 8, 2014 by Leave a Comment
AEA Holds W.V. Congressman Accountable for Carbon Tax Budget Vote

WASHINGTON – The American Energy Alliance began today airing three weeks of radio and television advertisements holding West Virginia Congressman Nick Rahall (D) accountable for his controversial support of a budget that includes a carbon tax. West Virginia is the second largest producer of coal in the United States and the state’s electricity needs are met almost entirely by coal-fired power plants. If enacted, a carbon tax would be detrimental to Congressman Rahall’s constituents and the West Virginia economy.
AEA President Thomas Pyle released the following statement:

“When Congressman Rahall cast his vote in favor of a carbon tax, he clearly voted against the interests of West Virginians. Coal is the lifeblood of the West Virginia economy, but a carbon tax would kill coal and harm West Virginia families and all Americans. Not only do West Virginians rely primarily on coal for affordable electricity, but the coal industry also provides tens of thousands of good paying jobs in the state. By supporting a carbon tax, Congressman Rahall has shown his disregard for these jobs and the well being of his constituents.

“Actions speak louder than words. And by denying his actions in support of a carbon tax, Rahall is not only hurting his constituents in coal country, but adding insult to injury. West Virginia families deserve better from their elected officials.”

The television advertisements will air in the West Virginia markets of Bluefield-Beckley-Oak, Charleston-Huntington, Clarksburg-Weston, and Roanoke-Lynchburg. The radio ads will air in Beckley, Bluefield, Huntington-Ashland, and throughout other parts of the state. The total cost of the ad buy is approximately $350,000.

To read the fact sheet supporting AEA’s “Let’s See” ad, click here.

To view AEA’s “Let’s See” television ad, click here.

To read the fact sheet supporting AEA’s “Play Straight” ad, click here.

To listen to AEA’s “Play Straight” radio ad, click here.

To view AEA’s previous carbon tax ads, click here and here.

Filed Under: Press Releases

DOE to Americans: Want Heat? Pay More.

January 8, 2014 by Leave a Comment

Working through the auspices of the Regulatory Studies Program of the Mercatus Center, I have recently published a public comment on the Department of Energy’s proposed energy efficiency standards for residential furnace fans. Truly interested readers can follow the link and read the (brief) comment in its entirety, but in the present post I want to highlight some of the gaping holes in the government’s cost/benefit analysis to (attempt to) justify the regulation. The two takeaway messages are: (1) The government ignored its own procedural guidelines when calculating the alleged benefits from reduced carbon dioxide emissions. (2) The government admits it will make furnaces more expensive for many consumers—for a total incremental cost of either $3.1 billion or $5.8 billion, depending on the discount rate used—but is forcing that outcome anyway because those consumers can’t be trusted to make rational decisions when considering energy efficiency.

First let’s deal with the alleged benefits of reduced carbon dioxide emissions. Because the proposed rule would make furnace fans more energy efficient, DOE claims that the rule will, over time, lead to less energy use and hence lower emissions. To put a dollar value on the social benefits of that reduction in emissions, DOE uses the so-called “social cost of carbon,” which was estimated by the Obama Administration’s Interagency Working Group. The DOE claimed that the benefits from the emission reductions would be some $11.5 billion in present-value terms.

In my testimony to the Senate, I walked through the numerous problems with the Working Group’s analysis. For one thing, their estimate of the “social cost of carbon” fails to follow the guidelines on calculating economic impacts put out by the White House Office of Management and Budget (OMB). Specifically, OMB (the office in the White House that oversees the creation of new regulations) requires that regulatory cost/benefit analyses be performed using both a 3 percent and a 7 percent discount rate, and that the values be calculated from a domestic (not a global) perspective.

This puts the DOE and other federal agencies in an impossible situation. They are required to conduct cost/benefit analyses using a 7 percent discount rate, but they haven’t been provided with an appropriate estimate of the social cost of carbon using such a rate. We thus have the hilarious situation in which federal agencies have to report figures at “7 percent” but then explain in a footnote explaining that they’re actually using a different number. I already blogged about this in reference to a previous federal analysis, but the same pattern holds true with regard to DOE’s proposed rule for furnace fans.

Overall, the DOE’s analysis claims either $23.2 billion or $43.8 billion in total benefits from the proposed rule (depending on the discount rate used), contrasted with either $$3.1 billion or $5.8 billion in incremental furnace costs to consumers. Of those total benefits, $11.5 billion are attributed to reduced carbon dioxide emissions. Adjusting for just the two issues I’ve described above (the more accurate discount rate and domestic versus global calculations) would reduce the benefits from emission reductions to a mere $547 million, an enormous change.

Yet things get worse. At least half (depending on the discount rate used) of the alleged benefits from the DOE’s proposed rule on furnace fans comes not from reduced emissions, but from alleged cost savings to consumers. In other words, the DOE is arguing that imposing minimum energy efficiency standards on residential furnace fans will make Americans richer, because the higher initial price of the units will eventually “pay for itself” by lower energy bills.

Note that this isn’t even a “negative externality” argument such as they use with carbon emissions. No, here the DOE is engaging in pure paternalism, saying that American consumers are too shortsighted to recognize the benefits of lower energy bills. There are several academic papers explaining what’s wrong with this line of attack (which I reference in the formal comment linked above). In a nutshell, there are various reasons that consumers might quite “rationally” buy cheaper furnaces, even knowing that in the long run they will have higher energy bills. For just one example: Consumers might not be able to buy furnaces at a 3 percent finance rate, which the DOE analysis assumes (in one set of calculations).

For those wishing to see just how strained the federal government’s arguments are for imposing new regulations on American businesses and consumers, I encourage you to skim my public comment. It’s not fun reading, but it is instructive.

IER Senior Economist Robert P. Murphy authored this post.

Filed Under: Emissions Standards, Facts, News, Products and Power, Threats Tagged With: , , , ,

The Latest Case of Ethanol Fraud

January 6, 2014 by Leave a Comment

The Environmental Protection Agency (EPA) has accused another biofuel company of generating and selling fraudulent Renewable Identification Numbers (RINs), marking the fourth case of RIN fraud since the federal ethanol mandate was passed in 2005.

A RIN is a string of numbers used for identification when the ethanol industry produces a gallon of ethanol. Refiners acquire RINs as proof of purchase when they buy ethanol from producers, as required by federal law. These RINs—a creation of government regulation—have no intrinsic value other than to demonstrate compliance with the federal ethanol mandate, making them ripe for abuse.

Which is exactly what has happened. In a notice of violation issued on December 18, EPA claims that e-Biofuels, LLC, a subsidiary of Imperial Petroleum, Inc., generated and sold more than 33.5 million invalid biodiesel RINs between July 2010 and June 2011. EPA claims the company never produced the biodiesel.

The Renewable Fuel Standard (RFS) requires refiners to purchase and blend increasing amounts of biofuels into gasoline. Refiners who unknowingly purchase fraudulent RINs, which are required to demonstrate compliance with the biofuel mandate, can be held financially responsible for the illegal activity of biofuel producers. As Charles Drevna, president of the American Fuel & Petrochemical Manufacturers (AFPM), explains:

EPA unfortunately continues to hold obligated parties responsible for illegal activities perpetrated by biodiesel producers such as E-Biofuels. Following the EPA’s initial imposition of penalties against obligated parties who innocently relied upon buying government-mandated quantities of biodiesel from EPA-registered producers on an EPA-controlled trading system, the industry developed due diligence programs designed to reduce the risk of purchasing fraudulent RINs. In the absence of an EPA-approved affirmative defense tied to reasonable due diligence standards, the industry remains unfairly exposed to a system that actually penalizes the victim of fraud rather than focusing on the perpetrator of the crime. This most recent indictment increases the total number of invalid RINs to over 170 million.

EPA has entered settlement agreements with numerous refiners who were sold invalid RINs, many of which require refiners to pay significant civil penalties simply for trying to comply with federal law. Refiners have also been fined for failing to purchase and blend cellulosic biofuels, even though none existed at the time.

This latest violation comes after the U.S. Justice Department indicted in September six individuals, including four executives at e-Biofuels, on 88 counts including wire fraud, money laundering, and securities fraud for selling invalid biodiesel RINs. According to the indictment, e-Biofuels defrauded customers out of more than $55 million while the company collected as much as $35 million in federal tax credits. The Justice Department called it “the largest tax and securities fraud scheme in Indiana history.”

Other alleged violators include Green Diesel, LLC, Absolute Fuels, LLC, and Clean Green Fuels, LLC. These three companies are accused of generating and selling more than 140 million RINs for biodiesel that was never produced. Officials at Absolute Fuels and Clean Green Fuels were sentenced to prison and ordered to pay restitution for their crimes.

The latest RIN fraud case provides further evidence that the federal ethanol mandate is fundamentally flawed. Under the RFS, refiners can be fined either for purchasing RINs that they did not know were invalid or for failing to purchase fuels that do not exist. This creates a lose-lose scenario for refiners who are simply trying to comply with federal law. The only permanent solution is for Congress to repeal the RFS.

IER Policy Associate Alex Fitzsimmons authored this post. 

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: , , , , ,

For America, 2013 Was The Year of Energy

January 3, 2014 by Leave a Comment

United States oil production has passed yet another milestone, reaching its highest level in 25 years. According to the EIA, the oil industry produced 8.075 million barrels per day in the first week of December, the most since October of 1988. This increase in production is largely occurring on state and private lands and has been a rare bright spot for an otherwise struggling economy.

Technological strides in hydraulic fracturing and horizontal drilling have made it possible and economical for oil producers to tap into America’s vast shale resources. North Dakota is one of the states leading the way. Development of the Bakken shale play, which covers much of the western part of the state, has transformed North Dakota into one of the nation’s top oil producing states. This past October, North Dakota’s oil production reached a record high of 941,000 barrels per day and state officials believe that production will surpass one million barrels per day early in 2014. This dramatic increase is remarkable, especially given that the state produced just 124,000 barrels per day in 2007.

Texas, already America’s biggest oil producer, has also been a key contributor to the domestic shale revolution. The Lone Star State saw its oil production skyrocket from 1,072,000 barrels per day in 2007 to 2,726,000 barrels per day in September 2013, a 154 percent increase.  These record setting increases have put America on pace to surpass Saudi Arabia as the world’s leading oil producer in 2015.

The surge in oil production has not only put the U.S. on a path toward greater energy security, but it has also created a new frontier for Americans looking for work. From 2007 to 2012, the oil and gas industry added 162,000 jobs, a forty percent increase, compared to just a one percent increase in total private sector employment. The largest job growth has been in the support sector, which includes exploration, excavation, and well construction. The support sector alone has added 102,000 jobs since 2007, employing a total of 286,000 people by the end of 2012.

The areas where this increased production is occurring are enjoying low unemployment compared to other areas of the country. Once again, North Dakota is the most striking case of this, as the state is enjoying a 2.7 percent unemployment rate.

Although the Obama administration has taken credit for the uptick in production and jobs, this has actually occurred in spite of the administration’s policies. As an IER study shows, the amount of oil and natural gas currently being blocked from production by the federal government is staggering. According to the report, unlocking federal lands and waters to energy development would result in the following:

  • A GDP increase of $450 billion annually in the next 30 years.
  • $14.4 trillion cumulative increase in economic activity over the next 37 years.
  • Nearly 2 million jobs annually over the next thirty years.

In other words, the U.S. is just scratching the surface of its energy production potential. Opening up federal lands and waters to energy production would spur true economic growth, and not just in the energy sector. As the chart below demonstrates, domestic energy production is the catalyst for job creation throughout the economy.

This most recent milestone demonstrates once again that America is a world leader in energy production. On top of this milestone, the U.S. recently surpassed Russia as the world’s top producer of oil and natural gas. This energy renaissance has created hundreds of thousands of jobs and brought affordable energy to the American people, but it is just a glimpse of the U.S.’s energy potential. Unfortunately, as long as the Obama administration keeps federal lands and waters under lock and key, the U.S. will not fully reach that potential.

IER Press Secretary Chris Warren authored this post.

Filed Under: Facts, News, Products and Power Tagged With: , , , ,

Is the Administration Trying to Regulate Hydraulic Fracturing Through OSHA?

December 19, 2013 by Leave a Comment

The federal rulemaking process depends on sound science, especially when human lives are at stake. A proposed rule from the Occupational Safety and Health Administration (OSHA) would stiffen regulations for crystalline silica, a group of minerals used in numerous industries, including hydraulic fracturing. Prolonged exposure to respirable crystalline silica is associated with silicosis, an incurable disease that causes impaired respiratory function and scarring of the lungs. Unfortunately, OSHA’s proposed rule fails the sound science test.

OSHA’s rule relies on outdated data and ignores declines in silicosis mortality rates, according to Susan Dudley and Andrew Morriss of The George Washington University Regulatory Studies Center. Moreover, the rule would impose enormous costs on American manufacturers, including oil and gas companies involved in hydraulic fracturing.  As Dudley and Morriss explain in a public interest comment submitted to OSHA:

OSHA faces multiple challenges in devising a regulatory approach that will meet its statutory goal of reducing significant risk. However, the greatest challenge to reducing risks associated with silica exposure is not lack of will (on the part of employers or employees) but rather lack of information. Unfortunately, OSHA’s proposed rule contributes little in the way of new information, particularly since it is largely based on information that is at least a decade old, which is significant given the rapidly changing conditions observed between 1981 and 2004. [Emphasis added]

In addition to using old data, OSHA “does not recognize or attempt to explain the decline in silicosis mortality” over the last three decades, according to Dudley and Morriss. As the following chart from the Centers for Disease Control shows, silicosis deaths dropped 93 percent between 1968 and 2002.

 OSHA graph

By ignoring the precipitous decline in silicosis mortality, OSHA “misses opportunities to identify and encourage successful risk-reducing practices,” according to Dudley and Morriss. In other words, OSHA’s incomplete analysis has the potential to hurt the very workers it is designed to protect.

Dudley and Morriss also find that OSHA’s flawed approach is “certain to overstate the risk-reduction benefits attributable to the rule,” adding that “OSHA’s estimated benefits (of the stricter standards) are less than what would be projected if past trends were simply to continue.” The problem, of course, is that it is impossible to properly assess costs and benefits without recent data.

OSHA’s proposed rule represents the Obama administration’s latest attempt to undermine America’s shale energy renaissance, which would not be possible without hydraulic fracturing. By OSHA’s own calculations, the proposed rule would impose as much as $658 million in annual compliance costs, with the hydraulic fracturing industry incurring annual costs of up to $28.6 million.

OSHA has a statutory obligation to protect workers. But regulations, particularly those designed to protect human health, should be based on sound science and thorough analysis. OSHA fails on both counts, relying on outdated data and failing to discuss declining silicosis mortality rates. OSHA’s proposed rule not only threatens to undermine hydraulic fracturing operations responsible for America’s domestic energy boom, but it is also a disservice to the workers that OSHA is obligated to protect.

IER Policy Associate Alex Fitzsimmons authored this post.

Filed Under: Facts, News, Products and Power, Threats Tagged With: , , ,

What About the Social Cost of Corn?

December 18, 2013 by Leave a Comment

Imagine an alternate universe in which a new diet craze began in 2005, where fitness gurus urged Americans to massively increase their corn intake. The spiking prices led farmers to substitute corn for other crops, and to bring new land under cultivation to meet the exploding demand from consumers. Then an Associated Press investigation reveals the dark side to the new fad: Five million acres of land taken out of conservation and turned into farmland, wetlands filled, and water sources polluted with excess fertilizer.[1] Facing such ravages, the government establishes a committee of experts to estimate the “social cost of corn.” This calculation is used to enact a corn tax (levied in dollars per bushel), which will squelch demand and generate revenues to subsidize the development of non-corn food sources.

Something like the above scenario actually did unfold, except for one little detail: The reason for the spike in demand for corn came not from market forces, but from the government. Specifically, the Renewable Fuel Standard (originally passed in 2005 but considerably expanded in 2007) mandated an aggressive expansion of ethanol in the nation’s fuel mix, rising from 9 billion in 2008 to 13 billion gallons by 2012.[2] Combined with a blender’s tax credit and tariff on foreign ethanol (which expired at the end of 2011), federal policies have induced a massive increase in corn production from what the market would naturally have chosen.

Source: U.S. Department of Agriculture

As the graph above illustrates, the U.S. acreage devoted to corn had been fairly flat since the mid 1990s, yet began rising rapidly after 2007, pulling back only slightly because of the onset of the Great Recession in 2008.

It’s not hard to see why U.S. farmers behaved this way. The following chart shows the price of corn:

 Source: USDA 

We see a similar pattern as with our previous chart: a massive spike in corn prices going into 2007, a retreat with the onset of the Great Recession, but elevated prices thereafter. It’s not only corn prices, but all crops, that follow this general pattern. Of course there are complex factors involved in determining market prices, but the government’s ethanol mandate surely played an important role. As farmers substituted out of other crops and into corn, it reduced the relative supply of those other crops, raising their price to make it worthwhile to continue growing them. Thus, the government’s mandate not only pushed up the price of corn, but ag prices in general, including beef and poultry (because they may be raised on feed). This is another reason that even progressives have begun turning their backs on ethanol and other biofuel programs: they contribute to rising global food prices. There’s even a website with the snappy slogan: “Corn For Food Not Fuel.”[3]

However, notice that the chart above also indicates a steady collapse in corn prices throughout 2013. This is partially due to expectations of a revision in the EPA’s mandate for ethanol. These expectations were justified on November 15, when the EPA proposed new levels for its 2014 biofuel mandate.[4] Specifically, EPA reduced the ethanol requirement to 15.21 billion gallons, falling below the critical 10 percent threshold of motor fuel consumption, and 16 percent lower than the original 2014 level as established back in 2007.

The reason for the policy shift is that total motor fuel consumption is lower now—because of the recession and increases in vehicle fuel economy—than analysts had expected back in 2007 when the Renewable Fuel Standard was updated. Since the mandate was expressed in absolute gallons, rather than a percentage of the fuel mix, the original targets would have pushed the ethanol component above the “blend wall.” In other words, the original EPA target for 2014 would have required refiners to mix more ethanol in the fuel mix than could safely be handled by the current fleet.

The official rationale for the ethanol mandate was to promote “renewable” fuels, both for reasons of economic and military security, but also to mitigate the effects of climate change. Yet ironically, as the AP investigation reveals, the crash course in ethanol has not only distorted the economy—it’s also led to massive environmental disruption. At this point, it’s not merely fiscal conservatives who oppose federal support for ethanol; environmental activists are switching camps, too.

The problem isn’t merely that the massive push for ethanol has led to the farming of land formerly managed as conservation land. Ironically, some scientists have challenged the entire premise that ethanol mandates are an effective way to reduce carbon dioxide emissions. For example, if farmers are encouraged by federal policy to plant corn on land that was previously “set aside” for conservation, then the net result is to release more carbon dioxide into the atmosphere than would otherwise have occurred.[5] Considerations such as these led Craig Cox of the Environmental Working Group to declare, “This is an ecological disaster.”

Yet despite the EPA’s merciful nod to reality by easing up on the 2014 mandate, the Obama Administration is by no means throwing in the towel. When speaking to ethanol lobbyists on Capitol Hill, Agriculture Secretary Tom Vilsack reportedly said, “We are committed to this industry because we understand its benefits.” In what was perhaps too candid a statement, he elaborated: “We understand it’s about farm income. It’s about stabilizing and maintaining farm income which is at record levels.”[6]

Vilsack’s admission is the key to unlocking this puzzle. Even though the government would no doubt have vilified the “social cost of corn” (analogous to the “social cost of carbon”) as an extreme environmental threat had these economic and environmental disruptions originated from the market, the Obama Administration instead seems determined to press ahead. In light of the mounting evidence of which the scathing AP investigation is just the latest example, it becomes clear what is actually going on: As Secretary Vilsack explained, it’s about maintaining farm income.

IER Senior Economist Robert P. Murphy authored this post.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: , , ,

Bipartisan Group of Senators Calls for an End to the Wind PTC

December 17, 2013 by Leave a Comment

WASHINGTON – A bipartisan group of lawmakers, led by Sens. Lamar Alexander (R-TN) and Joe Manchin (D-WV), have joined today in opposition to another extension of the wind Production Tax Credit (PTC). In a letter sent to Senate Finance Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT), the Senators call for the permanent expiration of the wind PTC. AEA President Thomas Pyle released the following statement:

“The American Energy Alliance welcomes the efforts of this bipartisan group of Senators to put an end to the wind PTC. For decades, American taxpayers have bankrolled the wind industry, and the time has long past to allow the PTC to run its course. This tax credit was always intended to be temporary, but Big Wind has grown addicted to taxpayer subsidies, spending millions year after year to extend and even expand this unnecessary and expensive taxpayer giveaway and fleecing the American people out of billions of dollars along the way.

“Last year’s extension and expansion of the wind PTC alone cost the American people $12.1 billion dollars and another one year extension would cost another $6.5 billion. As Big Wind cries for another extension— even calling for its retroactivity in the event a measure isn’t passed before it expires as planned at the end of the year—this letter sends a strong message to the rest of Congress that it is time to put an end to wind welfare and ensure that the wind PTC blows away once and for all.”

To read the full letter, click here.

To read a comment from Thomas Pyle published today on the National Journal Energy Insiders Blog, click here.

To read IER’s study, “Estimating the State-Level Impact of Federal Wind Subsidies”, click here.

Filed Under: Press Releases Tagged With: ,

New Analysis Underscores Danger of RFS

December 16, 2013 by Leave a Comment

In a previous post we discussed the EPA’s proposed reduction to the 2014 biofuel mandate: Because motor vehicle consumption of gasoline has risen more slowly than legislators assumed back in 2007 when the Renewable Fuel Standard (RFS) statute was updated, the originally mandated targets would have required refiners to surpass the “blend wall.” In other words, the original mandates would have forced refiners to put more ethanol into the nation’s fuel mix than would be safe for many types of engines. That’s why in November the EPA proposed a reduction in the original targets, in recognition of this obvious problem with the original schedule.

A recent analysis by two scholars (Irwin and Good) from the University of Illinois Urbana-Champaign indicates that the EPA may face serious hurdles in this sensible move. The analysis also underscores what’s at stake, hence illustrating the danger of RFS regulations in the first place.

First, Irwin and Good explain that the EPA’s proposed rulemaking is quite controversial, because it changes EPA’s approach to enforcing the actual statutory language of the RFS. In their words:

This new implementation framework basically takes the E10 blend wall as a starting point and builds the mandated volumes up from this starting point.  EPA rulemaking in previous years worked in essentially the opposite fashion by taking the total RFS volume in the statute as the starting point and then reducing the cellulosic sub-mandate as needed.  Based on the new framework, the EPA preliminary rule making for 2014 proposed a write down of the cellulosic mandate, the advanced mandate, and the total mandate.

Even if EPA goes ahead with its proposed rule after receiving comments, Irwin and Good expect they will face legal challenges. (They link to a colleague’s earlier analysis of the legal issues involved.)

But what’s the big deal? What hangs in the balance on whether EPA can scale back the original ethanol mandate for 2014 (and 2015)? Irwin and Good assess the situation in this way:

If the proposed EPA rules are finalized and survive a court challenge, then blend wall problems generally will be resolved, the RINs market will likely return to pre-2012 price levels, and pressures in grain and oilseed markets will be largely abated.  If on the other hand the EPA rules are eventually overturned, then blend wall problems will return in short order, RINs stocks will likely be exhausted by the end of 2014, RINs prices will soar once again, and pressure on the grain and oilseed markets will in all likelihood resume.  Much hangs in the balance on the outcome.

Irwin and Good don’t draw the obvious implication from their analysis, but I will: It is very poor public policy when markets can be thrown into a tailspin on the basis of an arbitrary number created by political authorities. The RFS never made any economic sense to begin with, but the fact that the rules themselves are uncertain just adds insult to injury.

Even beyond the benefits of avoiding specific inefficient policies, a general framework of free markets is beneficial because it provides institutional stability. When producers and consumers know what the rules of the game will be for years to come, they can more confidently make investment and consumption decisions in the present. In our present environment, where people don’t even know what to expect three months from now, it is very difficult to rationally run a business or plan household finances.

IER Senior Economist Robert P. Murphy authored this post.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: , , ,

Senate Hearing Exposes Flawed Ethanol Mandate

December 11, 2013 by Leave a Comment

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.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: , , , , ,

How Mandating Ethanol Use Makes Your Big Mac More Expensive

December 10, 2013 by Leave a Comment

Have you noticed the price of beef, chicken, and eggs going up in recent years? This is what happens when federal laws require turning food into fuel. The Renewable Fuel Standard (RFS) requires refiners to blend ethanol into the nation’s fuel supply. Because the only domestic source of cost-effective ethanol is corn-based ethanol, this means that federal law mandates turning food into fuel.

As a new ad campaign explains, the Renewable Fuel Standard makes it more difficult for American families to put food on the table. In a new video, Feed Food Fairness speaks with chain restaurant owners who are struggling with higher food costs due to the federal ethanol mandate.

Wendy’s franchisee Mark Behm explains how the RFS hinders growth and hurts his employees. “We’ve had to cut back on the amount of capital improvements that we make in our restaurants,” he says. “Some of our employee benefits have been diminished.”

White Castle President Lisa Ingram points out that beef prices have risen 46 percent since the RFS became law. She notes that White Castle is a family-owned business with 406 locations that operate in 12 states and support more than 10,000 jobs. Ingram estimates the RFS costs each White Castle location about $15,000.

Ingram adds that the RFS is preventing her business from growing. “We’re not out there building new restaurants,” she says. “We’re not out there creating new jobs because of RFS.”

As we have explained on these pages before, the harmful effects of the RFS ripple throughout the economy. Chain restaurants, many of which are small and family-owned businesses, support millions of jobs across the country. Most chain restaurants operate on small margins, according to the National Council of Chain Restaurants. This makes it difficult for them to absorb higher food costs without passing those costs on to consumers, cutting jobs and benefits, or shuttering operations altogether. This is just one of many reasons the RFS is a flawed policy.

IER Policy Associate Alex Fitzsimmons authored this post.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: , , , ,
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