It is quite a shock when an industry, built by taxpayer dollars and surviving on government support, touts the importance of fair competition. Clearly, advocates of the Renewable Fuel Standard (RFS) and its biofuel blending mandates lack a basic understanding of how markets work here in the United States. Worse still, they feign ignorance and completely deny that their bread-and-butter policy is dealing a blow to our economy — raising costs for fuel, food and engine repairs for consumers, constraining vital American industries and failing in its goal of protecting the environment.
Where is the fair competition if the government demands that all fuel contain ethanol? Every year, the RFS requires that increasing quantities of biofuel be blended into the U.S. gasoline supply. We’re reaching the point at which gasoline will need to contain more than 10 percent ethanol (E10) to meet the standard. One such “option” is gasoline with 15 percent ethanol (E15). However, the Environmental Protection Agency (EPA) has only approved E15 for use in vehicles models 2001 and later, despite repeated warnings from automakers including Chrysler, General Motors, Mercedes-Benz, Toyota, Hyundai and several others that their warranties would not cover the “approved” vehicles that have been fueled with E15.
Americans have made it abundantly clear that they’re not on board with this forced introduction of a lesser fuel. The other option for introducing higher ethanol blends is E85 (60-85 percent ethanol), which has been available to owners of flex-fuel vehicles for years — yet just 4 percent of flex-fuel vehicles drivers who used the fuel once actually chose to use it again. Perhaps this is because ethanol contains 33 percent less energy than gasoline, resulting in lower fuel economy and more visits to the pump. AAA reports that E85, when adjusted for its lower energy content, is more than 50 cents costlier than gasoline. But, as expected, Big Ethanol maintains that ethanol is cheaper than gasoline.
And the consumer costs keep climbing. By increasing demand and prices for corn, the RFS is pushing up prices for animal feed, which is the largest cost in raising chickens, turkeys, cows and hogs. American food producers and retailers are being hit hard, and these costs are passed along to consumers who have seen an 18 percent rise in food prices since the RFS was enacted.
In addition to causing trouble for consumers, the RFS also puts refiners in a costly predicament, holding them responsible for blending a fuel that no one wants. Each year, fuel refiners and importers must demonstrate to the EPA that they have blended RFS-designated amounts of ethanol into fuel. But due to lack of consumer demand for fuels like E15 and E85, as well as the constraints of the infrastructure needed to transport, store and dispense fuel, refiners are simply unable to meet RFS targets. To close the gap and show compliance with RFS to the EPA, refiners as obligated parties must purchase ethanol credits known as Renewable Identification Numbers (RINs) on the open market, assuming another refiner or blender was able to sell extra ethanol.
RINs are not free.
These credits, representing each gallon of ethanol produced, have increased in price from just 2-3 cents at the end of 2012 to more than $1 per gallon earlier in recent weeks, which add substantially to refiners’ operating costs.
But it’s more than consumer groups, farmers, food producers and refiners speaking out against this misguided policy. Anti-hunger groups, outdoor recreation organizations and engine and equipment manufacturers are also among those opposing the RFS. Even many environmental protection groups have turned on the policy, having realized that growing enough ethanol feedstock to meet the mandate is causing rapid land-use change that is destroying wild grasslands natural habitats, monopolizing unconscionable amounts of water and increasing greenhouse gas emissions. Regardless, the EPA, backed by the ethanol lobby, continues to argue that the RFS benefits the environment.
Congress had laudable intentions when it passed the RFS, but the past six years have underscored the costly economic and environmental impacts of this policy. It is time to restore competition and consumer choice to the fuel markets, and for Congress to repeal the Renewable Fuel Standard.
Drevna is president of the American Fuel and Petrochemical Manufacturers.