Missing the forest for the trees on fuel prices

Washington can be a frustrating place where we get so bogged down in politics that we sometimes lose the forest for the trees. A case in point is the ongoing debate over the Renewable Fuel Standard, or RFS, the federal policy that is incorporating more domestic renewable fuels into our gasoline and diesel supplies.

Afraid of losing their stranglehold on the fuels market, petroleum groups have long complained that the RFS is unnecessary. More recently, their arguments have become more brazen, suggesting that renewable fuels are responsible for rising fuel prices. This is silly, of course. Consumers are smart enough to know that oil prices that spike at every sign of global unrest are the overwhelming driver behind rising fuel prices – as we've seen in recent weeks following the latest upheaval in Iraq.

ADVERTISEMENT
Unfortunately, the Congressional Budget Office (CBO) contributed to the confusion recently by issuing a misguided report that paints a tremendously misleading picture of the RFS and its impact on fuels markets. The report admittedly didn't address the elephant in the room – our dangerous dependence on petroleum and the global oil markets that dictate our price at the pump.

First, some background: The RFS was passed with resounding bipartisan support in 2005, under President George W. Bush, as Americans grew increasingly fed up with gas prices. What RFS supporters understood then, and what we need to be reminded of today, is that the economic threat from our oil dependence cannot be overstated.

Gasoline and diesel are the lifeblood of our economy. As fuel prices go, so do prices for just about everything else. Gambling on one source of fuel isn't just risky for our economic well-being, it's dangerous and costly for our national security. It's why we spend untold billions of dollars annually – with limited success – attempting to keep foreign supplies safe and reliable. And that doesn't even begin to address the public costs of pollution.

Instead of looking at these big-picture issues, however, the CBO's report took a narrow, short-sighted approach. The agency somewhat acknowledged the limitations of its analysis by admitting right off the bat that it did not attempt to quantify the costs of oil dependency or the benefits from diversifying the fuels market. The report instead looked at a variety of RFS scenarios for the future and attempted to forecast price impacts. The scenario that received the most attention was a remarkably unrealistic model in which there are significant shortages of biofuels in 2017, and the EPA does nothing to adjust the RFS requirements for blending biofuels.

You don't need a budget agency to tell you what the CBO report predicted: gas and diesel prices would spike under such a scenario. But what the CBO didn't clarify is that, in the real world, such a scenario won't happen. First, biofuels – particularly advanced biofuels like biodiesel and cellulosic ethanol – are making impressive strides toward becoming mainstream American fuels. Last year alone, for example, the U.S. biodiesel market grew to a record of nearly 2 billion gallons – exceeding the requirements under the RFS and reducing greenhouse gas emissions by up to 86 percent according to EPA data. Second, when it wrote the RFS, Congress built in tremendous flexibility to avoid just such a supply disruption, and the EPA has shown that it is ready and willing to exercise that flexibility to avoid harmful impacts if shortages occur.

Further, we now have years of demonstrated, on-the-ground success under the RFS to show that the doomsday scenarios we hear from the critics simply aren't panning out. The record proves that alternative fuels are benefitting consumers, not hurting them. In fact, independent analysis by respected economist Philip Verleger found the RFS saved consumers as much as $2.6 billion last year.

It's surprising to have to say this so often, but the real reason our fuel prices are inexorably climbing is that there is no free market. The fuels market is a monopoly, and consumers have no choices when they fill up their cars.

There is no silver bullet for changing that. We have built our oil dependency over a century, and we won't break it overnight. But policies like the RFS are moving us in the right direction, and we would all be better served if we remembered that consistently – not just when oil prices are inflicting so much pain on our pocketbooks.

Steckel is vice president of Public Affairs for the National Biodiesel Board.