Biodiesel mandates fail consumers, undermine energy independence

Biodiesel mandates fail consumers, undermine energy independence
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Much to the chagrin of corn-state senators, the EPA is currently considering whether to lower the biodiesel portion of the Renewable Fuel Standard. This is a reasonable change to a badly flawed program, whose opponents, led by Sen. Chuck GrassleyCharles (Chuck) Ernest GrassleyGrassley blasts Democrats over unwillingness to probe Clinton GOP and Dems bitterly divided by immigration Thanks to the farm lobby, the US is stuck with a broken ethanol policy MORE (R-Iowa), see any adjustments to lower RFS obligations as a direct assault on ethanol itself.

Biodiesel mandates increase consumer costs. They invite egregious fraud. And they’re increasing America’s dependence on imported biodiesel fuel, knowingly at the expense of U.S.-produced fuels. Energy Information Administration and EPA records of import volumes and RIN generation numbers show that the problem is clear-cut.

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The RFS biodiesel mandate has quadrupled from five hundred million gallons in 2009 to 2 billion gallons today. And while domestic biodiesel production has grown in that time, it has not kept pace with the mandate.

 

Since 2014 there have been consistent gaps between production volumes here in the United States and the biodiesel volume mandated by the RFS. That gap all but guarantees imports will be needed to attain RFS compliance.

Biodiesel fuel is considerably more expensive than its direct competitor, namely petroleum diesel — roughly $1.34 per gallon more. It’s also less energy dense. Thus the biodiesel mandate forces the purchase of fuel that’s more expensive yet simultaneously packs less “go” per gallon. Consumers, including drivers and those who rely on trucks for deliveries, are paying for the mandate, and they are literally getting less bang for their buck. 

With only expensive options on the table to comply with the biodiesel mandate, imported fuel is sometimes the most competitively priced. That, combined with insufficient domestic production, has contributed to import volumes growing as the RFS mandate has increased. Just 7 million gallons of biodiesel were imported into the United States in 2009. Last year, imports exceeded 700 million gallons — a 10,000 percent increase.

The import surge is also evident within RFS compliance records. The EPA’s RIN credit system, which is used to track compliance with the mandate, shows that an increasing share of the biodiesel mandate is being met with imported fuel.

In 2011, 4 percent of generated biodiesel RINs were connected to imported fuel. In 2016, that was the case for nearly 30 percent. The biodiesel RIN program itself has been the vehicle for millions of dollars worth of fraud, with criminals selling RIN compliance credits and lying about actual domestic biodiesel production.

When the mandate is divorced from domestic production realities and continues to outpace production growth, it compels Americans to rely on imports. So what is supposed to be a “home-grown fuel mandate” actually requires imports be used in preference to domestic fuel.

When the same mandate allows only expensive options for compliant fuels, higher costs are imposed on Americans, too. And the recent levy of tariffs on biodiesel imported from Argentina will only raise those cost concerns. 

In an effort to address these issues and the risk of serious economic harm to consumers, the EPA is revisiting current volume mandates to determine whether they should be lowered in the years ahead. They should. And the Agency is right to be reviewing this part of the mandate. The RFS is a broken mechanism, but it would be less so if its biodiesel mandate were more connected and responsive to the volume of fuel produced here at home.

Due to the massive expansion of domestic oil and gas production over the last decade, energy independence and security is well within our reach. Ironically, the biodiesel mandate now takes us further from that goal. Crude oil imports have fallen sharply, and independently of RFS, since the mid-2000s, while imports of biodiesel have skyrocketed.

Congress should own up to its mistake and fix the RFS once and for all. In the meantime, the EPA is right to make adjustments to the biodiesel program that mitigate economic pain for American consumers and makes us less reliant on foreign biodiesel.

Thomas Pyle is president of the American Energy Alliance (AEA), a not-for-profit organization working to support abundant and reliable energy for America’s consumers and businesses.