Time to reform renewable fuel policies for the public interest

Time to reform renewable fuel policies for the public interest
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Many members of Congress have serious concerns about the Renewable Fuel Standard (RFS) authorized by the 2007 Energy Independence and Security Act. Skeptical officials have questioned whether the RFS mandates generate substantive environmental benefits, or only impose costs on consumers and the economy as a whole. But thank heavens for small mercies!

The Environmental Protection Agency (EPA), which oversees the use and consumption of all renewable fuels, recently announced that next year’s RFS mandates will again waive the requirement that American drivers use 7 billion gallons of cellulosic biofuel. The EPA projects that cellulosic biofuel will make up less than one-hundredth of 1 percent of gasoline consumed.

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Cellulosic biofuel was once hailed as the magic transportation fuel that would dramatically reduce greenhouse gas emissions. But while cellulosic biofuel can be produced from inedible plant sources such as switchgrass and corn stover, currently no commercially viable technology exists to produce it.

So instead of cellulosic biofuel, today, American cars burn a lot of ethanol made from corn, up to 15 billion gallons in 2018. That’s a lot of ethanol, but American consumers have reached the “blend wall” which is the maximum amount of ethanol that can be combined inexpensively with petroleum-based fuel.

Most gas stations are unable to store and sell gasoline with more than 10 percent ethanol, and many car owners worry that their vehicles will be unable to burn such fuel safely. In the case of snow blowers, for instance, the presence of any ethanol causes them to cough, splutter and cease to shift the white stuff from our driveways.

To avoid busting the blend wall, the fuel industry will use more biodiesel, some of which is made from domestic soybeans and some of which is imported. Some of the world’s biodiesel is made from palm oil from Malaysia and Indonesia, where large areas of tropical forest are cleared to make way for palm plantations. The biodiesel the U.S. imports may not include palm oil, but a U.S. policy that raises global demand for biodiesel raises global production of palm oil.

Biodiesel has benefited from another handout. Until the end of 2016, fuel blenders received a $1 per gallon tax credit against their U.S. federal tax liability for blending biodiesel into petroleum diesel. There were even instances where the expired tax credit was reinstated retroactively. Today, it is rumored that Congress will once again reinstate the 2017 biodiesel tax credit. Those eager for a biodiesel windfall can’t wait for the next bill.

A further concern is that there is widespread agreement that the Renewable Fuel Standard mandates have expanded corn and soybean production and increased fertilizer and other chemical use by farmers. The result has been increased pollution in U.S. waterways that has to be mitigated by many communities, cities and towns that range from the Midwest to the Louisiana Gulf.

The most sensible policy would be to abandon the “conventional fuels RFS,” as the corn-based ethanol is described, and let the marketplace determine how much ethanol to use as a gasoline additive. Climate change is real, but corn ethanol does little if anything to slow it down. Let’s go back to a pre-2007 world before policy makers were sold an “ethanol is environmentally wonderful” bill of goods.

The biodiesel RFS is a tougher proposition. Using some of the potential sources of biodiesel, such as animal fats and waste cooking oil, significantly reduces greenhouse gas emissions, but is expensive. Other sources such as palm oil are environmentally damaging.

No one knows the future. Cellulosic biofuel may turn out to be the clean fuel option for the future, or maybe solar powered electric cars will be the dominant technology. Further research and development of cellulosic technology should be encouraged, but there is no sense mandating its use before it is ready to be produced and consumed efficiently in greater scale.

In many ways, the Renewable Fuel Standard mandates are a case study in how not to structure government policy. They clearly benefit well-defined and well-funded special interest groups: the farm lobbies and ethanol and biodiesel producers. It is time for the country’s renewable fuels policies to be reformed in ways that serve the public interest instead of catering to the wants of special interests.

Aaron Smith, Ph.D., is professor of agricultural and resource economics at the University of California in Davis.

Vincent Smith, Ph.D., is a visiting scholar at American Enterprise Institute and professor of economics at Montana State University.