Posted March 20, 2013
A new study by NERA Economic Consulting details severe impacts that could result by 2015 from continued implementation of the Renewable Fuel Standard (RFS) and its market-distorting biofuels mandates:
- An almost $800 billion decrease in the U.S. economy, as measured by GDP.
- $500 billion decrease in take-home pay for American workers.
- 300 percent increase in the cost of making diesel.
- 30 percent increase in the cost of making gasoline, which could result in rationing and other disruptions in the transportation sector.
- Greater impetus for the export of refined petroleum products.
The study analyzes how RFS mandates for biofuel use will exceed the fuel market’s ability to absorb those mandated volumes within three to four years – the “blend wall” discussed here. NERA:
“At that point in time obligated parties will not be able to meet market demand for transportation fuel and still remain in compliance with the RFS2. Therefore, after exhausting all other available options for compliance, individual obligated parties, each acting independently, could be forced to reduce their RIN obligation by decreasing the volume of transportation fuel supplied to the domestic market – either by reducing production or exporting. As domestic fuel supplies decrease, large increases in transportation fuel costs would ripple through the economy imposing significant costs on society.”
More from NERA:
“As the RFS2 mandate is ratcheted up every year, the fuels market will be pushed into a death spiral … The death spiral depicts the economic harm that occurs as individual obligated parties act to remain in compliance with the program. Once the blend wall has been reached, the annual increase in the (renewable fuel volume obligation) results in decreased fuel availability and increased fuel costs to society. These increased fuel costs have a broad impact across the economy.”
Bob Greco, API group director for downstream and industry operations, discussed the study during a conference call with reporters:
“The Renewable Fuel Standard program is irretrievably broken. … The simple fact is the law cannot be amended in a way to prevent its harm and, therefore, should be repealed immediately – a goal API continues to discuss with members of Congress. Our message to policymakers is clear – the RFS is bad policy for anyone that drives a car, transports goods, or purchases products that rely on gasoline or diesel … in other words, virtually everyone.”
Greco detailed problems with the RFS’ biofuel mandates:
- Unrealistic biofuel volume projections and the RFS’ requirement that refiners buy federal credits, known as Renewable Identification Numbers (RINs), to comply with increasingly unattainable mandates. The RINs published price has increased 1,400 percent in just the three months of this year, he said.
- Rising RINs costs are increasing refiner costs. For every dollar spent per gallon of ethanol on the RINs market, the cost of making E10 gasoline – the current standard fuel containing 10 percent ethanol – rises 10 cents. The increasing costs of RINs are impacting refineries and could put upward pressure on fuel prices.
“What’s more, according to the NERA study, as the RFS volume requirements increase, the challenge of meeting them also increases. NERA predicts that eventually many refiners won’t be able to get the RIN credits they need because the credits are finite. At that point, according to NERA, they have no effective options and will be forced to reduce their biofuel obligation either by decreasing fuel production – with diesel fuel impacted first – or by exporting fuel, since exported gasoline and diesel aren’t subject to the RFS. Bottom line, the NERA study points to a direct causal link between the RFS program, reduced domestic fuel supplies and ultimately higher energy costs for consumers.”
Research has shown that meeting the increasing RFS biofuels mandate by producing gasoline with a higher percentage of ethanol than is present in E10 risks damaging the engines and/or fuel systems of millions of cars on the road today. Greco:
“Ethanol and other renewable fuels have an important role to play in increasing America’s energy security, and are an important piece of our transportation fuel mix. But the federal RFS mandate is ill-conceived and continues to be inflexible. As a result, NERA projects that the RFS will cause real-world damage, and API believes that Congress and the administration should act immediately. To that end, to protect consumers, refiners and thousands of businesses, we urge Congress to repeal the RFS mandate. To help right now, EPA should reduce the 2013 renewable fuel volume requirements and waive the 2013 cellulosic requirement.”
ABOUT THE AUTHOR
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.