The People of America's Oil and Natural Gas Indusry

No Award for Bad Laws - RFS Edition

Bob Greco

Bob Greco
Posted August 19, 2013

If you didn’t see last week’s USA Today editorial calling for repeal of the Renewable Fuel Standard (RFS), it’s certainly worth reading. The editorial’s key points:

  • The approach of the “blend wall” – the point at which refiners, to satisfy the RFS’ ethanol mandates, have to blend more ethanol into the gasoline supply than is safe for millions of vehicles currently on the road.

  • Economic harm – Dramatic increases in federal ethanol credits known as RINs, a harbinger of impact to consumers and the overall economy from RFS mandates, projected by NERA Economic Consulting’s recent study.

  • RFS goals – greater U.S. energy security, reduced oil imports – are being met by surging domestic oil production, increased efficiencies and reduced demand.

USA Today:

When members of Congress decided in 2007 to require that Americans put 36 billion gallons of ethanol and other biofuels in their gas tanks annually by 2022, they must have thought there was an award for bad public policy. The idea never made the slightest sense. … The Obama administration has some flexibility to lower the mandates, but a better approach would be to repeal the law entirely. There are no awards for bad laws. Only negative consequences.

larger-rfs-sieminski

In the interest of fair play, USA Today carried an opposing viewpoint from the president and CEO of the Renewable Fuels Association (RFA), one of ethanol’s biggest boosters. Unfortunately, the piece repeats a number of inaccurate or simply false RFS claims:  

RFA: “Since it was enacted in 2005, U.S. dependence on imported oil has decreased from 60% to 40% largely because of biofuels.”

In a word, no. We’ve corrected this statement several times already, including here, here and here. In context, the U.S. Energy Information Administration states that the drop in imports since 2005 is a result of a “variety of factors including a decline in consumption and shifts in supply patterns.” In June, EIA Administrator Adam Sieminski told Congress:

“Recent and projected reductions in net import dependence primarily reflect the combined effects of the significant lowering in projected petroleum demand growth … and a more robust outlook for domestic petroleum production. Biofuels volumes in response to the RFS program play only a small part in reducing projected net import dependence given the expectation of continued use of ethanol as an octane and volume enhancer independent of RFS program requirements.”

RFA: “Because ethanol costs less than gasoline, it saves motorists more than $1,200 per year.”

The reality is that ethanol has a lower fuel economy than gasoline. As we point out here, using E85 instead of gasoline can cost consumers more to travel the same distance. The Council on Foreign Relations’ Michael Levi:

“Blending ethanol lowers the price of a gallon of fuel – but that gallon of fuel now gets you less mileage in your car. The net result is to increase the cost of driving. Claiming in this way that ethanol blending lowers fuel costs is like claiming that buying smaller boxes of cereal lowers the cost of getting yourself a nutritious breakfast.”

Not only can ethanol be more expensive than gasoline, according to the Energy Policy Research Foundation, Inc.,  the expanded RFS volume requirements may also raise prices on regular gasoline:

“When Congress crafted the RFS, it built in a great deal of administrative and market flexibility, allowing refiners and gasoline marketers to adjust to changing market dynamics that reduce the supply of biofuels. Last week, the U.S. Environmental Protection Agency (EPA) demonstrated the RFS' flexibility once again by reducing the requirement for cellulosic (non-grain) ethanol.”

There is nothing flexible about a policy that refuses to adjust to changing market dynamics. As we point out here, the EPA looked at the changing market, considered the unrealistic 16.55 billion gallon renewable fuel target for 2013 set out in law and proceeded to use (or more accurately, not use) its discretionary power to finalize the 2013 volume at that exact same target – 16.55 billion gallons. Despite the serious impacts of the broken RFS on the consumer and the economy, EPA has a history of failing to use its authority to adjust the levels of the volume requirement to reflect real-world circumstances.

RFA: "The oil companies built that (blend wall) barrier themselves. They refused to make the investments in infrastructure that would allow 85% ethanol blends to be sold.”

First, more than 95 percent of all service stations are owned by independent companies – that is, by non-refining companies. According to NACS, nearly 60 percent of the stations are owned by an individual who owns a single station. The notion that integrated oil and natural gas companies are to blame for not making investments in retail outlets they don’t own is absurd.

Second, an estimated 50 to 60 percent of service stations offering E85 are branded by oil companies. That’s hardly a refusal to allow investment. This investment by the station owners has occurred despite low demand for E85. Currently, only 5 percent of the U.S. vehicle fleet is specially designed to consume E85, and E85 ultimately is more expensive to use than gasoline. In that context it’s hard to blame consumers for preferring conventional gasoline.

RFA: “And they discouraged their franchisees from offering E15 (which the EPA has approved for more than 62% of the vehicles on the road).”

Again, the overwhelming majority of service stations are independently owned. And, as most of these retailers probably are aware, there is risk associated with selling E15 because research shows the fuel could damage engines and fuel systems in vehicles that aren’t warranted to use E15. It’s unrealistic to expect independently owned businesses that operate on thin margins to install expensive E15 storage and dispensing equipment when there are significant potential risks to consumers and those risks could affect product demand.

RFA: “This debate really isn't about corn ethanol. It certainly isn't about whether ethanol is safe for automobiles, as it has been used for decades and actually improves engine performance. Ask NASCAR.”

We’ve previously addressed the NASCAR argument. Except for having four wheels and an engine, today’s NASCAR vehicles running on E15 have very little in common with cars owned by the average motorist. NASCAR engines are designed for racing and have been modified to be compatible with the sole-sourced, Sunoco-produced competition E15 racing fuel.

Unfortunately, we can’t all be race car drivers or own race cars. For those of us who use our vehicles in less glamorous ways, like commuting or getting to the grocery store, there are significant issues associated with using higher ethanol blends in our engines – concerns that have been expressed by everyone from automakers to AAA to grocery manufacturers

Big ethanol should realize that continually repeating a false statement doesn’t make it true. The RFS is broken and will remain broken no matter how many times its supporters suggest otherwise. As USA Today said, “There are no awards for bad laws.” The RFS should be repealed.

ABOUT THE AUTHOR

Bob Greco is group director of downstream and industry operations at the American Petroleum Institute. With 21 years of experience, Bob directs activities related to refining, pipeline, marketing, and fuels issues. He has managed exploration and production activities, policy analysis, climate change issues, marine transportation, refining, gasoline and jet fuel production issues and Clean Air Act implementation efforts. Before coming to API, Bob was an environmental engineer with the U.S. Environmental Protection Agency, with expertise in automotive emission control technologies. He has a M.S. degree in environmental engineering from Cornell University and a B.A. in biology from Colgate University.