The Importance of Getting Energy Policy Right

Mark Green
Posted April 15, 2014

Yesterday we looked started looking at the oil and natural gas industry’s economic impact on individual states with a focus on Kentucky. Today, let’s talk about the importance of having the right energy policies in place to avoid negative impacts on local economies and individual consumes. Again, we’ll consider Kentucky.

Last month White Castle restaurant chain CEO Lisa Ingram wrote an op-ed piece for the Louisville Courier-Journal that explained how the federal Renewable Fuel Standard (RFS) is having local, negative impact. Though the first White Castle opened in Wichita, Kan., nearly a century ago, Ingram writes, the chain has deep ties to Kentucky and serves more customers in Louisville than all but a few other markets. The city is home to one of the company’s frozen food plants, which employs nearly 200.

Yet the RFS – energy policy that has become obsolete and counter-productive in the midst of the U.S. domestic energy revolution – is putting upward pressure on food prices by requiring ever-increasing use of ethanol in the fuel supply. Ingram:

The Renewable Fuel Standard (RFS) is taking needed resources out of our business and hurting our customers because of its impact on food prices. The RFS is a mandate to divert an expanding portion of our nation’s corn supply into ethanol production rather than food production. As a result, the demand for corn has skyrocketed, and we have seen a 300 percent increase in the price of corn since the mandate was enacted in 2005. ... I know firsthand that since the implementation of the RFS, our beef prices have increased 47 percent and are just one of many food commodities causing costs to increase by approximately $15,000 per restaurant. Consequently, food costs have increased by more than $435,000 each year at our 29 Louisville restaurants. That is money that could be used to help pay for the opening of a new restaurant that employs dozens of people.

Ingram points out that the chain restaurant industry operates with narrow profit margins. The RFS’ impact on food costs is quickly felt by the industry. But the impacts go further. Ingram:

Consumers feel the pinch at the local grocery store as well. Here are some examples of estimated RFS effects on everyday consumers if the policy is not changed: Pork prices will increase by 15 percent; beef will increase by 7.5 percent; eggs will increase by 11 percent; and potatoes will increase by 13 percent.

There are a number of ways energy and regulatory policy affect local and regional economies and individual families. In addition to its impact on food costs, the RFS has brought the approach of the refining “blend wall” that could lead to fuel rationing and supply shortages that by 2015, according to a NERA study, could drive up gasoline costs 30 percent and the cost of diesel by 300 percent. Higher ethanol blend fuel could damage vehicle engines, as well as those in boats and outdoor power equipment.  

All of this underscores the need to have the right energy policies in place – for jobs, the economy and consumer confidence.