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CBO Flags Potential RFS Impacts on Consumers

Mark Green

Mark Green
Posted June 27, 2014

Count the nonpartisan Congressional Budget Office (CBO) among those cautioning that rising ethanol mandates in the Renewable Fuel Standard (RFS) could negatively impact consumers. In a new analysis, CBO says RFS ethanol requirements by 2017 could cause:

  • coverAn increase of 13 cents to 26 cents per gallon in the price of E10 gasoline, the most common vehicular fuel used in the U.S., a rise of 4 percent to 9 percent.
  • An increase of 30 cents to 51 cents per gallon in the price of petroleum-based diesel, or 9 percent to 14 percent.

CBO:

… adding increasing volumes of (ethanol) to the U.S. fuel supply could be difficult. Currently, most gasoline sold in the United States is actually a blend (referred to as E10) that contains up to 10 percent ethanol—the maximum concentration that is feasible to avoid corrosion damage to the fuel systems of older vehicles. (RFS’) growing requirements for the total gallons of renewable fuels to be used each year, combined with a projected decline in gasoline use, suggest that the average concentration of ethanol in gasoline would have to rise to well above that 10 percent “blend wall,” potentially increasing to about 25 percent by 2022.   

This describes a breaching of the “blend wall” – where under the RFS’ ethanol mandates fuel suppliers are required to blend more ethanol into the fuel supply than can be used as E10. CBO:

Under the … volumes scenario, however, fuel suppliers would have to use more than three times as many gallons of advanced biofuels, and they would have to add much more ethanol to the gasoline supply than could be accommodated by selling only a 10 percent blend.

This is problematic on a couple of fronts. First, CBO notes, producers of cellulosic biofuels are having trouble meeting annual requirements because the process is “complex, capital-intensive and costly.” Although production capacity is expanding, CBO says, “only a few production facilities are currently operating. The industry’s capacity in coming years is projected to fall far short of what would be necessary to achieve the very rapid growth in the use of cellulosic biofuels required …” CBO’s chart showing the mismatch between the RFS cellulosic mandate and projected cellulosic production:

cellulosic

The second problem is increasing use of higher ethanol-blend fuels to meet the RFS’ volume requirements. The majority of vehicles on the road today weren’t designed to use E15 and E85. Research has shown these vehicles could suffer damage to engines and fuel systems, and manufacturers have explicitly told Congress that warranties for E10-certified vehicles could be voided if consumers use E15 in them. In addition, other consumer products, including power equipment, could be damaged by running them on higher ethanol-blend fuel.

Getting back to potential increases in transportation costs, CBO’s finding raises the question of broader economic impacts stemming from the RFS’ ethanol requirements, detailed in a separate study by NERA Economic Consulting. That study found that fuel suppliers could be forced to decrease the amount of transportation fuel they produce for the domestic market to remain in compliance with the RFS:

As domestic fuel supplies decrease, large increases in transportation fuel costs would ripple through the economy imposing significant costs on society. More specifically, 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 (ethanol mandate) results in decreased fuel availability and increased fuel costs to society. These increased fuel costs have a broad impact across the economy.

CBO’s finding joins other analyses that buttress wide concern about the RFS. Increasing ethanol content in the nation’s fuel supply, absent consumer demand and need, is no solution. Congress should repeal the RFS to avoid potentially damaging impacts on consumers and the U.S. economy.

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.