The People of America's Oil and Natural Gas Indusry

This is the Year for RFS Action

Jack Gerard

Jack Gerard
Posted March 3, 2016

“When a government policy distorts the market so much that restaurants, our suppliers, grocery stores and consumers are forced to pay more than we would under normal market conditions, it’s time to change it.”

That’s a small business owner explaining the impact of the Renewable Fuel Standard (RFS) on restaurants. Elevated food costs are just one of the many negative consequences of the federal mandate requiring increasing amounts of ethanol in the nation’s fuel supply each year, regardless of market conditions.

kernalsThe RFS was in the spotlight again last week, as the Senate Environment and Public Works Committee conducted an oversight hearing on the policy. It’s a law that certainly invites scrutiny due to the significant and wide-ranging damage it causes. Besides raising the consumer price index for food by 25 percent since 2005 because ethanol production has diverted nearly 40 percent of the U.S. corn crop from food to fuel, the policy is also bad for drivers and the economy.

In testimony before the committee, Lucian Pugliaresi, president of the Energy Policy Research Foundation, Inc. (EPRINC), shared EPRINC’s conclusion that continuing to administer the RFS as written “would increase gasoline prices from approximately 30 cents to 50 cents a gallon” and cautioned Congress to address “the risk to economic recovery” this poses. Pugliaresi continued:

“Lower gasoline prices are yielding annual savings for the U.S. economy of $129 billion, or an estimated $1000 per year per household. These savings to consumers are essential for expanding economic growth, particularly in light of the enormous losses we are seeing from rapid cuts in capital investment in domestic oil and gas development. ... Great care should be taken to ensure that these savings are not lost through a regulatory program that increases gasoline prices.”

As Pugliaresi also reminded lawmakers, “A large percentage of the gasoline-powered fleet cannot accept fuel with more than 10 percent ethanol without damaging engines.”

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In conjunction with the hearing, the National Retail Federation released testimonials from chain restaurant owners explaining the impact of rising food prices on their small businesses. A Wendy’s franchise owner in Virginia:

“The corn ethanol mandate, or RFS, is costing my small company up to $34,000 more in higher food costs per restaurant, each and every year. For our family business, that’s approximately $374,000 a year in additional costs.”

And a Wisconsin Arby’s owner:

“Shortly after we began our own business, the food commodity prices really started to affect things. … Our plans for growth were halted. The high food commodity costs have kept our margins tight and our outlook unsure.”

That’s a high price to pay for a policy that was intended to cut greenhouse gas emissions but actually increases them compared to regular gasoline, according to EPA data and multiple studies.

We’ve had 10 years to evaluate the RFS in action, and the evidence is overwhelming. It’s time to repeal or significantly reform this outdated, failed policy.


ABOUT THE AUTHOR

Jack N. Gerard is president and CEO of the American Petroleum Institute (API), the national trade association that represents all aspects of America’s oil and natural gas industry. He also has served as the president and CEO of trade associations representing the chemical and mining industries. Jack understands how Washington works. He spent several years working in the U.S. Senate and House, and co-founded a Washington-based government relations consulting firm. A native of Idaho, Jack also is very active in the Boy Scouts of America, a university graduate program on politics, and his church’s leadership. He and his wife are the proud parents of eight children, including twin boys adopted from Guatemala.