Free-marketers, environmentalists both have reasons to hate the RFS
The Renewable Fuel Standard, created more than a decade ago, remains the source of strong divisions today. But as an Aug. 1 hearing of the Environmental Protection Agency showed, it also can be the source of rare bipartisan agreement, with experts from across the political spectrum testifying to the need to update and reform the RFS.
Under terms of the Energy Policy Act of 2005, the RFS “requires a certain volume of renewable fuel to replace or reduce the quantity of the petroleum-based transportation fuel, heating fuel, or jet fuel.” Two years later, the Energy Independence and Security Act of 2007 updated the RFS and set a projection for the volume of renewable fuels, particularly ethanol, that are mandated to be mixed into the nation’s fuel supply.
Under current projections, by 2022, 15 billion gallons of corn-based ethanol and 2.1 billion gallons of non-corn biofuel will be required in the nation’s fuel supply. While these numbers simply continue existing statutory requirements, both environmental and free-market groups have noted the updated volumes will have harmful effects on the fuel market and on car engines, as well as contributing to pollution from farm runoff.
Before the RFS was passed, oil companies already had been producing gasoline with a 10 percent blend of ethanol—what’s commonly called E10—as corn-based ethanol is largely cheaper than its counterparts derived from petroleum. However, the RFS mandates do not stop at E10. In the effort to “create a market” for advanced fuels, the RFS now calls for blending more ethanol into gasoline than consumers are willing to buy.
Most vehicles on the road can use E10 because it allows for the highest amount of ethanol and does not void vehicle warranties. But many car engines are not warrantied to use a higher ethanol blend, and if they do, it can cause severe damage and corrosion.
“We were pleased to see that the Environmental Protection Agency acknowledged ‘real constraints’ in the market, in terms of demand, infrastructure and production, toward accommodating higher blends of ethanol,” the National Taxpayers Union’s Nan Smith testified before the EPA. “If admitting you have a problem is the first step toward recovery, this and the slightly lower [renewable volume obligations] recommended in the 2018 proposal are good signs for taxpayers.”
Unfortunately, the RFS itself makes no consideration for the consequences faced by consumers. Due to the strict requirements built into the law, the EPA is unable to adjust the volume requirements downward in the face of lower-than-expected demand. This endless cycle leaves companies scrambling for ways to comply, rather than dedicating their energies toward real, market-driven innovation.
These market distortions alone would be reason enough to oppose RFS, but regrettably, it turns out the mandate is also damaging to the environment, particularly by encouraging the use of nitrogen-rich fertilizers used to grow corn. The need for more and more corn-based ethanol because of the RFS creates larger demand for corn and more pollution from its production. The runoff from large farms in the Midwest and Great Plains makes its way into the Mississippi River and has created a large dead zone in the Gulf of Mexico.
While environmental groups overall are split on the effectiveness of the RFS mandates, Friends of the Earth has opposed the standards because of the pollution they cause. “As it ignores the significant environmental damage created by runoff from biofuels production, the RFS will likely exacerbate the problem,” the group notes.
The RFS safeguards do require that biofuels meet a greenhouse gas emissions-reduction standard for each biofuel type. Ethanol made from corn must reduce greenhouse gas emissions by 20 percent; advanced biofuels must reduce greenhouse gas emissions by 50 percent; and cellulosic biofuel must reduce greenhouse gas emissions by 60 percent. These are good standards to have, but they have loopholes that cause the effort to fall short of its desired effect. As it stands, 15 billion gallons of corn ethanol are exempt from the safeguards. FOE adds that the EPA uses flawed data on the true impact of biofuels:
For example, the EPA uses a questionable analysis to predict that corn ethanol will produce less pollution than regular gasoline one day in the future, and then uses that analysis to excuse the use of extremely dirty corn ethanol today.
Rather than hold RFS volumes steady, the EPA should work with Congress to correct what is a fundamentally flawed statute, with the goal of creating an environment where market innovation is encouraged, rather than creating fake markets for industries with powerful lobbyists. As R Street’s Lori Sanders testified at the EPA’s recent RFS hearing:
Rather than continue down this failed path, we at R Street encourage the EPA to work with Congress to pass reforms that work. The federal government does have a role to play in creating an environment in which new fuels and technologies can take root in the marketplace and, in the process, reduce emissions and preserve the environment for generations of citizens to come. Sadly, the RFS does not fit the bill, and the new EPA should seek better solutions.
Image by Jonathan Weiss
