There are so many things wrong with America’s Renewable Fuel Standard (RFS) that it can be difficult to decide where to begin the list of grievances. Our biofuel mandates raise global food prices and starve the world’s poor, and in the process they can’t even accomplish the green goals they’re purportedly made to achieve. But a new National Economic Research Associates (NERA) report, commissioned by the American Petroleum Institute (API), outlines two other fatal flaws. First, according to the report, the targets being discussed for 2015 and 2016 will be impossible to reach:
The current level of gasoline demand, the blend wall limiting the share of ethanol that can be blended into the gasoline pool, and the lack of non-ethanol biofuels limit the market potential for total renewable biofuels. Similarly the current market potential for higher ethanol content gasoline like E85 and E15 is too small to have an immediate impact on the amount of ethanol that the gasoline market can absorb.
This facet of the biofuel boondoggle is particularly galling, as regulators have proven so consistently incapable of setting reachable targets. The so-called “blend wall”—the percentage of ethanol capable of being safely blended into our country’s gasoline—necessarily caps demand for biofuels, putting refiners in the difficult position of being squeezed between federal mandates and market forces. Worse, the EPA has a history of missing deadlines for setting these unrealistic targets by wide margins, imposing a cloud of uncertainty over the industry. Targets for the next two years are due to be finalized by the end of November, but we won’t be holding our breath for an on-time submission.
The NERA study doesn’t stop at the logistical issues with the RFS, though. It warns of “severe economic harm” if targets are finalized at too-high levels, explaining that “the market becomes disrupted because there are an insufficient number of RINs to allow compliance.” RINs, or Renewable Identification Numbers, are credits refiners can purchase to comply with mandates when they can’t physically blend the volumes of ethanol the government requires. The RIN market has proven volatile in the past, and has attracted the interest of so-called “non-obligated parties” (read: canny Wall Street investors) looking to make a quick buck. In the end, the costs of compliance are passed from refiners along to consumers in the form of higher gasoline and diesel prices. NERA points out that the economic effects of these price spikes aren’t only felt at the pump, but also across the wider economy:
Since the transportation sector is interconnected with other sectors in a way that the transportation services are consumed by other sectors, the fuel cost increase creates the spillover effects that ripple through the economy. Higher diesel fuel costs increase the cost to move raw materials and finished goods around the country, thus eventually making everything that directly or indirectly depends on transportation services more costly.
The costs of our biofuel boondoggle are large, varied, and growing. They dwarf any potential benefits, and raise an obvious question that grows more urgent with every passing year: Why in the world haven’t we ended this nightmare yet?