Biofuel industry criticizes CBO's RFS report

By Erin Voegele | July 01, 2014

The Congressional Budget Office has published a report on the renewable fuel standard (RFS) that evaluates how much biofuel production needs to grow to comply with the program, as well as the impact on food prices, fuel prices and emissions under several different scenarios. The biofuels industry has spoken out to criticize the study.

The report addresses three scenarios. Under the first, fuel suppliers would have to meet the total requirement for renewable fuels, the requirement for advanced biofuels, and the cap on corn ethanol as stated in the Energy Independence and Security Act of 2007. The cellulosic requirement would not be required to be met because the capacity to produce enough cellulosic fuels is unlikely to be in place by 2017. That scenario is referred to as the EISA volumes scenario. The second scenario, called the 2014 volumes scenario, would keep the RFS requirements for the next several years at the same amounts proposed for 2014. The third scenario, called the repeal scenario, assumes lawmakers abolish the RFS immediately.

The report claims that it would be difficult to meet the EISA volumes scenario in future years due to the expected supply of cellulosic biofuels and the amount of ethanol that can be used to fuel older vehicles. According to the CBO, the EPA has scaled back cellulosic biofuel requirements under the RFS in past years. For 2014, the EPA has proposed a rule that would also reduce the requirements for advanced biofuels and total renewable fuels due to the blend wall. “Although scaling back those standards addresses existing compliance problems and decreases compliance costs in the short run, it also reduces incentives for compliances to invest in production capacity for cellulosic and other advanced biofuels and expand the availability of high-ethanol blends,” said the CBO in the report, noting that meeting the total advanced biofuels specified in EISA would require large increases in fuel production.

Regarding food prices, the report specifies that food prices would be similar whether the RFS was continued or repealed. The price of fuel, however, could be impacted, said the CBO in the report. Under the EISA scenario in 2017, the report forecasts that the price of petroleum-based diesel would increase 30 cents to 51 cents per gallon, the price of E10 would increase by 13 cents to 26 cents per gallon, and the price of E85 would actually decrease by 91 cents to $1.27 per gallon. With regard to emissions, the report claims that most emissions benefits will depend on how much advanced and cellulosic fuel is used.

The Advanced Ethanol Council said that while the report acknowledges the RFS is not a factor in food prices, it fails to take into account basic realities when it comes to assessing the program. “Some reports are simply not worth reading, and this is one of them,” said Brooke Coleman, executive director of the AEC. “You cannot assess the impacts of the RFS without looking at the benefits of reducing consumer demand for gasoline and diesel fuel. That’s the entire point of the RFS and the CBO simply states that ‘it did not account for that effect in this analysis.’ To put that omission in perspective, an oil economist recently concluded that the RFS saved motorists at least hundreds of billions of dollars in 2013 by adding the equivalent of an additional OPEC country to U.S. gasoline supplies during times of extreme tightness between supply and demand. Whatever the savings are, an analysis of a foreign oil displacement program that does not look at the benefits of displacing foreign oil demand should be dismissed out of hand. The gas price claims are really strange as well. A cornerstone assumption in the report has RFS-RIN prices so high that gasoline retailers could give renewable fuel blends away for free and still make a profit. Needless to say, this is never going to happen. CBO reports are supposed to be impartial and objective, and therefore informative. This particular report appears to detail a fantasy world that does not inform the current debate.”

Growth Energy called the report highly flawed and unrealistic. “This report looks at unrealistic scenarios and completely ignores the very goals of the [RFS] which are to decrease our nation’s dangerous dependence on foreign oil, create jobs and spur economic growth and investment, and improve our environment, all while offering consumers a choice and savings at the pump,” said Tom Buis, CEO of Growth Energy. “The CBO report simply shrugs off these critical policy goals contained in the RFS by noting that, ‘CBO did not account for that effect in this analysis.’”

“Furthermore, ethanol is trading at a dollar less than gasoline on the Chicago Board of Trade, and the CBO fails to acknowledge a 40 year history of volatile gas prices and simply ignores the effects that global turmoil has on fuel prices,”Buis continued. “Put simply, increased domestic fuel production and a decreased dependence on foreign oil would help provide stability and reduce the massive price spikes consumers already are experiencing at the pump. Additionally, this report points to a 9 percent increase in fuel prices due to ethanol, when as previously noted, ethanol is currently selling one dollar under wholesale gasoline. Clearly, this report is agenda driven and ignores the facts. Wild and statically unrealistic conclusions such as these show just how flawed the majority of this report is, and why it should not be taken with any level of seriousness.

“It seems to me that the CBO got only one thing right in this assessment, and that is with regards to the production of ethanol from corn and how it has virtually no impact on the price of food. Yet, again it is flawed as it fails to highlight that the true driver of food costs is the price of oil,” said Buis. “Bottom line, this is a one-sided, skewed report with no value placed on the meaningful policy objectives the RFS provides – a reduced dependence on foreign oil, job creation, an improved environment, as well as providing consumers a choice and savings when they go to fill up at the pump.”

A full copy of the report, titled “The Renewable Fuel Standard: Issues for 2014 and Beyond,” can be downloaded from the CBO website