The RFS: It’s Not Broke, Don’t Fix It

By Bob Dinneen | October 05, 2012

This summer’s drought in the farm belt raised real fears about food supplies and prices. But some in the livestock, poultry and meat processing industries are using this summer’s problems to further their campaign against the renewable fuel standard (RFS). Many of these groups have suggested that major modifications in the RFS are needed to ensure that grain is available for the animal feed market. Some have even proposed repealing the RFS entirely.

In fact, the RFS is one of the most successful energy policies ever enacted in the United States. The standard has encouraged the growth of the American biofuels industry, generating jobs, reviving rural economies, reducing oil imports, lowering gasoline prices and preserving the natural environment. Moreover, the RFS has sufficient flexibility to adjust to extreme circumstances, such as this summer’s drought, without waiving or modifying the standard.

On the economic front, the RFS has laid the foundation for further private investment in the domestic biofuels industry. During challenging economic times, and in contrast to national trends in the manufacturing and oil refining sectors, the U.S. biofuels industry has grown to support almost 500,000 Americans and generate $53 billion in economic activity each year. With the continued development of advanced biofuels, the industry could add as many as 800,000 new employment opportunities, and increase annual economic activity by an additional $37 billion.

With the turmoil in the Middle East, it is more important than ever that, because the U.S. produced 13.9 billion gallons of ethanol last year, we used 485 million fewer barrels of imported oil. That is roughly equivalent to 13 percent of total U.S. crude oil imports, saving the American economy $49.7 billion. Without the RFS—and without ethanol production—the U.S. would have imported 52 percent of its oil last year. With the RFS—and with oil imports at 45 percent, their lowest level since 1996—the U.S. is less dependent on unstable or unfriendly regimes.

In another economic benefit, ethanol saves motorists money at the pumps. Because ethanol makes up 10 percent of the nation’s gasoline pool, it significantly reduces demand for oil, putting downward pressure on gasoline prices at the pump. That is why a published, peer-reviewed study prepared by economists Dermot Hayes of Iowa State University and Xiaodong Du of the University of Wisconsin found that American ethanol reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011, 89 cents per gallon in 2010, and an average of 29 cents per gallon since 2000.

On the environmental front, replacing gasoline with clean-burning biofuels reduces greenhouse gas emissions by 48 to 59 percent, according to a study published by Yale University’s Journal of Industrial Ecology.

While promoting the nation’s energy, economic and environmental security, the RFS also provides the flexibility to respond to changing conditions, such as this summer’s drought. When Congress passed the RFS in 2007, and when the U.S. Environmental Protection Agency wrote the regulations implementing the policy in 2009-’10, policymakers included built-in stabilizers. Oil refiners and blenders receive a credit (called a RIN, renewable identification number) for each gallon of renewable fuel they blend, submitted to the EPA each year to demonstrate compliance. If they use more gallons of renewable fuel than they were obligated to use by the RFS, they can carry forward surplus credits.

There are an estimated 2.6 billion surplus RINs available to refiners and blenders for 2012. Theoretically, blenders could be 2.6 billion gallons (the equivalent of some 950 million bushels of corn) short of meeting the RFS with wet gallons and still comply. Additionally, there are nearly 800 million gallons of ethanol (the equivalent of nearly 300 million bushels) in storage. These stocks can be drawn down if ethanol production falls short of demand.

The RFS’ flexibility is confirmed by a recent analysis by Bruce Babcock of Iowa State University. Simulating the corn price impacts of a 100 percent waiver of the RFS during the upcoming 2012-’13 corn marketing year, he found that a waiver would result in only a 4.6 percent reduction in corn prices. Moreover, the USDA’s September crop production report confirmed that farmers are likely to harvest the eighth-largest corn crop on record this fall, despite the worst drought conditions in more than 50 years.

Clearly, the RFS is working, without waiving or modifying the standard. As the old saying goes, it ain’t broke, and we don’t need to fix it.

Author: Bob Dinneen
President and CEO,
Renewable Fuels Association
(202) 289-3835