Ethanol Mandate: Proud Milestone in the Glorious History of Central Planning

by Marlo Lewis on March 26, 2013

in Blog, Features

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Today on National Journal’s Energy Experts Blog, I post a comment celebrating the Renewable Fuel Standard (RFS) as a triumph of centralized economic planning. You think I’m joking? Far from it. The RFS is working at least as well as other central planning schemes!

Well, okay, the RFS would be funny if it weren’t so destructive. A new report by NERA Economic Consulting warns that the RFS is heading for a “death spiral” — a vicious circle in which rising fuel costs, declining sales, and dwindling biofuel credits make compliance increasingly “infeasible.”

In one scenario analyzed by NERA, the death spiral produces a 30% increase in gasoline prices and a 300% increase in the cost of diesel fuel in 2015. Potential adverse macroeconomic impacts include a “$770 billion decline in GDP and a corresponding reduction in consumption per household of $2,700.” Ludwig von Mises coined a term for such debacles: “Planned Chaos.”

Last week, Reps. Fred Upton (R-Mich.) and Henry Waxman (D-Calif.) released the first White Paper in a series intended to help policymakers and the public review the RFS in light of the “wealth of implementation experience” accumulated over the past five years.

After poking fun at the mandate’s glorious achievements, my post concludes:

In all seriousness, Reps. Upton and Waxman are to be commended for launching a reassessment of the RFS. The exercise will be most valuable if policymakers gain a new sense of modesty about their ability to design markets and direct the future of economic evolution.

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