OMB Should Uphold Proposed Rollback of 2014 Renewable Fuel Standard (RFS) Targets

What follows is my prepared statement for a media conference call I participated in today along with Kristin Sundell,  Director of Policy and Campaigns, Action Aid; fmr. Sen. Wayne Allard, VP for Government Relations, American Motorcycle Association; Nicole Wood, Program Manager, Government Affairs, Boat U.S.; Ben Schreiber, Climate and Energy Program Director, Friends of the Earth; Emily Cassidy, Biofuels Research Analyst, Environmental Working Group; and Nan Swift, Federal Government Affairs Manager, National Taxpayers Union.

Ever since EPA, in November 2013, proposed to cut back the 2014 RFS blending target from 18.15 billion gallons to 15.21 billion gallons, the agency has come under relentless pressure from the corn-ethanol lobby to withdraw the proposal. 

Hints from EPA officials indicate the agency is in retreat. That is unfortunate. The existing 18.15 billion gallon target would compel refiners to buy billions of gallons more ethanol than can actually be sold as E10 (the highest blend compatible with today’s fueling infrastructure, manufacturer liability and warranty policies, and consumer acceptance).  

Refiners would either have to buy what they can’t sell or pay heavy fines and exorbitant prices for blender credits (RINs). Most of those costs would be passed on to consumers at the gas pump. 

The political pressure on EPA to breach the blend wall – and the consequent peril to consumers – will only increase over time as RFS statutory targets ratchet up to 36 billion gallons in 2022. 

If we ever needed more evidence that central planning doesn’t work, the RFS is it. Weirdly, the only reason the program has not already imploded is that one of its key components – the cellulosic mandate – has been a spectacular flop.

As of July, the biofuel industry produced only 50,000 gallons of cellulosic ethanol in 2014. That’s a mere 0.3% of EPA’s 17-million gallon target, which in turn is less than 1% of the statutory 1.75 billion gallon target. How lucky for EPA that cellulosic ethanol has been a “phantom fuel”! If the biofuel industry were on track to produce 1.75 billion gallons of cellulosic this year, the blend wall crisis would be unmanageable. Huge quantities of ethanol would go unsold, and the market would crash.

Unfortunately, EPA is not an impartial umpire in controversies arising under the RFS. For EPA, the RFS is an important source of regulatory power, political patronage, and economic influence. Thus, in RFS policy battles, EPA’s interest more closely aligns with the corporate welfare of ethanol producers than with the consumer welfare of motorists, the economic viability of livestock producers, or the economic efficiency of refiners.

Although not above the fray, OMB is more likely than EPA to care about rising fuel costs, excessive regulatory burdens, and politically-contrived market inefficiencies. At a minimum, OMB should stand by the modest RFS rollback EPA proposed in November.

Better still, OMB should become an advocate within the executive branch for RFS repeal. The RFS is a case study in unintended consequences, its original energy security rationale is no longer credible, and the program provides corporate welfare through a Soviet-style production quota system. What’s not to dislike?