On Wednesday, Rep. Bob Goodlatte (R-Va.) introduced H.R. 1461, a bill to repeal the renewable fuel standard (RFS) program, and H.R. 1462, “The RFS Reform Act,” a bill to eliminate the corn ethanol component of the RFS program, cap the amount of ethanol that can be blended into conventional gasoline at 10%, and require the EPA to set cellulosic ethanol blending targets at commercial production levels.
A diverse coalition of agriculture, business, environment, hunger, taxpayer, and free-market groups joined Rep. Goodlatte and co-sponsors at a press conference announcing the introduction of H.R. 1462. Spokespersons for 15 of the groups each provided a paragraph explaining their particular reasons for supporting RFS reform in a joint letter. Here’s what I wrote on behalf of the Competitive Enterprise Institute:
If ethanol is such a great deal, why do we need a law to make us buy it? Although ethanol is cheaper than gasoline by volume, ethanol has about one-third less energy than gasoline and does not make up the difference in price. Consequently, the higher the ethanol blend, the worse mileage your car gets, and the more you have to spend for fuel. For example, at today’s prices, the average motorist would have to spend an extra $400 to $650 a year to switch from gasoline to E85 (the highest commercial ethanol blend). Congress should stop forcing Americans to make a “fuel choice” that increases our pain at the pump.
Today, FarmEcon LLC released RFS, Fuel and Food Prices, and the Need for Statutory Flexibility, a study of ethanol’s impact on food and fuel prices. FarmEcon prepared the study for the American Meat Institute, California Dairies Inc., Milk Producers Council, National Cattlemen’s Beef Association, National Chicken Council, National Pork Producers Council, and National Turkey Federation.
The study argues that the Renewable Fuel Standard (RFS), commonly known as the ethanol mandate, is detrimental to both non-ethanol industry corn users and food and fuel consumers. The program should therefore be reformed. The RFS has “destabilized corn and ethanol prices by offering an almost risk-free demand volume guaranty to the corn-based ethanol industry.” Consequently, food producers who use corn as a feedstock “have been forced to bear a disproportionate share of market and price risk” when corn yields fall and prices rise. This has become painfully obvious in recent weeks as drought conditions in the Midwest depress yields and push corn prices to record highs.
Appropriate reform* would assure food producers “automatic market access” to corn stocks “in the event of a natural disaster and a sharp reduction in corn production.” Ethanol producers should “bear the burden of market adjustments, along with domestic food producers and corn export customers.” The study also recommends that the RFS schedule “be revised to reflect the ethanol industry’s inability to produce commercially viable cellulosic fuels.”
Pretty tame stuff. An argument for flexibility to avoid the RFS’s worst market distortions and the cellulosic farce rather than an abolitionist manifesto. Nonetheless, the study paints a fairly damning picture of the RFS as a whole:
- Increases in ethanol production since 2007 have made little, or no, contribution to U.S. energy supplies, or dependence on foreign crude oil. Rather, those increases have pushed gasoline suplies into the export market.
- Current ethanol policy has increased and destabilized corn and related commodity prices to the detriment of both food and fuel producers. Corn price volatility has more than doubled since 2007.
- Following the late 2007 increase in the RFS, food price inflation relative to all other goods and services accelerated sharply to twice its 2005-2007 rate.
- Post-2007 higher rates of food price inflation are associated with sharp increases in corn, soybean and wheat prices.
- On an energy basis, ethanol has never been priced competitively with gasoline.
- Ethanol production costs and prices have ruled out U.S. ethanol use at levels higher than E10. As a result, we exported 1.2 billion gallons of ethanol in 2011.
- Due to its higher energy cost and negative effect on fuel mileage, ethanol adds to the overall cost of motor fuels. In 2011 the higher cost of ethanol energy compared to gasoline added approximately $14.5 billion, or about 10 cents per gallon, to the cost of U.S. gasoline consumption. Ethanol tax credits (since discontinued) added another 4 cents per gallon. [click to continue…]
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