Coburn said, “This misguided policy has cost taxpayers billions of dollars, increased fuel prices and made our food more expensive. Eliminating [it] will let market forces, rather than political and parochial forces, determine how to diversify fuel supplies . . . [T]his long-overdue step [will] protect consumers and taxpayers from artificially high fuel and food prices.”
This is a good but not a sufficient action. The renewable-fuel standard mandate is not limited to corn-based ethanol. The legislation requires increased volumes of corn-based ethanol to reach 15 billion gallons by 2015 and advanced biofuels of 21 billion gallons by 2022.
There is no commercially viable technology to meet the advanced biofuels goal — a known fact when Congress established the mandate.
The mandate was based on the assumption that gasoline demand would continue to increase and that biofuels were for clean air, energy security and climate change risks. The increasing demand assumption collapsed in 2009, demand plateaued and imports began to decline. Furthermore, the justifications for the mandate were a fig leaf to justify subsidies to corn farmers, ethanol producers and political entrepreneurs, who saw riches in embracing cellulosic biofuels.
Ethanol was first used as a gasoline additive to reduce unburned hydrocarbons from carbureted vehicles. In the 1980s, carbureted engines were replaced with fuel-injected fuel management systems.
In spite of this, and research demonstrating that tailpipe emissions could be reduced without requiring ethanol, Congress passed the 1990 Clean Air Act amendments with a specific formula for reformulated gasoline to gain legislative support from the farm lobby.
Since 1990, air quality has continued to improve and would continue to improve if the ethanol/biofuels mandate vanished tomorrow.
Moreover, eliminating the ethanol requirement would benefit consumers. Many analyses have shown that corn production for ethanol has led to higher food prices. Those higher prices are an unjust tax on the poor, people on fixed incomes, and the extremely poor in emerging nations where corn-based products are a major part of their diet. A March 2011 MIT Technology Review article concluded, “Federal ethanol mandates . . . are a major reason why food prices worldwide have reached record levels . . . ”
A second justification for the mandate and industrial policy initiatives going back to the 1970s has been energy security. Since President Richard Nixon’s Project Independence, energy policy has been fixated on eliminating oil imports. It was erroneously asserted that reduced oil imports would enhance our economic well-being. Because oil is a globally traded commodity, a major interruption in production would adversely impact all economies, including ours, even if we imported no oil.
The reason is simple. Oil is an economic input, so the impact of an interruption on other nations would reduce global trade — both imports and exports would be more expensive. Our Strategic Petroleum Reserve and increased domestic oil production would help mitigate the economic impact but not insulate our economy from a negative impact.
The energy revolution, brought about by advances in technology, hydraulic fracturing and horizontal drilling, is weakening OPEC’s influence. Our imports have dropped to 35 percent. Increased non-OPEC production is putting downward pressure on prices. Diversity of supply and avoiding unreasonable restrictions on production are the best ways to enhance energy security.
The final mandate justification was to achieve lower CO2 emissions. That has been disproved by life-cycle analyses of ethanol production showing either no effect or a negative one from planting and harvesting emissions. There could be a positive benefit from advanced biofuels, if the technology becomes commercially viable.
RFS proponents overlook the decline in U.S. carbon dioxide emissions resulting from lower gasoline demand and more fuel-efficient vehicles. The Energy Information Administration projects that emissions will not return to 2005 levels before 2035. Our emission reductions will be swamped by increased emissions from emerging economies. One analysis, using an accepted climate model, concluded that reducing our emissions by more than 50 percent would reduce global temperature by no more than 0.1 degree in 2100.
The lesson to be learned from the RFS mandate and industrial policy initiatives is that any policy that ignores economic, energy and technology realities will fail. The beneficiaries of the RFS mandate are political entrepreneurs, seeking profit in the political marketplace by gaming the legislative and regulatory system.
William O’Keefe is the CEO of the George C. Marshall Institute and president of Solutions Consulting. He is formerly chief operating officer of the American Petroleum Institute.