GAO Report: Renewable Fuel Standard Costs Outweigh Benefits

GAO Report: Renewable Fuel Standard Costs Outweigh Benefits

A new Government Accountability Office (GAO) report reviewed seven Environmental Protection Agency (EPA) Regulatory Impact Analyses (RIAs) and found that they had not always followed Office of Management and Budget (OMB) guidance or consistently taken in account regulations’ full costs and benefits. One of the seven rules GAO examined was implementation of the Renewable Fuel Standard (RFS), a federal mandate for production of renewable fuels. GAO confirms what TCS has said for years – that the costs of the RFS outweigh its benefits – but many of these costs weren’t considered when EPA implemented the most recent RFS regulations after it was expanded in 2007.

For more than a decade, biofuels were sold as a way to help achieve American energy independence, reduce greenhouse gas (GHG) emissions, and spur rural economic development. However, as yet another nonpartisan analysis confirms, biofuels will continue to fall short of achieving these goals while spurring numerous unintended consequences, costs, and long-term liabilities. The mandate has spurred production of mature biofuels such as corn ethanol and soy biodiesel but failed to create a market for next-generation biofuels that don’t compete with the food supply, drastically reduce GHG emissions, and protect water and air quality.

Specifically, GAO criticized the RFS rule for the following reasons:

  • RFS costs outweigh its benefits:  “EPA estimated net benefits of the [RFS] ranging from $13 to $26 billion. The measure does not include the costs of investments needed to increase renewable fuel production. The agency estimated those capital costs to total $90.5 billion through 2022.” So, the net costs of the RFS, as calculated in 2010, range from $64.5 to $77.5 billion.
  • Water quality costs:  “EPA quantified some adverse water quality effects of the RFS but did not monetize these effects.”
  • Discount rate:  “EPA did not clearly present its discounted estimates of benefits and costs using both rates [required by OMB], making it difficult to discern whether the agency used a consistent rate in the calculation.”
  • Relevance of the regulatory analysis:  Unlike other regulations requiring RIAs, “EPA officials said the [RFS RIA] played no role in selecting a regulatory approach because the approach resulted from a congressional mandate included in the Energy Independence and Security Act of 2007.” In other words, the huge time and effort spent calculating the costs and benefits of the RFS had no impact on EPA’s final decisions in implementing the federal mandate.
  • Problem statement:  EPA explained “the need for the proposed rule…but did not describe the problem the rule intended to address.”
  • Consideration of alternatives:  “EPA presented information for only the selected option,” but no alternatives.
You REAP What You Sow

Adding insult to taxpayer injury, aside from this government mandate, biofuels also enjoy an array of federal subsidies, a variety of other supports including USDA bioenergy subsidies, and special interest tax breaks. So-called tax extenders will likely be considered later this year, providing an opportunity to debate whether biofuels subsidies should receive another short-term lifeline or be ended once and for all.