Rethinking the Renewable Fuel Standard

Op-EdRethinking the Renewable Fuel StandardThe current standard is unworkable and needs broad reform.

Energy & Natural Resources,  | Quick Take
Mar 7, 2018  | By  | 5 min read | Print Article

More than a decade has passed since the Renewable Fuel Standard was greatly expanded in the 2007 energy bill.

The federal mandate requires 36 billion gallons of biofuels (primarily corn ethanol) to be blended with U.S. gasoline and diesel by 2022. While recent news has been dominated by the impact of the policy for small petroleum refiners, the fuel standard has a history of harming a broad range of stakeholders, including federal taxpayers. Joined by a long list of strange bedfellows including small engine manufacturers, consumer advocates, the food industry, anti-hunger groups, environmentalists and livestock groups, Taxpayers for Common Sense believes the biofuels mandate has caused more harm than good for most – except for maybe one notable exception, corn growers.

Unfortunately, the recent debate in Washington has ignored most of these interested parties, focusing instead on a fight between the oil and corn industries over the future of the standard. The oil industry, representing “obligated parties,” or those required to comply with the standard, point to high costs for Renewable Identification Numbers (each gallon of biofuel produced is assigned a unique number, which can then be bought, sold or traded) as the reason for the recent bankruptcy of Philadelphia Energy Solutions. As an independent merchant refiner, Philadelphia Energy Solutions purchases Renewable Identification Numbers to meet fuel standard requirements instead of blending ethanol with gasoline itself.

Sen. Ted Cruz, a Republican opponent of both ethanol subsidies and the Renewable Fuel Standard from oil-rich state of Texas, held up confirmation of a U.S. Department of Agriculture undersecretary for months until he secured a White House meeting on the issue. Last week, Cruz and three other senators from oil and corn states met with White House officials to attempt to strike a deal on some administrative reforms. Another meeting was held with the oil and biofuels industries, including representatives from two ethanol and biodiesel facilities that have received at least $24 million in taxpayer subsidies from 2009-16 through the Department of Agriculture’s Bioenergy Program for Advanced Biofuels. Attendees reportedly discussed capping identification number prices in exchange for a year-round waiver of E15, or 15 percent ethanol (most gasoline is currently blended with E10 – 10 percent ethanol). Summertime E15 sales have been restricted due to ozone concerns – it is more polluting that E10 – not to mention liability issues with E15 and a restriction on its use in older vehicles and small engines.

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The corn and ethanol industries have so far been reluctant to accept lower renewable identification number costs for year-round E15 sales. The University of Illinois projects the oil industry would benefit more than corn if these administrative changes were implemented in tandem. Iowa GOP Sen. Chuck Grassley’s indicated after last week’s meeting that participants agreed to study economic impact analyses of these proposals moving forward.

The problem with this approach is that it considers only a sampling of the negative impacts of the Renewable Fuel Standard. The oil and corn industries may be the most politically powerful interests concerned about this policy, but policymakers need to assess the full history of the standard, detailing higher costs on the poortaxpayerssmall engine owners and consumers alike. In 2008, former Texas Gov. Rick Perry (now secretary of energy) requested that the Environmental Protection Agency waive Renewable Fuel Standard requirements due to high food prices (as most biofuels are produced from food-based feedstocks such as corn and soybeans). In 2012, Perry and 10 other governors requested waivers from the corn ethanol mandate given the historic U.S. drought and its impact on record corn prices. And earlier this year, Democratic Gov. Carney of Delaware requested a Renewable Fuel Standard waiver due to high costs for refiners in his and other states.

For many years, my organization has worked closely with a broad range of stakeholders, from the oil refiners, to the grocers, conservationists, anti-poverty policy wonks and others, to look for a solution that works for everyone. Policymakers need to take the same approach and engage a broad range of stakeholders to fully assess the policy’s failings over the past decade and the most promising opportunities for reform. Only then will a comprehensive solution be found.

Originally published on March 7, 2018 in U.S. News & World Report