The People of America's Oil and Natural Gas Indusry

100 Days: U.S. Energy Renaissance Overtakes Flawed RFS

Mark Green

Mark Green
Posted February 21, 2017

There might not be a sharper contrast with the innovation- and market-driven success of the U.S. energy renaissance than the flawed federal Renewable Fuel Standard (RFS) – a program rooted in the era of U.S. energy scarcity that has been mostly closed by the ongoing surge in domestic oil and natural gas production.

The RFS was created in the mid-2000s to help counter rising U.S. crude oil imports. The idea was to stand up an industry that would supply the country with renewable fuels – ethanol, advanced and cellulosic biofuel and biodiesel – that could be blended into the nation’s gasoline supply. But advanced and cellulosic biofuels haven’t taken off commercially and are dwarfed in the RFS mix by corn ethanol:

rfs_volumes

At the same time, the RFS has been overtaken by events – chiefly a U.S. energy revolution that has seen domestic crude production increase nearly 80 percent since 2009 …

crude-production

… making the United States the world’s leading producer of oil and natural gas and lowering crude imports to levels not seen since 1985. (The U.S. Energy Information Administration (EIA) projects net crude imports will continue to fall, from 4.6 million barrels per day in 2015 to about 1.5 million barrels per day in 2040.)

Meanwhile, U.S. gasoline demand has been declining – it’s 10 percent lower today what EIA projected it would be back when the RFS was enacted. Lower demand coupled with rising RFS ethanol mandates risks breaching the ethanol blend wall, where more ethanol is required than can be safely blended as the E10 gasoline that’s standard across the country.

This could put consumers at risk. Almost 90 percent of the vehicles on the roads today weren’t designed to use higher ethanol blends like E15, and studies have shown E15 can damage engines and fuel systems in those vehicles and could even void manufacturers’ warranties. The RFS ethanol mandate could impact consumers at the gas pump as well. The Congressional Budget Office found that forcing ethanol consumption to statutory levels, mainly by using higher ethanol blends like E85, could cost consumers an additional 26 cents per gallon at the pump.

Beyond those potential impacts, those pushing to see increased volumes of higher ethanol blend fuels in the marketplace are ignoring the marketplace, where consumer reception for E15 an E85 has shown EPA’s aspirations for those fuels are unrealistic.  R. Timothy Columbus, representing the Society of Independent Gasoline Marketers of America and the National Association of Convenience Stores, at a 2015 congressional hearing:

“To date, very few retailers selling mid to high level ethanol-gasoline blends such as E15 or E85 have seen substantial sales of these products. Quite the opposite: most retailers that sell E15 or E85 have seen minimal sales of these products. Indeed, retailers have found that even consumers with E85-compatible flex-fuel vehicles tend to purchase E10.”

One more point: Forcing additional ethanol into the fuel supply could crowd out ethanol-free fuel that many consumers seek for boats, lawnmowers, classic cars, motorcycles and power equipment. The availability of E0 has declined because of the RFS, yet significant demand remains. Americans bought 5.3 billion gallons of it in 2015, but EPA’s 2017 volume requirements incorporate only 200 million gallons – probably one of the reasons 75 percent of actual U.S. voters, polled on election night, are concerned about government requirements that would increase the amount of ethanol in gasoline.

Bottom line: The RFS is an outdated, flawed program that should be repealed or significantly reformed. It’s original objective, to reduce crude imports, is being achieved instead by rising domestic production. The risks of ever-increasing ethanol volumes in the fuel supply are too great. A USA Today editorial called the RFS a “folly,” and the Washington Post called for its end:

[T]here is no doubt it should be repealed. Blending more and more ethanol into gasoline will require spending money on infrastructure that is not yet in place and selling more fuel that older and more specialized engines cannot take. … The ethanol mandate serves little purpose beyond subsidizing the farming business, which already gets massive federal subsidies.

See other posts in the “100 days” series, on our energy foundation, consumers and the economy, hydraulic fracturing.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.