Biofuels Industry’s Claims for RFS don’t Stack Up

In a last ditch effort to drum up support from lawmakers in light of the recent Environmental Protection Agency (EPA) proposal that would decrease the amount of biofuels required by the Renewable Fuel Standard (RFS) in the nation’s fuel supply from 18.15 billion gallons to 15.21 billion gallons[1], representatives from biofuels companies recently flocked to the Hill to lobby Congress. Anne Steckel, Vice President of Federal Affairs for the National Biodiesel Board (NBB) cited the recent spike in oil prices as the justification to maintain the original mandate, stating:

The recent spike in oil prices stemming from the situation in Iraq should remind us all why these policies are so important. We constantly talk about the need to reduce our dependence on oil. Doing that requires massive investments and infrastructure that simply won’t happen without strong energy policy. We can’t keep taking one step forward and two steps back.[2]

Steckel here is admitting that the biofuel industry is dependent on subsidies and mandates. This calls into question why we still have mandates for biofuel production. After all, the ethanol industry is more than a 100 years old. The first automobiles ran on ethanol. If the ethanol industry cannot be competitive after more than 100 years, when will it be competitive?

Ethanol is more expensive than gasoline

Even with the RFS requiring the use of billions of gallons of ethanol an year, ethanol is still more expensive than gasoline. Currently the average gasoline price in the United States is $3.68[3] while E85 on an equivalent energy basis, is $3.90.[4] If ethanol were cost-competitive, then the Renewable Fuel Standard would not be needed. Prices reflect the availability of resources, and these prices show that biofuel is not the most efficient way to produce fuel.

The reality is that billions of gallons of ethanol would be used regardless of the existence of the RFS. Ethanol is a useful product that has important blending properties that increase the octane in gasoline in a cost-effective manner. But just because some ethanol is good does not mean that the federal government needs to mandate more.

Ethanol supports do not support policies to reduce our use of foreign oil

The claim that we need to reduce our use on foreign oil has been a mantra of many groups since the 1970s. But few groups who claim to want to reduce foreign oil imports actually promote the most obvious source of reduction import–increasing domestic U.S. oil production. Instead of reducing barriers to oil production in the United States, these special interest promote whatever their preferred policy is whether it’s mandating ethanol, forcing automakers to increase fuel efficiency, or arguing for a carbon tax.

Over the past 5 years, we have actually reduced our oil imports. Ethanol has played a role, but the role of domestic oil production has played an even bigger role. Since 2005, biofuels have only contributed to roughly 25% of new domestic liquid fuel production with petroleum contributing to the remaining 75%.[5] And oil production continues to increase.

The biofuel industry uses the concern about foreign oil imports to promote subsidies and set-asides for biofuel.  Other claims reported on Hoosier Ag Today, an agriculture publication, were made by the biofuel industry that make it evident that their industry is dependent for subsidies and mandates instead of a legitimately economically competitive industry:

Anne Steckel VP of Federal Affairs NBB:

“People are losing their jobs in this industry as we speak, and it’s largely because Washington has delivered sporadic, inconsistent policy.”[6]

Grant Kimberley Executive Director of Iowa Biodiesel Board:

“This swinging pendulum of government policy is wreaking havoc on small businesses with real employees who have banked their future on the promise of growing the American energy industry. EPA’s current RFS proposal represents a giant leap backwards for American-made fuel and advanced biofuels. Our Iowa biodiesel producers and soybean farmers strongly oppose it.”[7]

This is the sad reality when businesses are built on government subsidies and not economic reality—the businesses shrink as soon as the taxpayer dollars go away. Steckel and Kimberley are implicitly admitting that the biofuel industry is driven by taxpayer dollars and is not competitive in the real economy.

Conclusion

For the biofuel industry, it is important to come to Washington D.C. and lobby for subsidies because the industry is not economically competitive without handouts from the U.S. taxpayer. Biofuels have been around for more than 100 years. It’s time that the biofuel industry spend more time on becoming more economically competitive and less time lobbying Congress to give it special favors and set asides. The American people would be far better off with more innovation from the biofuel industry instead of continuing ethanol mandates.

IER Policy Associate John Glennon authored this post.