Setting the Record Straight on the RFS

Nine months after the deadline, the Environmental Protection Agency (EPA) has finally sent its final 2014 Renewable Fuel Standard (RFS) volume requirements to the Office of Management and Budget (OMB) for review. The RFS requires refiners to blend a certain percentage of renewable fuels into the gasoline supply. The countdown is on for one last big lobbying push by renewable fuel interests push for higher requirements than what was included in EPA’s proposed 2014 RFS rule. EPA Administrator Gina McCarthy recently stated that the final 2014 numbers will be higher than in the proposal EPA released last fall.[1] (For more on EPA’s proposal, see this and this.)

The Renewable Fuel Industries’ Arguments

Many in the ethanol industry are hoping this rule increases the amount of ethanol Americans are required to use. Tom Buis, the CEO of Growth Energy, an ethanol industry trade organization recently stated:

“Ultimately, this final rule should promote the policy goals of the RFS and call for an increase in the production of renewable fuels so we can continue to reduce our dependence on foreign oil, create jobs at home that cannot be outsourced and mitigate climate change, while we improve our environment.”

Buis, however, does not appear to be truly committed to the goal of reducing dependence on foreign oil and creating jobs at home, but rather only to increasing ethanol use and ethanol jobs. If Buis were committed to these goals he would surely call for removing government barriers to domestic production of fuel, not just renewable fuel.

Dependence on Foreign Oil Is Decreasing

When the RFS was created in 2005, domestic oil production was decreasing and oil imports were increasing. The RFS was passed to try to increase domestic production of fuel and reduce imports. That has happened, but only a small part is because of the ethanol production (and not all of the increase in ethanol production can be attributed to the RFS).

The biggest change in energy since 2005 is the hydraulic fracturing revolution. This technological revolution has led to an increase in domestic production of oil from 5,181 thousands of barrels per day in 2005 to 8,531 barrels per day in June 2014[2]. Now the U.S. is on track to one day be self-sufficient in oil production.[3]

Even with the RFS to guarantee an ever-growing market for biofuels, these fuels have not taken the lead in contributing to US energy independence. Since the RFS program was enacted, only 25 percent of the growth in new domestic liquid fuel production came from biofuels, with the remaining 75 percent coming from petroleum.[4]

Not only has oil production increased, but total fuel production has increased as well. This increase in domestic fuel production has significantly reduced our need to import oil. In 2013, only 33 percent of our petroleum was imported from foreign countries, the lowest level since 1985[5].

US Petroleum Import and Exports since 1985 (Barrels Per Day)[6]

Biofuel production has helped reduce the amount of oil imported, but there is no need to mandate biofuel production. Billions of gallons of ethanol would be used every year without the RFS because ethanol is a cost-effective way to increase octane in fuels.

 Domestic Oil versus Ethanol Production (Thousands of Barrels)[7]

Creating Jobs

In the quote above, Buis argued that the RFS was important for creating jobs at home. It turns out that although the biofuels industry has undoubtedly expanded as a direct result of the RFS, many jobs have been also been created in the energy boom with domestic oil and natural gas production. For example in December 2005, according to the Bureau of Labor Statistics (BLS) the oil and gas industry employed 128,100 people, last May 2014 oil and gas employed 210,000 people and preliminary data shows that there will be continued growth.[8] Jobs in the oil and gas industry are also high paying jobs with a mean hourly wage of $43.95 per hour.[9]

Unfortunately, the BLS doesn’t collect data directly related to the biofuels industry, so it couldn’t be included in this post. The point is not that one industry has better jobs than the other, but to show that high-quality jobs being created at home in energy production, regardless of the RFS.

Are Biofuels Improving the Environment?

Buis also claims the RFS is necessary “mitigate climate change”.  It is not clear, however, if biofuels really reduce carbon dioxide emissions.  In fact, the United Nations Environmental Working Group concluded that lowering the RFS target would actually lower U.S. greenhouse gas emissions by 3 million tons of carbon dioxide.[10]

There are other environmental issues from biofuel production. Even an EPA report concluded that there are negative environmental impacts with biofuels, including land use issues and, fertilizer and other chemical issues. [11] In their report EPA admits that technological advances in advanced biofuels will be necessary for the goals of the program to be reached, “EISA [the law that created the RFS] goals can be achieved with minimal environmental impacts if existing conservation and best management practices are widely employed, concurrent with advances in technologies that facilitate the use of second-generation feedstocks.”[12] The RFS may meet the environmental goals it was created to achieve, but only if certain practices are followed. So far the program has not gone according to plan, which is why EPA has had to dramatically lower the numbers every year for cellulosic ethanol since 2010, and is revising the requirements for all the biofuels this year.

Conclusion

Closer examination of the facts and overall efficacy of the RFS program shows many proponents of increasing the size of the program are using a magnifying glass to tout the benefits without stepping back and looking at the program from a global view. Biofuels have contributed to our path to energy independence and created new jobs, but market-driven technological advances in oil and natural gas production have done much more to move the U.S. to achieve those goals. Finally the full implications of mandating biofuels on our environment are not yet clear and biofuels may even be doing more harm to the environment than good. Given the new energy outlook, nine-year history of the RFS program, and environmental uncertainties, the Obama administration should lower the mandates and tilt the scale of energy policy back toward the American consumer and not the ethanol lobbyists.

This post was authored by IER Policy Associate John Glennon.