Fact Check: Dinneen Misleads in USA TODAY

Renewable Fuels Association President Bob Dinneen penned an op-ed in USA TODAY last week in which he offered several misleading claims about ethanol and the Renewable Fuel Standard (RFS). Dinneen’s piece preceded a USA TODAY editorial calling on Congress to repeal the RFS. Some of Dinneen’s most misleading statements are addressed below.

CLAIM: “Since it was enacted in 2005, U.S. dependence on imported oil has decreased from 60% to 40% largely because of biofuels.” 

FACT: According to Energy Information Administration data, U.S. liquid fuels production increased 39 percent from 2005 to 2012. Biofuels accounted for 39 percent of the increase, while petroleum contributed about 61 percent. The domestic oil boom brought about by hydraulic fracturing, not ethanol, is the true driving force behind America’s reduction in imports.

This oil boom is not over. Earlier in the year, EIA predicted that U.S. crude oil production was on track to surpass imports later this year for the first time in more than 15 years. In its analysis, EIA notes, “This projected change is primarily because of rising domestic crude oil production, particularly from shale and other tight rock formations in North Dakota and Texas.”

We are not going to run out of oil any time soon. In fact, our proven oil reserves are increasing, not falling. U.S. proved crude oil reserves increased by a record level for the second consecutive year, reaching a nearly 24-year high of 7.57 million bpd for the week ending August 9. Moreover, oil production in North Dakota rose to a record 24.6 million barrels in June, a 24 percent jump from a year earlier.

Meanwhile, ethanol production is flat in recent years. Between January 2012 and July 2013, ethanol production dropped from 0.953 million bpd to 0.854 millon bpd, a decline of more than 10 percent in just over a year and a half. Ethanol output decreased despite the federal mandate requiring refiners to blend increasing amounts of ethanol into gasoline.

CLAIM: “Because ethanol costs less than gasoline, it saves motorists more than $1,200 per year.”

FACT: Dinneen has it backwards: ethanol actually costs more than gasoline. This is primarily because ethanol is less energy dense than gasoline. A gallon of ethanol contains about 33 percent less energy than a gallon of conventional gasoline. Indeed, the BTU-adjusted price of E85 (ethanol that contains up to 85 percent ethanol) is consistently higher than regular gasoline. A year ago, regular gasoline cost about 70 cents less than E85 on a miles-per-gallon basis according to AAA’s Daily Fuel Gauge Report. Even with a record corn harvest driving corn prices down this year, E85 still costs about 20 cents more than regular gasoline.

Dinneen is correct that a gallon of ethanol (unadjusted for energy density) costs less than a gallon of gasoline, but that misses the point of why people use gasoline in ethanol in the first place. The point of transportation fuel is to fuel your vehicle and as explained above, when cars run on ethanol, they only get about 70 percent of the fuel economy as when they run on gasoline.

Not only does ethanol reduce fuel economy, but the RFS hurts all Americans, not just motorists. A recent study by the Energy Policy Research Foundation Inc (EPRINC) finds that failure to reform the RFS will cause E10 prices to spike as high as 50 cents to $1.00 per gallon in 2014. EPRINC attributes the increase to “constraints in cost effective opportunities to blend larger volumes of renewable fuels into the U.S. gasoline pool,” otherwise known as the blend wall. Another study by NERA Economic Consulting finds that by 2015 the RFS could raise diesel costs by 300 percent, gasoline prices by 30 percent, and reduce take-home pay for American workers by $580 billion. The facts simply do not support Dinneen’s claim that ethanol saves motorists $1,200 per year.

CLAIM: “By keeping cellulosic ethanol from the marketplace, Big Oil seeks to discourage investors from betting on the next generation of biofuels.”

FACT: The problem is that Dinneen is ignoring both the history and reality of cellulosic ethanol. The only thing keeping cellulosic ethanol out of the market is the price. Cellulosic ethanol is nothing new. In fact, cellulosic ethanol is nearly 200 years old and it was first commercialized over 100 years ago in the United States. Products like cellulosic ethanol aren’t produced in large quantities because they are expensive.

Despite a federal mandate to produce hundreds of millions of gallons of cellulosic ethanol a year, cellulosic ethanol until recently essentially was not produced commercially. In 2010, the Environmental Protection Agency (EPA) required refiners to purchase 5 million gallons of cellulosic ethanol, but not a single drop of commercially available cellulosic ethanol was produced. EPA actually increased the mandate in 2011 to 6.6 million gallons, but again no cellulosic ethanol was produced for commercial use. In 2012, EPA raised the mandate yet again to 8.65 million gallons, but the U.S. produced barely 20,000 gallons. So far this year, 73,272 gallons of cellulosic ethanol have been produced.

Oil companies are not “keeping cellulosic ethanol from the marketplace;” the marketplace isn’t producing it. Furthermore, oil refiners cannot purchase a product that does not exist. Nevertheless, EPA forced refiners to pay about $6.8 million in penalties for failing to blend cellulosic ethanol in gasoline. Not long after EPA handed down the fines, the D.C. Circuit Court ruled that EPA violated the Clean Air Act’s requirement that the agency develop the renewable fuel mandates in an objective, scientific manner. In its decision, the court described EPA’s attitude toward refiners as, “Do a good job, cellulosic fuel producers. If you fail, we’ll fine your customers.” If anything, Big Ethanol and EPA seem to be doing everything in their power to keep affordable gasoline from the marketplace.

Conclusion

It is time to end the subsidies for ethanol. Ethanol subsidies increase food and fuel prices on the American people. Instead of trying to force ethanol into the market, people should be able to choose how much ethanol they want to use. Ethanol has a role, but the role should not be dictated by bureaucrats in Washington, D.C.

IER Policy Associate Alex Fitzsimmons authored this post.