CBO: Not reducing RFS mandates could raise fuel prices

Source: By ALEX GUILLÉN, Politico • Posted: Monday, June 30, 2014

NOT ROLLING BACK RFS MANDATES MEANS HIGHER FUEL PRICES — CBO: If EPA does not stick to its proposed rollbacks in the 2014 Renewable Fuel Standard mandates, average E10 gasoline prices would rise by 4 to 9 percent by 2017, according to a new report from the Congressional Budget Office. That’s because fuel suppliers would have to more than triple their use of advanced biofuels and add more ethanol to the gasoline supply than would work with a 10 percent blend of ethanol, CBO says. The agency also concluded that petroleum-based diesel prices would increase by 9 to 14 percent under that scenario, but that E85 fuel would actually decline by 37 to 51 percent. The report: http://1.usa.gov/1liRvHy

HOWEVER: CBO says it is unlikely EPA will stick to the mandates prescribed in the Energy Independence and Security Act of 2007 because it “would require a large and rapid increase in the use of advanced biofuels and would cause the total percentage of ethanol in the nation’s gasoline supply to rise to levels that would require significant changes in the infrastructure of fueling stations.” CBO worked out two other scenarios — in which EPA maintains its proposed 2014 levels and in which Congress fully repeals the RFS — and concluded fuel prices would be about the same in each.

Likely little effect on food prices: The report also notes that is EPA hues to its 2014 proposal or if the RFS is repealed by Congress, about the same amount of U.S. corn would go toward making ethanol “because suppliers would probably find it cost-effective to use a roughly 10 percent blend of corn ethanol in gasoline in 2017 even in the absence of the RFS. Therefore, food prices would also be about the same under the 2014 volumes scenario and the repeal scenario.” In the more unlikely scenario with higher ethanol mandates, CBO projects a 6 percent increase in corn prices, which would boost overall U.S. spending on food by around 0.25 percent.

As for emissions: “The RFS’s potential to reduce emissions will be greater over the longer term if it encourages improvements in the technology for producing fuels with relatively low emissions, such as cellulosic biofuels — particularly dropin cellulosic gasoline or diesel that can be added to the supply of transportation fuels without encountering problems with the 10 percent blend wall. As noted above, however, tension exists between the goals of limiting the near-term cost of complying with the RFS (by issuing waivers for cellulosic biofuels, for example) and providing a strong incentive for the development of better technology.”

BIOFUELS GROUP SLAMS REPORT: ““Some reports are simply not worth reading, and this is one of them,” said Brooke Coleman, executive director of the Advanced Ethanol Council. “You cannot assess the impacts of the RFS without looking at the benefits of reducing consumer demand for gasoline and diesel fuel. That’s the entire point of the RFS and the CBO simply states that ‘it did not account for that effect in this analysis.’ … CBO reports are supposed to be impartial and objective, and therefore informative. This particular report appears to detail a fantasy world that does not inform the current debate.”