New study shows renewable fuel standard helps—not ‘harms’—the US economy

Source: By Bob Dinneen, The Hill. • Posted: Monday, August 21, 2017

Buried deep within the Environmental Protection Agency’s (EPA) recent proposal for 2018 renewable fuel standard (RFS) blending requirements is a curious request for public comments on whether the proposed biofuel volumes would somehow cause “severe harm” to the economy. 

Of course, suggesting that ethanol and the RFS pose any “harm” at all—“severe” or otherwise—to the economy is completely preposterous. Ethanol is the lowest-cost source of octane available on the market today and extends fuel supplies, resulting in lower retail gasoline prices. Further, while biofuels expansion has indeed added value to agricultural products, most farm commodity prices are at or near pre-RFS levels.

Meat, milk and egg production continue to rise, and consumer food price inflation rates continue to fall below historical averages. In addition, the ethanol industry has generated tens of billions in new GDP and tax revenue, and supports hundreds of thousands of jobs. Far from “harming” the economy, the RFS has been an unmitigated boon to the American consumer.

But you don’t have to take my word for it. An independent economic study soon to be published in the American Journal of Agricultural Economics confirms that the RFS is delivering significant benefits to the U.S. economy and consumers. According to the study’s authors, “…the current RFS program considerably benefits the agriculture sector, but also leads to overall welfare gains for the United States.”

The analysis found the RFS in 2015 saved the U.S. economy $17.8 billion in gasoline expenses, compared to a case where no RFS existed. That’s equivalent to savings of $142 per American household, or $82 per licensed driver. Gasoline prices were $0.18 per gallon, or nearly 10 percent, lower because of the RFS.

Further, the study results highlight the impact of the RFS on domestic energy security, showing that “the RFS leads to a modest contraction in domestic crude oil production, and a larger decline in imports of crude oil.” According to the study, crude oil imports were nearly 200 million barrels lower in 2015 than if the RFS did not exist. At an average cost of $48 per barrel, that means some $9.6 billion stayed in the U.S. economy rather than flowing to the OPEC cartel and other oil exporting nations. While compelling, we believe these results are somewhat conservative.

Meanwhile, domestic crude oil production was just 12 million barrels, or 0.3 percent lower, in 2015 because of the RFS. Thus, the policy’s primary impact on oil markets has been to reduce imports and strengthen U.S. energy security, just as Congress envisioned.

The RFS was also found to have boosted the value of the U.S. agriculture sector by $14.1 billion, or nearly $6,800 per American farm, in 2015. Without the RFS, the model found corn prices would have averaged just $2.75 per bushel, far below the cost of production. However, with the RFS in place, corn prices averaged $3.68 per bushel—a 34 percent increase over the scenario where no RFS existed. “The results that we have presented confirm that the current RFS program considerably benefits the agriculture sector,” write the authors. As underscored by South Dakota farmer Keith Alverson at EPA’s recent hearing on the 2018 RFS proposal, “…the economic opportunity [ethanol] created is a large part of what enabled me, as well as other young farmers, to return to the farm.”

In addition, greenhouse gas (GHG) emissions were reduced under the RFS. Even though the authors used overly conservative assumptions about the GHG savings associated with biofuels usage, they found that “…the increased use of biofuels [under the RFS in 2015] does reduce carbon emission in the United States (by about 29 million tCO2e).”

So, while Big Oil will certainly view EPA’s recent proposal as an invitation to trot out more feeble claims about the supposed negative economic impacts of the RFS, the facts are clear. As underscored by this new academic study, the RFS has helped—not harmed—the U.S. economy by decreasing fuel prices, reducing oil imports, adding value to American agricultural products, boosting tax revenues, and cutting GHG emissions. EPA should reject out of hand any suggestion that implementation of the RFS in 2018 and beyond would somehow harm the economy.

Bob Dinneen is President and CEO of the Renewable Fuels Association.