Oil industry touts study linking RFS with economic harm

Source: Amanda Peterka, E&E reporter • Posted: Thursday, September 10, 2015

The oil industry today touted a new study finding that achieving the biofuel levels set out in the federal renewable fuel standard would lead to economic chaos.

The study found that if the nation were to use the amount of biofuels Congress wrote into the RFS, the cost of gasoline and diesel would increase by $90 and $100 per gallon, respectively. The higher prices would in turn lead to a reduction in demand for transportation fuel and spur “outrageously” high consumer costs, the study said.

The American Petroleum Institute, which wants to see Congress repeal the renewable fuel standard, commissioned the study by NERA Economic Consulting, a firm that in 2012 published a study tying the RFS to high economic costs.

Biofuel producers immediately slammed the study as rehashing old arguments and said none of the oil industry’s gloom-and-doom predictions about the RFS has come true.

“It’s déjà vu all over again,” said Bob Dinneen, president and CEO of ethanol trade group Renewable Fuels Association. “This study is virtually identical to a study that NERA published for API in 2012. The conclusions of both analyses are completely divorced from reality.”

Congress enacted the current RFS in 2007 to require refiners to blend increasing amounts of ethanol and advanced biofuels into petroleum gasoline and diesel. The RFS called for the consumption of 36 billion gallons of biofuels a year by 2022.

The study comes as U.S. EPA is weighing hundreds of thousands of comments on a proposal to lower the targets for renewable fuels in 2014, 2015 and 2016 compared to the levels contained in the statute. Biofuel advocates have called on the agency to set more robust targets in line with the congressional levels.

NERA said it based its cost estimates for the study on a scenario where EPA sets the requirements for 2015 and beyond at statutory levels. It assumed that, from 2018 through 2022, biodiesel volumes would be held steady at 1.9 billion gallons and that cellulosic biofuels — a type of advanced biofuel made from non-food crops — would be held at about 200 million gallons.

Such a scenario, NERA concluded, would require a 30 percent increase in the amount of renewable fuel credits known as RINs that are in the market. Complying would require using more ethanol and biodiesel than is feasible, NERA said, and force refiners to decrease production volumes or export product.

NERA said the resulting price increases in gasoline and diesel would have “spillover effects that ripple through the economy.”

“Higher diesel fuel costs increase the cost to move raw materials and finished goods around the country, thus eventually making everything that directly or indirectly depends on transportation services more costly,” the study concludes. “Likewise the higher gasoline prices leave consumers with less disposable income. As a result of these impacts, consumption of goods and services declines.”

Bob Greco, downstream director for API, said the group had provided the study to EPA and was highlighting it in the hopes that it wouldn’t get buried in the mass of comments EPA received on its proposal. API wants EPA to limit ethanol requirements to 9.7 percent of the gasoline supply.

“This just underscores the severe economic harm and should hopefully bolster EPA’s case for not considering calls to go to the statutory volumes,” Greco said.

Along with the ethanol industry, the biodiesel sector today also disputed the study’s findings. The National Biodiesel Board circulated results from NERA’s prior study in 2012 and said the 300 percent price increase in diesel costs and $770 billion decrease in national gross domestic product that the firm predicted would happen in 2015 haven’t occurred.

“There seems to be a low bar for shameless misinformation here,” said Ben Evans, a spokesman for the board. “API and NERA said three years ago that the RFS would cause diesel fuel rationing and a 300 percent spike in diesel prices. Obviously, those projections were wrong, just like these will be. It’s laughable, really.”