Reallocating Biofuels To Oil Refineries Compounds Bad U.S. Energy Policy

Source: By Jude Clemente, Forbes • Posted: Monday, July 2, 2018

The U.S. Environmental Protection Agency’s decision to reallocate ethanol and biofuel blending obligations waived under its small refinery exemption program to other the other bigger refineries has now been delayed. EPA is expected to make the announcement as part of its proposed annual biofuel blending mandates under the U.S. Renewable Fuel Standard that requires the usage of a certain amount of biofuels.  The RFS makes refineries blend increasing amounts of biofuels like ethanol and biodiesel into oil-based fuels, such as gasoline and diesel, or buy compliance credits from those who do.

The RFS mandates need finalized by November 30, but a delay could push them beyond the statutory deadline. EPA now proposes setting a 19.88 billion gallon biofuels blending mandate in 2019 under the RFS, up 3% from 2018, with 15 billion of which still coming from conventional biofuel, mostly corn-based ethanol. Under the proposed reallocation, refiners that don’t receive exemptions would have to compensate for the volumes that the smaller refineries don’t have to produce. Refineries that have a capacity of under 75,000 b/d can get a waiver from the program if they demonstrate that RFS compliance would be too much of an economic burden. Make no mistake: upping the mandate and/or relocating exempted volumes to larger refineries contradicts our national goal to perpetually enhance our three “Es,” Economy, Environment, and Energy Security. In fact, there are numerous reasons why we must immediately stop the ethanol and other biofuels obession from being continually being forced upon the American public:

  • EPA itself reports that ethanol can ruin car engines, and not only difficult to store, ethanol has fewer and more expensive transport options because it corrodes pipelines.
  • When total life-cycle emissions are factored in (i.e.,  from seed to tailpipe) ethanol clearly has very questionable and really unprovable environmental benefits. In fact, some peer-reviewed studies have found that biofuels are worse for climate change than oil-based gasoline and diesel fuels.
  • Ethanol has been blamed for record high food prices and has other huge unintended environmental consequences because growing them devours huge swaths of land.
  • Biofuels are much less efficient, which means more gallons of liquids are needed to supply the same amount of energy (see graphic below). Biofuels are also more expensive: for example, according to our main Watchdog GAO, the U.S. Department of Defense under President Obama dumbfoundedly shelled out $150 per gallon for alternative jet fuel made from algae,” around 65 times more than the market price for standard oil-based fuels at the time!

Data source: EIA; JTC

Ethanol is less efficient than gasoline, so more product is needed to produce the same amount of energy.

An EPA reallocation plan that would increase regulatory costs would hurt our refining companies – and therefore also hurt we Americans that use their products everyday. It would obviously increase gasoline costs, which have already been touching four year highs. At a time when “50 million American households can’t even afford basic living expenses,” policies to unnecessarily increase the cost of gasoline and diesel crush the poorest families the most, forced to spend disproportionately more of their money on such indispensable fuels.

Refining is already a very difficult business, and we shouldn’t make it tougher by increasing costs for no environmental benefit. Already operating in an overly tight system, in the past decade, although we’ve seen rising gasoline demand, $4 trillion growth in real GDP, nearly 30 million more people, the number of U.S. refineries has actually declined by 10 to 140. “Lessons from Hurricane Harvey: We must bolster refineries and pipelines.” In addition, the “refinery is a quintessentially low margin business.”

Not to mention that a new NAFTA could hamper our refiners even more by blocking access to the cheaper, heavier Canadian and Mexican petroleum that we like to utilize to give us a better chance at turning a profit when refining into liquid fuels. Worse, those seeking carbon taxes and/or other anti-oil measures would be throwing the next punch at our refiners – and again at we Americans that need their products daily. The CME Group which holds the NYMEX exchange, perfectly described the rather precarious situation that our refiners must operate in, each and every day – all of which only gets exacerbated by the fact that their essential input product – crude oil – is sold on a global market where risky players like OPEC and Russia have outsized influence on price:

  • “A  petroleum  refiner…is  caught  between  two  markets:  the  raw  materials  he  needs  to  purchase  and the  finished  product  he  offers  for  sale…As  such,  refiners  and  non-integrated  marketers  can  be  at  enormous  risk  when  the  prices  of  crude  oil  rise  while  the  prices  of  finished  products  remain  static,  or  even  decline,” CME Group, 2017

The reality is that the RFS is a relic of another time. It came about in 2005 and was expanded in 2007 – when U.S. crude oil production was erroneously thought to have peaked. But, The Great American Oil Boom since has given us more petroleum than we ever dreamed of having again and completely flipped energy markets here and around the world (see graphic below). U.S. shale has probably been the most significant energy development in the world since the end of WWII, with undoubtedly so much more to come. It’s just another obvious reason why we must immediately end the ethanol and biofuel boondoggle: a subsidization program that continues to needlessly deplete the U.S. Treasury.

Data source: EIA

U.S. crude production continues to soar to record heights.