The case against renewable fuel standard subsidies

Ethanol biofuel refinery by Shutterstock.com

Article Highlights

  • US oil production reached a 24-year high in October and our dependence on imported oil declines.

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  • Over the years, the ethanol lobby has claimed that ethanol would help US achieve energy independence.

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  • What’s more, gasoline itself has changed for the better.

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  • Quite simply, ethanol is not the panacea that its promoters claim it is.

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How did we reach the point where the government is promoting a dreadful fuel that gets worse fuel economy than gasoline or diesel, drives up food prices, damages car engines and has unintended environmental consequences?

The Renewable Fuel Standard has come to symbolize everything that is wrong with government-imposed mandates. It is causing more harm than good and should be scrapped.

For years, ethanol was promoted as a renewable, homegrown alternative to gasoline, a way to reduce tailpipe emissions and dependence on imported oil.

In 2007, as part of the Energy Independence and Security Act, Congress adopted the RFS, requiring refiners to blend 13.8 billion gallons of ethanol into gasoline by 2013 and up to 36 billion gallons by 2022. This mandate, however, has become completely unworkable and unnecessary.

Quite simply, ethanol is not the panacea that its promoters claim it is. Let’s start with the fact that the biofuels industry is actually burning large amounts of gasoline to produce ethanol – and the ethanol contains less energy than the gasoline consumed to produce it.

Next consider tailpipe emissions. One of the myths about the ethanol mix – called E10, which is 10 percent ethanol and 90 percent gasoline – is that it burns cleaner than gasoline. But ethanol has 27 percent lower fuel economy than gasoline on an energy equivalent basis, hence consumers have to purchase more fuel to drive the same distances.

One of the unintended consequences of ethanol’s poorer mileage is higher than expected releases of greenhouse gases into the atmosphere.

Another ethanol problem: Since the mandate took effect, fuel consumption has dropped dramatically, largely due to increased fuel efficiency in new vehicles, and therefore less biofuel is needed.

Average fuel economy in new cars and trucks has increased to 24.9 miles per gallon, according to a study released in September by the University of Michigan.

That’s nearly 5 miles per gallon better than the fuel economy of 20.1 mpg recorded in 2007, and under new government standards for corporate average fuel economy (CAFE), automakers have agreed to a fleet-wide average of 35.5 mpg by 2016, and 54.5 mpg by 2025.

The fuel economy of new cars almost certainly will increase dramatically in the next few years with the expected sales surge in new high-performing, super-clean diesel cars and SUVs. Diesels make up about 50 percent of European sales, but account for only about 3 percent of new vehicle sales in America.

But new U.S. registrations of diesel cars and SUVs are expected to reach double figures as a new breed of extraordinarily powerful diesels capable of up to 700 miles between fill-ups moves into showrooms this fall.

The diesel resurgence here is good timing because the 30 percent fuel efficiency advantage of diesel over gasoline means the new diesels on the road will reduce demand for petroleum and reduce emissions of greenhouse gases.

What’s more, gasoline itself has changed for the better. For one thing, it contains substantially less sulfur than it once did, and it will contain even less in the near future.

U.S. refiners have lowered gasoline sulfur nearly 90 percent since 2004, and are gearing up to produce even lower-sulfur gasoline to comply with a new air-quality standard that the EPA proposed earlier this year.

Over the years, the ethanol lobby has claimed that ethanol would help America achieve energy independence. But that argument has completely fallen apart, as evidenced by the dramatic surge in domestic oil production due to deepwater drilling and the shale revolution.

U.S. oil production reached a 24-year high in October and our nation’s dependence on imported oil continues to decline.

America is paying a huge price for ethanol, an inferior fuel that’s no match for gasoline or diesel and is only benefitting a small set of special interests. Congress should repeal the RFS, a mandate that never should have been adopted in the first place.

Mark J. Perry is a professor of business and economics at the Flint campus of the University of Michigan and a scholar at the American Enterprise Institute.

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About the Author

 

Mark J.
Perry
  • Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan's Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

    Follow Mark Perry on Twitter.


  • Phone: 202.419.5207
    Email: mark.perry@aei.org

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