EVA Report Finds the Renewable Fuel Standard Obsolete

Published :

Published :

EVA Report Finds the Renewable Fuel Standard Obsolete

EVA Report Finds the Renewable Fuel Standard Obsolete

Published :

Published :

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Several independent merchant refiners (belonging to the Fueling American Jobs Coalition) recently asked Energy Ventures Analysis (EVA) to take a fresh look at how the current Renewable Fuel Standard (RFS) is performing as an energy policy in the current era of ever-increasing U.S. energy independence. The results are not encouraging for RFS supporters.

The current RFS—created in 2005 and updated in 2007—reflects the distinct policy priorities of the time when imports of petroleum and liquid fuels supplied more than 60% of domestic demand.  America’s thirst for motor fuels was increasing, and U.S. production of crude oil was either stagnant or declining.  Policymakers created the RFS to increase domestic biofuel production, to support U.S. fuel independence, and to provide additional government-induced revenues to agricultural communities.

Fast forward to 2019—with the abundance of domestic fossil fuel reserves and production that have dramatically altered global energy markets.  Ethanol now is being blended at higher rates every year, and the use of other biofuels is also increasing.  Because of these new circumstances, it is important to consider whether the RFS policy continues to meet the needs of consumers and increases America’s energy security. 

EVA used the U.S. Energy Information Administration’s National Energy Modeling System (EVA-NEMS) to consider several scenarios that assess the impacts of continuing the RFS mandate through 2030.  The most important conclusion of this analysis is that the RFS is no longer an effective energy policy for the United States. 

Findings from the EVA-NEMS analysis include the following:

  • Corn growers do not need the RFS to support current production levels.
    • Model results show that U.S. corn-based ethanol and biobutanol production would remain at nearly the same levels if the RFS were discontinued because ethanol production costs are lower than the cost of gasoline blendstocks produced by refineries.
  • The RFS is not needed to advance U.S. energy independence.
    • Government forecasts show the U.S. is set to become a net exporter of petroleum and other liquids by 2025. No government policies are needed to promote U.S. energy independence.
  • Consumers will pay over $8 billion more at the pump in 2025 and 2030 if the current RFS standards remain in place, and the level of biofuels used in motor fuels will remain the same.
    • Consumers will spend $8.7 billion more in 2025 and $8.4 billion more in 2030 than they would without the RFS.
    • Eliminating the RFS altogether would lower the percentage of biofuels in gasoline by only 0.3 percentage points, from 10.8 percent to 10.5 percent.
  • Significant consumer savings would flow as the RFS focus shifts away from conventional ethanol.
    • Consumers would save $3.7 billion in 2025 and $5.3 billion in 2030 if the conventional biofuels mandate were removed and the biomass-based diesel mandate were kept at current levels.
    • On a dollar-per-gallon basis, biodiesel is the most expensive portion of the RFS mandate although it is a much smaller volume. Eliminating the need to rely on expensive biodiesel beyond the biodiesel and advanced-specific mandates to meet an unachievable conventional ethanol volume mandate results in significant consumer savings.
    • Lower levels of non-ethanol biofuels in the Advanced RFS scenario would likely result in even greater consumer and economy-wide savings.
    • Even in the Advanced RFS scenario, U.S. corn production would be largely unchanged in 2025.
  • Ethanol consumption under the existing RFS mandate is expected to decrease in the future.
    • Lower expected ethanol consumption stems from the expected decline in U.S. motor gasoline consumption, which is projected to drop from 143 million gallons in 2018 to 117 million gallons in 2025.
    • In addition, projected demand for flex-fuel vehicles and electric vehicles—coupled with the associated infrastructure changes that would be required—do not support significant growth in ethanol consumption through 2030.
  • The RFS distorts the market for refined products from merchant refineries.
    • Those merchant refineries who do not own blending facilities must purchase compliance credits on the open market, creating an extra net cost that reduces margins at their facilities.
    • Lower margins at job-creating refineries are needlessly reduced.

EVA’s analysis concludes that it is time to reconsider the effectiveness of and the consequences of continuing the RFS mandate. Energy policy should evolve as energy markets change. 

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