Gasoline, not corn, belongs in our tanks
By Merrill Matthews
President Trump frequently boasts of his success in rolling back costly and harmful regulations. Let’s hope that effort includes the renewable fuel standard, or RFS. The RFS is the latest phase in Congress’s decades-long support for the ethanol industry.
The problem is that support has outlived its usefulness.
When U.S. crude oil production began to decline in the mid-1970s and Middle Eastern countries began restricting oil exports to punish the U.S. for its pro-Israel policies, Congress decided to act.
It began subsidizing ethanol, a mostly corn-based renewable fuel that is blended into gasoline. The goal was to reduce U.S. dependence on imported oil while creating a sustainable and more environmentally friendly alternative to gasoline.
But Congress took a different approach in 2005 when it passed the Energy Policy Act, which created the renewable fuel standard. The new law mandated that 4 billion gallons of ethanol be mixed into gasoline beginning in 2006.
Then Congress vastly expanded the mandate in 2007 when it passed the Energy Independence and Security Act, which required a minimum of 36 billion gallons of ethanol to be mixed into gasoline by 2022.
While that expansion may have seemed reasonable a decade ago, it no longer does.
The primary reason is that the RFS mandate was created just when the U.S. fracking boom was taking off.
Innovative drilling techniques have allowed the U.S. to become the world’s leading crude oil and natural gas producer. Oil production is high and prices are low.
By contrast, the ethanol mandate has pushed corn prices up by at least a third — and often much higher — since 2005.
The U.S. has become a net exporter of natural gas, and we could become a net crude oil exporter within five to 10 years.
Energy independence, which means energy security, is just around the corner. Thus the justification for mandating ethanol usage has largely vanished and may even be counterproductive.
Another pressing problem is that more and more ethanol must be blended into gasoline every year. But gasoline usage has leveled off, which means that to meet the mandated ethanol goal the blend will have to rise from the current 10 percent to 15 percent or more.
Car manufacturers warn that increasing the “blend wall” higher than 10 percent could create serious engine problems, especially in many older cars.
And then there’s the refiners’ challenge. Philadelphia Energy Solutions, the largest refinery on the East Coast, recently filed for bankruptcy, blaming the RFS.
Refiners that don’t meet their goal of mixing ethanol have to buy a type of credit, known as RINs, which can be very costly.
The management consulting company McKinsey & Co. recently reported that the credits translated into an additional cost of up to $4 per barrel. For example, Valero Energy has projected that annual spending on RINs in 2016 could total $850 million. That ain’t chump change!
RINs represent government at its worst. They redistribute huge amounts of money without producing one drop of useable fuel.
Trump recently met with representatives from the ethanol industry, refiners, and some senators to try and come up with a solution to the RFS problem.
Unfortunately, the ethanol industry wants to double down for even more. Bad idea.
The president has taken an important step in freeing up the oil and gas industry to meet our energy needs. Gasoline, not corn, belongs in our tanks.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation.
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