How the Ethanol Lobby 'Celebrates' Mandates on Americans - American Products. American Power.

How the Ethanol Lobby 'Celebrates' Mandates on Americans - American Products. American Power.

How the Ethanol Lobby ‘Celebrates’ Mandates on Americans

January 10, 2014 

On the sixth anniversary of the expansion of the Renewable Fuel Standard (RFS) in 2007, the Renewable Fuels Association (RFA) issued a “celebratory” document explaining why they were so thrilled with the mandates on American refiners. The funny thing is, we don’t need to consult outside sources to see what’s wrong with the RFS or the claims of its proponents; we need only highlight certain parts of the RFA’s own release.
As the RFA’s document itself puts it, the expanded Renewable Fuel Standard (RFS) “required rapid growth in the consumption of renewable fuels, culminating in 36 billion gallons in 2022,” and furthermore “required renewable fuels to meet certain environmental performance thresholds and created specific categories for cellulosic and advanced biofuels.” Prima facie, a mandate that forces people to buy something they don’t want is suspect, but let’s see how the RFA folks justify it. They write:

Just six years later, tremendous progress has been made toward achieving the original objectives of the expanded RFS. Renewable fuel production and consumption have grown dramatically. Dependence on petroleum—particularly imports of refined products—is down significantly. Greenhouse gas emissions from the transportation sector have fallen. The value of agricultural products is up appreciably. And communities across the country have benefited from the job creation, increased tax revenue, and heightened household income that stem from the construction and operation of a biorefinery. [Bold added.]

Yikes! They come right out and say that one of the “original objectives” of the RFS was to increase the value of agricultural products—in other words, to force Americans to pay more for products from farmers. Indeed, later in their report they even have a nice table to quantify their success: 

So, “net farm income” is up 87 percent relative to the year before the financial crisis. Is that true for other sectors of America’s workforce?
But wait, it gets funnier. Look at how the RFA deals with the problem of gasoline prices. Remember, one of the main arguments for an expansion of ethanol is that it will (allegedly) reduce prices at the pump:

This brief analysis examines how the world has changed since passage of the expanded RFS in 2007. And while substantial progress has been made toward accomplishing the goals of EISA, the RFS has just gotten started. More work remains to be done, especially in terms of reducing petroleum imports and lowering prices at the pump. [Bold added.]

Now from that phrasing—saying “More work remains to be done”—the writers make it sound as if yes, the expansion of ethanol has indeed made driving more affordable, but shucks it’s just not good enough for the folks at RFA.
In reality, however, gasoline prices have gone up since the RFS was strengthened, and even wholesale ethanol prices are up more than 10 percent:

Another problem is that the RFA tries to take credit for the large reduction in crude oil imports. Yet this has little to do with ethanol, and much to do with increasing domestic U.S. oil production. According to EIA, average U.S. crude oil production in 2007 was 5.1 million barrels per day, but by October 2013 it had risen to 7.8 million barrels per day. On the other hand, crude oil imports in 2007 averaged 10.0 million barrels per day, but by October 2013 had dropped to 7.5 million barrels per day. In other words, during the period that RFA wants to evaluate the “success” of the Renewable Fuel Standard, domestic crude oil production went up by 2.7 million barrels per day, while crude oil imports fell by 2.5 million barrels per day. The change in oil imports is thus entirely explained by expanded domestic production, not by “weaning ourselves from oil.”
We could go on and on. For example, the RFA document pooh-poohs claims that the ethanol mandates have put pressure on food prices. Yet its own table shows that from 2007-2013, world food prices increased 7.8%, while U.S. food prices increased 13.8%. So that means food prices increased some 75% more in the U.S. than in the world as a whole, during the period when the RFS ramped up in the U.S. (but was not applicable to the rest of the world, of course). How is this supposed to reassure the reader that the RFS didn’t increase food prices?
In conclusion, even the Renewable Fuels Association’s own data destroy the story they’re trying to spin: The only real thing to “celebrate” about the RFS is that it made a certain group richer at the expense of others. No one denied that the government had the power to redistribute wealth. The objection to the RFS and other mandates is that they make the economy less efficient and hence make Americans poorer on average.
IER Senior Economist Robert P. Murphy authored this post.