The Renewable Fuel Standards Boondoggle

Posted: Dec 06, 2012 12:01 AM

Although it was created with the best of intentions, the federal government’s Renewable Fuel Standard (RFS) program has become one of the worst and most costly boondoggles ever foisted on the American public.

Its goal was to reduce American dependence on foreign oil and incentivize the fledging renewable fuel industry. But in the hands of the Obama Administration’s Environmental Protection Agency (EPA), it has become a nightmarish mess of out-of-control mandates, over-the-top bureaucracy, and out-and-out fraud.

The RFS was launched in 2005 to ensure that renewable fuels were blended into the nation’s motor vehicle fuel supply. In 2007, RFS2 raised the requirements for specific annual volumes of renewable fuels such as corn-based ethanol and included new mandates for cellulosic ethanol, biomass-based diesel, and advanced biofuel. 

The standard also allows refiners or fuel importers to sell or purchase renewable fuel trading credits called RINs (Renewable Identification Numbers), giving them the means to demonstrate their compliance with the volume requirements.  

Representatives from the oil industry worked with Congress to write the RFS legislation and agreed with it in concept. But several unforeseen issues have developed. And although fuel providers have repeatedly pointed out the RFS’s flaws, EPA has turned a deaf ear and shown no interest in fixing the convoluted, market-distorting problems.

First, there is the mandate requiring ethanol to be blended in to the nation’s gasoline supply. A total of 13.2 billion gallons of ethanol must be added this year and 13.8 billion gallons next year. Combined with this summer’s drought, the ethanol mandate has pushed up corn and animal-feed prices, resulting in higher prices for food.

Stanford University’s Center for Food Security and the Environment says the RFS has “reshaped price and supply dynamics in food markets” and created hardships for Americans and other people around the globe. “Poor households in the developing world, where 70-80% of the budget is spent on food, will be hurt the most,” the Center says. Yet EPA in November refused to grant a waiver which could have reduced the amount of corn burned for fuel.

EPA also approved the sale of E15, a gasoline-based fuel that contains 15 percent ethanol rather than the 10 percent ethanol blend sold at most gasoline stations around the country. The agency’s decision was made during Joint automaker/oil industry lab tests showing that E15 can do serious harm to vehicle engines. Automakers are not extending warranty coverage to vehicles operating on E15, lawn equipment manufacturers are ringing alarm bells, and a coalition is challenging EPA’s E15 decision in court.

The agency also has been criticized for not doing enough to address fraudulent RINs. Three biodiesel companies, identified as Clean Green Fuels, LLC, Absolute Fuels, LLC, and Green Diesel, LLC have been accused of selling more than 140 million invalid renewable fuel credits without producing or importing any renewable fuel. The oil refiners who unknowingly bought the phony credits are subject to fines and penalties and must buy new credits.

“This is a problem EPA could have, and should have, resolved by now,” said American Petroleum Institute (API) President and CEO Jack Gerard in September. “EPA’s failure to act quickly could raise the cost of making fuels in the United States.”

EPA’s cellulosic ethanol program also could have consequences for fuel production costs. Unlike corn-based ethanol, this fuel is derived from switch grass, wood chips or other plant matter rich in cellulose. The problem is that no commercial quantities of cellulosic ethanol exist, a fact that is acknowledged by EPA.

But rather than stop enforcement of the cellulosic ethanol program, the agency is requiring fuel producers to purchase “waiver credits” for failing to blend cellulosic ethanol into gasoline. By the end of this year, these credits will have cost fuel producers more than $14 million for their inability to do the impossible.

The RFS’s biodiesel program has its own set of troubles. API contends EPA’s mandate of 1.28 billion gallons of biodiesel in 2013, which is 28 percent higher than in 2012, is “unworkable.”  The trade association says even EPA’s own estimates show the cost of increasing biodiesel’s required volume outweighed the benefits by as much as $425 million. API filed suit against EPA in late November.

Yet the Obama Administration’s EPA seems intent upon continuing its RFS regime. In the EPA’s parallel universe, phantom fuels exist, and reason and economics are suspended. 

Note: The following also published December 5, 2012 in The Hill. 

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