For a country that prides itself on American ingenuity and the free enterprise system to solve problems and create new products, the recent shift to a command-and-control economy is becoming increasingly troubling.
During the past several years, self-appointed autocrats in government have been inserting themselves into our day-to-day lives in the mistaken belief that we need to be protected from ourselves. The mayor of New York City led an aborted attempt to ban large sodas because he believes we’re powerless against carbonated calories; the government tells banks who they can lend money to despite the potential financial risk; utilities are ordered to produce a percentage of their electricity from green energy sources despite the cost to consumers; and motorists fill up with government gas and diesel concoctions designed by environmental activists and bureaucrats rather than by automotive engineers and energy experts.
This government intrusion in the nation’s fuel supply is threatening to cause serious economic harm to the overall economy. The key problem is the Renewable Fuel Standard (RFS). It requires an ever-increasing amount of biofuel, including billions of gallons of corn-derived ethanol, to be blended into gasoline and diesel fuel through 2022.
This feel-good program to reduce oil imports by promoting the U.S. ethanol industry has become an albatross hanging around the economy’s neck. Developed at a time when fuel demand was climbing rapidly, the RFS was based on the assumption that gasoline demand would continue to grow, making it possible for gasoline to transform into E10, a mixture of 90 percent gasoline and 10 percent ethanol.
But U.S. gasoline demand hit its peak in 2007 at 142 billion gallons and has declined ever since. As a result, the RFS is rapidly approaching the “blend wall,” the point at which the U.S. gasoline supply can no longer absorb additional amounts of ethanol without exceeding the 10 percent.
The government’s meddling in the U.S. fuels market could lead to dire consequences for the economy. A study produced by NERA Economic Consulting shows that by 2015 the RFS is likely to hike the cost of gasoline by 30 percent and lead to rationing, increase the cost of diesel by 300 percent, reduce the nation’s Gross Domestic Product (GDP) by nearly $770 billion, and reduce take-home pay by $580 billion. In what might qualify as the understatement of the year, NERA’s economists say the RFS in its current form is “infeasible.”
Others use stronger terms. The Environmental Working Group calls the corn ethanol mandate a “costly disaster.” The oil industry says the RFS is “irretrievably broken.” U.S. Sens. Lisa Murkowski (R-AK) and David Vitter (R-LA) call the RFS “unrealistic” and have sent a letter to the Environmental Protection Agency (EPA) urging it to use its authority to “alleviate the threat of increased consumer fuel costs.”
On the other side of the equation, ethanol interests are pushing hard to protect the RFS and to increase the amount of ethanol that is blended into the nation’s fuel pool. Biofuel industry leaders have met with Gina McCarthy, President Obama’s pick to head EPA. The Governor’s Biofuels Coalition, representing 33 governors, has sent letters to both the House and the Senate to emphasize the ethanol industry’s “tremendous positive impact on the Coalition’s states.” And Growth Energy has succeeded in its bid to convince EPA to allow the sale of E15, a blend of 85 percent gasoline and 15 percent ethanol, in an apparent move to nullify the effects of the blend wall and increase the amount of ethanol sold to consumers.
But using E15 in most light-duty vehicles can cause engine failure, accelerated engine wear, and fuel-system damage, according to AAA auto experts. In testimony before a congressional panel, AAA reported that only 12 million of the 240 million cars and trucks on the road today have been approved for E15 and urged Congress to "suspend the sale of E15." Thirteen manufacturers have said they will not cover damage associated with E15 usage or that their warranties could be voided.
Simply put, the RFS is a government-mandated mess of unprecedented proportions. By distorting the free market operations of the nation’s fuel supplies, it is pushing up fuel prices. By creating an artificial market for corn-based ethanol, it has established a U.S. ethanol industry that likely isn’t sustainable without ongoing government assistance. And by approving the sale of E15, it could significantly damage one of the biggest investments most consumers make—a car or truck for personal transportation.
I was in Congress in 2005 and regret my vote to establish the RFS. Like many government programs, the original good intentions have morphed into a mess that now threatens to harm the very people it was designed to protect. This command-and-control approach to energy policy isn’t working and should be repealed.
***Also published on The Hill's Congress Blog April 11, 2013.