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EPA Finalizes 2018 Renewable Fuel Standard Targets

The Environmental Protection Agency (EPA) today finalized its renewable fuel standards (RFS) for 2018. Caving to pressure from Iowa Republican Sens. Joni Ernst and Chuck Grassley, who threatened to vote against President Trump’s nominee to head EPA’s air office, the agency decided to slightly increase rather than slightly decrease the overall RFS blending target for 2018. In July, EPA had proposed to decrease the RFS from 19.28 billion gallons in 2017 to 19.24 billion gallons in 2018. That miniscule 0.2 percent reduction was deemed intolerable by the biofuel lobby and its congressional patrons. The final standards, announced today, set the 2018 RFS at 19.29 billion gallons, a 0.05 percent increase over the 2017 standard.

Although utterly trivial in economic terms, the miniscule increase is a political victory for those whose regulatory rents and campaign contributions depend on the piratical dogma that, regardless of market conditions and consumer preference, biofuel producers are always entitled to squeeze more dollars out of motorists at the pump. 

My colleague Sam Kazman nailed it years ago when he asked: “If ethanol is such a great product, why do we need a law to make us buy it?” The answer is that “we” need the law because regular gasoline is a better buy. Fueleconomy.gov, a website maintained by EPA and the Department of Energy, estimates how much the typical motorist would spend in a year to drive a flexible fuel vehicle on E85 (motor fuel made with up to 85 percent ethanol) and regular gasoline. The estimates change with changes in fuel prices and vary by make and model. However, the big picture is always the same: Because ethanol has one-third less energy by volume than gasoline, motorists have to spend more and fill up more frequently to go the same number of miles on E85. At today’s prices, E85 can add as much as $450 to a motorist’s annual fuel bill.

RFS advocates claim the program is needed to enhance U.S. energy security and combat climate change. However, the once-dreaded OPEC “oil weapon” was always an alarmist bogeyman. Even if oil import dependence were a problem, market-driven petroleum production has done far more than politically-mandated biofuel quota to reduce U.S. oil imports, which declined from about 60 percent of domestic consumption in 2005 to 25 percent in 2016. From September 2007 to September 2017, U.S. domestic oil production increased by 4,570,000 barrels per day. In contrast, from January 2009 to September 2017, U.S. ethanol production increased by about 367,000 barrels per day.

Similarly, hydraulic fracturing and the resulting abundance of cheap natural gas for electric generation are chiefly responsible for cutting U.S. energy-related carbon dioxide (CO2) emissions by 14 percent during 2005-2016. Citing the 2017 BP Statistical Review of World Energy, tech analyst Robert Rapier notes that the 758 million ton reduction in annual U.S. CO2 emissions since 2005 “is by far the largest decline of any country in the world over that time-span and is nearly as large as the 770 million metric ton decline for the entire European Union.” In contrast, the net CO2-impact of ethanol is controversial, with some analyses finding ethanol has a bigger carbon footprint than the gasoline it displaces.

Although Grassley and Ernst achieved a symbolic victory for certain constituents back home, the days when they could invoke “the law” and mean the wildly unrealistic biofuel quota Congress adopted in 2007 may be coming to an end.

Section 211(o)(7)(F) of the Clean Air Act requires the EPA to modify the statutory volume targets through 2022 if, starting in 2016, the agency has waived (reduced) annual volume requirements by more than 20 percent for two consecutive years or by more than 50 percent for a single year. For cellulosic and advanced biofuels, those thresholds have been crossed—rather spectacularly.

The statutory cellulosic biofuel targets for 2016, 2017, and 2018 are 3 billion gallons, 4.25 billion gallons, and 5.5 billion gallons, respectively. The EPA-required volumes are tiny fractions of the statutory targets: 230 million gallons in 2016, 311 million gallons in 2017, and 288 million gallons for 2018.

The same reset requirement applies to the wider category of advanced biofuels, of which cellulosic is a component. The statutory advanced biofuel targets for 2016, 2017, and 2018 are 7.25 billion gallons, 9 billion gallons, and 11 billion gallons, respectively. The EPA-required volumes are 3.61 billion gallons in 2016, 4.28 billion gallons in 2017, and 4.29 billion gallons in 2018—in each case less than half the statutory targets.

EPA does not yet have to reset total RFS volumes, because it held its reductions in the 2016 and 2017 statutory targets to just under 20 percent of those goals. However, the total volume requirement for 2018—19.29 billion gallons—is 25 percent below the 26-billion gallon statutory target. I’m betting the EPA-required volume for total renewable fuels will fall short of the statutory target by an even larger percentage in 2019, requiring a reset for 2020-2022.