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Last Chance for the 115th: Reforming the Renewable Fuel Standard

This June here at OpenMarket we’ll be looking at what the 115th Congress, which began January 3, 2017 and runs through January 3, 2019, has accomplished so far and what might still be achieved for limited government and free markets before it’s over. Read more about the Competitive Enterprise Institute’s recommendations for legislative reform here

It has now been more than decade since the Renewable Fuel Standard (RFS) was last revised, and the program is not getting any better with age.  It unnecessarily interferes with the motor fuels marketplace, hurts consumers, and even fails to deliver the promised environmental and farm economy benefits. The 115th Congress deserves some credit for taking a critical look at the program, but it lacks the resolve to definitively address its problems. This is unlikely to change as we head into the 2018 elections.

Refiners and ethanol producers alike complain about the Environmental Protection Agency’s handling of the RFS, and things will only get worse after 2022 when the agency is granted far more latitude on how to run the program. Nonetheless, no legislative consensus has emerged on a preemptive fix. Corn growers and ethanol producers have been especially stubborn about changing a program they see as an entitlement, and they carry enough clout to obstruct real reforms in the House and especially the Senate. Thus, CEI’s proposal of a post-2022 sunset is not getting serious consideration, and that is unlikely to change for the duration of the 115th Congress.

Given that a straight sunset is still a political nonstarter, the House Energy and Commerce Committee has floated various reform proposals, including a transition to a high octane fuel standard. Under this proposal, the RFS could be phased out and replaced with a requirement that new vehicles be designed to run on high octane blends—essentially making today’s 91 octane the predominant fuel. Proponents see this as killing two birds with one stone, since ethanol is a cheap source of octane, it will be used in high octane blends in concentrations comparable to that under the RFS while avoiding blend wall concerns, and since engines designed to run on these blends get improved fuel economy it would help new vehicles comply with Corporate Average Fuel Economy (CAFE) standards.   

For those who are resigned to the RFS and CAFE remaining with us for the foreseeable future, high octane fuels could be a big improvement over the status quo by allowing the programs to work better together. But for those who want to curtail federal meddling in fuels and vehicles, it sounds like more of the same. At the very least, Congress should proceed cautiously and deliberatively, especially as regards potential adverse consumer impacts of high octane fuels and vehicles.

At the beginning of this Congress, CEI proposed a sunset of the RFS, and that remains our preference. But given that this is not going to happen any time soon, we believe it makes sense for this Congress to continue evaluating potential changes that at least partially restore free markets to transportation fuels. See also the recent coalition letter on ethanol regulation and the Consumer Fuel and Retailer Choice Act.

Read previous posts in the “Last Chance for the 115th” series: