Will the Second Chapter of the Renewable Fuel Standard Be Worse than the First?
Enacted in 2005 and expanded in 2007, the Renewable Fuel Standard (RFS) requires that specified amounts of biofuels like ethanol and biodiesel be added to the nation’s transportation fuel supply. Ever since, it has caused more problems than it solved while raising costs on consumers. The Environmental Protection Agency (EPA) has just proposed the required volumes under the RFS for the years 2023-2025. Starting with an unprecedented 20.82 billion gallons in 2023 and rising to 22.68 billion in 2025, this proposed rule will double down on the failure while expanding the program to create yet another handout for electric vehicles (EVs).
Post-2022 represents a new chapter for the RFS, as the statutory provisions now grant the EPA greater flexibility in setting the annual requirements. The agency should have used the occasion to dial back the mandated volumes of biofuels, which have proven to be problematically high.
For example, it is best to keep the percentage of ethanol added to gasoline at or below 10 percent—any higher could cause problems for older vehicles and small engine equipment—but unexpectedly shrinking gasoline demand since the program was created in 2005 means that higher-percentage blends have been unavoidable. The EPA could have solved this problem by reducing the volumes below that of previous years, but instead it is proposing to raise them to record levels.
Another problem is that both ethanol derived from corn and biodiesel made from soybeans impinge significantly upon the food supply—the last thing the U.S. and the world need now that we are facing food price inflation and may soon see global food shortages. Fully 40 percent of the U.S. corn supply has gone toward meeting the RFS rather than serving as food or animal feed, and that figure is likely to increase under the proposed targets. Using food as fuel could well prove to be a regrettable misallocation of this resource.
Moreover, the biofuels categorized as advanced biofuels qualify for a $1 per gallon tax credit that was recently extended in Inflation Reduction Act, which also provides extensive subsidies for biofuels infrastructure. In other words, there is a taxpayer cost to the RFS along with the consumer cost, and both will be growing in the years ahead.
Of course, no Biden administration transportation policy would be complete without another gift to EVs in the name of fighting climate change. The EPA proposes to expand the RFS, which until now was primarily focused on adding ethanol and biodiesel to the gasoline and diesel fuel supply, to also incentivize the use of biomass-generated electricity in vehicles.
In other words, instead of mandating the use of agricultural products to make liquid fuels, the RFS would also issue valuable credits, called eRINS, for the use of qualifying biomass to generate electricity to power EVs. Proving that the electricity was generated in this fashion, and that it was used to run an EV—after all, all electrons are identical—creates considerable accounting challenges and would likely add to the fraud that has plagued the RFS throughout its history. Interestingly, the EPA proposes to set up the program so that the automakers themselves would be the party that can generate the eRINs.
It would have been preferable if the EPA had used its post-2022 flexibility to shrink the RFS, but the best policy of all would be for Congress to sunset the program entirely. Then the market could determine how much biofuels to add to the fuel supply and whether to switch from liquid fuels to electricity. Instead, the EPA’s latest RFS proposal adds another dose of central planning that has been nothing but bad news for the driving public.