Robert Bradley, Jr., IER’s Founder and CEO, recently penned an op-ed titled, “The Renewable Fuel Standard: Can The ‘Tyranny Of The Status Quo’ Be Broken?” Below is the text of the piece:
4/10/2015
Free market economist Milton Friedman explained how government subsidies are very hard to dislodge, once in-place. With concentrated benefits and diffused costs, the status quo can become tyrannical in that the winners, as few as they are, have great incentive to continue their raid on millions of anonymous consumers or taxpayers.
In a recent stop in Iowa, presidential contender Ted Cruz made headlines by slamming the ethanol mandate. Politically, it was a gamble. Iowa isn’t just home to the first big presidential test — it’s a big corn-growing state. That combination has long made for toxic public policy, a tyranny of the status quo.
But Cruz’s opinion is spot on. The federal Renewable Fuel Standard (RFS) requires that some of the fuel Americans pump into their gas tanks come from renewable sources. In practice, that means corn-based ethanol. Would-be aspirants for the nation’s highest office, accordingly, have a powerful political incentive to please Iowans by supporting a policy that actually drives up food and gas prices and hurts the environment. That must end.
The RFS drives up consumer prices in two major areas. The first is food. Corn is an important ingredient in everything from livestock feed to sodas (via high-fructose corn syrup).
In 2000, before the ethanol mandate went into effect, more than 90 percent of this country’s corn fed people and livestock all over the world. Less than 5 percent was used for ethanol. By 2013, thanks to the RFS, 40 percent of the U.S. corn crop was diverted to make ethanol, 45 percent fed livestock, and only the remaining 15 percent was set aside for food. Consumers end up paying more because of the decline in supply available for food use.
The effect is worldwide. The group ActionAid USA has demonstrated that people in the developing world are not just suffering from higher food prices, but are also being driven off their land to make room for biofuel operations. “No one should go hungry to fill up our gas tanks,” the group argued.
The second major impact of the RFS is prices at the pump. The reason for this is simple: Ethanol contains about one-third less energy than gas, which far outbalances its slightly lower per-gallon cost. When ethanol is blended into gas, therefore, each mile driven costs more and a full tank doesn’t last as long.
High prices and more trips to the gas station might be worth it if Americans got some environmental benefit in return. But to the contrary, the RFS actually hurts the environment according to most studies.
Fuel has environmental impacts not only when it’s burned, but also when it’s produced. Ethanol involves a lot of water, fertilizer, and land, including former wetlands and grasslands. A United Nations report by the by the Intergovernmental Panel on Climate Change concluded that these effects “can lead to greater total emissions than when using petroleum products.”
One of the reasons Congress gave for passing the RFS in the first place was to reduce carbon dioxide (CO2) emissions from fuel.
But it turns out ethanol may actually increase overall CO2 emissions. Some life-cycle analyses have concluded that greenhouse-gas emissions for ethanol are one-third higher than for gasoline. In 2011, the National Research Council concluded that “production and use of ethanol to displace gasoline is likely to increase air pollutants such as particulate matter, ozone and sulfur oxides.” Researchers at Stanford University have reported similar findings.
For these reasons, even many environmental groups, including the National Resources Defense Council and the Environmental Working Group, oppose ethanol.
Market Failure — Not
Petroleum transportation fuels have outgrown the “market failure” charge of social costs exceeding private benefits. By 2017, smog-forming emissions from vehicles will have fallen by 99.4 percent since 1970. To put this in perspective, 11 cars emit the same air pollutants as a single gasoline-powered lawn mower per hour of operation, according to the Environmental Protection Agency.
As these emissions have fallen, unsurprisingly, air quality has improved. Since 1970, the aggregate emissions of the six most common pollutants — including carbon monoxide, lead, and sulfur dioxide — have dropped by more than two-thirds.
Ethanol is also supposed to help reduce America’s reliance on foreign oil. But here, the fracking boom has been far more effective. From 2005 to 2014, biofuel production increased by 1,566 trillion BTUs, but oil production increased four-to-five times more to 7,349 trillion BTUs per year. In the last decade, too, America’s net petroleum imports fell from 60 percent to 38 percent.
RFS policies run into the fact that ten percent ethanol is the maximum amount many vehicles on the road today can tolerate. Yet the RFS mandates an increasing amount of biofuel blend every year. This puts millions of older car, truck, boat, lawnmower, and other smaller engines at performance and damage risk.
Plus, according to a report by NERA Economic Consulting, enforcing the RFS as written would cause a $770 billion hit to U.S. GDP.
Members of Congress are upset about all this, and their anger reflects the concerns of their constituents, not to mention environmentalists and limited government advocates. Multiple bills have been introduced in the Senate and House of Representatives to roll back the RFS and its various provisions.
One should expect bipartisan reform, especially because the Environmental Protection Agency just announced that it will finalize blending targets by November 30 for 2015 and last year and issue the 2016 quota as well.
The intellectual and practical case for RFS reform/repeal are sound. Yet of presidential aspirants from both parties, only long-shot Republican Ted Cruz has come out in opposition. It’s time for Congress to step up and take the lead in doing away with this ill-advised policy — and presidential aspirants, Republican and Democrat, should stand up to the tyranny of the status quo.
