Renewable Fuel Standards Are Driven By Ideology And Rent-Seeking, Not Science

Lee Lane Visiting Fellow, Hudson Institute
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Throughout the last forty years, whenever gasoline prices have spiked, Washington has launched a new wave of mega-programs aimed at transforming the U.S. energy system. A couple of the smallest and least ambitious efforts actually helped industry learn how to extract oil and gas from shale formations, a huge gain at little costs. The big programs, though, have invariably been fiascos. Washington has lavished vast sums on everything from breeder reactors to wind and solar. No large-scale replacement for fossil fuels has occurred, and none is imminent.

The current version of the federal Renewable Fuels Program (RFS2’ in DC-speak) is a case in point. Congress, when it passed the law creating RFS2, couched its biofuel use mandates, not as percentages of total fuel use, but as a series of relentlessly rising absolute volume targets that fuel suppliers must produce and somehow sell. In effect, the law’s authors simply assumed that the U.S. fuel market would fail to adjust to the high world crude oil prices.

They were wrong. Higher prices caused U.S. highway fuel demand to plunge. As a consequence, the RFS2 biofuel mandates are pushing a surfeit of ethanol into the highway fuel market in the form of higher ethanol fuel blends. These fuels may damage older cars and trucks as well as smaller motors. Also, on average, they cost more than gasoline per unit of energy and using them shortens vehicle range. Drivers get to pay more for a less convenient fuel.

RFS2 was supposed to reduce greenhouse gas emissions; yet, it does not do so to any meaningful extent, and it might well even slightly increase them. Then, there is oil independence. RFS2 purports to contribute to it. But the program is already diverting forty percent of the U.S. corn crop, and biofuels still supply only about 10 percent of highway fuel. Many green groups, although admitting the failure of corn-based ethanol, continue to insist that RFS2’s mandate for ‘advanced’ biofuels will somehow lead to better future biofuels. Except it has not done so. As a recent Congressional Budget Office (CBO) study notes, advanced biofuels turn out to be complex, costly, and hard to produce. Passing a statute requiring their use does nothing to change those facts.

These flaws are now all too apparent. But the corn-growers and their allies block all reform. The CBO study judges, probably rightly, that Washington’s most likely response will be merely for the EPA to go on granting ad hoc annual wavers to the ever rising mandates. This view, though, might be too optimistic. U.S. Senators from the corn belt are pressuring the White House to prevent the EPA from moderating the size of the 2014 biofuels mandate. One thing is clear, though: given the huge regulatory uncertainties that RFS2 creates, few sane investors would put their own money into the development of advanced biofuels.

Still, many public opinion polls show that the public strongly supports Washington’s efforts to develop green energy. If these opinions merely reflect public support for green energy R&D, they probably make excellent sense. But pushing the actual deployment of deeply flawed green energy sources like ethanol fuel is another matter entirely. In the first place, the sorry performance of RFS2 shows that green energy is not remotely ready to replace fossil fuels as the mainstay of the U.S. energy system. And recent studies make plain that the same is true of wind and solar power.

More than that, though, these programs’ blatant design blunders expose Washington’s utter incompetence at energy planning. To some people, statist energy planning suggests a benign technocracy. A look at RFS2 and similar schemes reveals, instead, a mix of sordid rent-seeking, naïve green ideology, and sheer ineptitude. The more Washington is put in charge, the more the U.S. energy system will look like these programs — not a welcome prospect.