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June 11, 2019: Biofuels Have Not Decreased US Gasoline Prices Or Emissions

Bio Fuel

The Renewable Fuel Standard (RFS) is a federal program that requires transportation fuel sold in the United States to contain a minimum volume of renewable fuels. The RFS originated with the Energy Policy Act of 2005 and was expanded and extended by the Energy Independence and Security Act of 2007 (EISA). RFS hasnít cut gasoline prices outside the Midwest. There was even a little rise in pump prices in states far from ethanol production. The standard has had a limited effect, if any, on greenhouse gas emissions.

The market reality is that gasoline demand turned out to be lower than what the legislators had predicted when enacting the RFS. Under the RFS, oil refiners are required to blend growing amounts of renewable fuels into gasoline and diesel. This policy has long created an argument between the agriculture lobby and the oil refining lobby. The Midwest farm belt benefits from the RFS policy because it increases demand for ethanol. The oil refiners do not benefit. They lose petroleum-based market share of fuels. Meeting the blending requirements costs them hundreds of millions of dollars.

U.S. Department of Agriculture (USDA) said that it disagrees with the conclusion that the RFS hasnít had effect on reducing greenhouse gas emissions. They think RFS likely had modest impacts on gasoline prices should be augmented by a discussion of the volatility of gasoline prices. The GAO (Government Accountability Office) said in its report that ethanol is produced primarily in the Midwest, where most corn is produced. According to the studies they reviewed, this means that Midwest gasoline retailers, being closer to the supply of ethanol, may have been able to charge consumers lower prices for retail gasoline relative to non-Midwest gasoline retailers because of their lower transportation costs for ethanol. Similarly, higher transportation costs outside of the Midwest may have resulted in higher prices of retail gasoline in those regions.

According to the GAO, RFS was likely associated with modest gasoline price increases outside of the Midwest and that these price increases may have diminished over time. According to GAO, the RFS has likely had a limited effect, if any, on greenhouse gas emissions. The limited effect is likely the result of RFS reliance on conventional corn-starch ethanol, which has a smaller potential to reduce emissions compared with advanced biofuels. Most corn-starch ethanol has been produced in plants exempt from emissions.

GAO analysis suggests that the RFS is unlikely to meet the greenhouse gas emissions reduction goals envisioned for the program through 2022. This is because corn-starch ethanol will continue to dominate the biofuels as it is economical to produce. Advanced biofuels that have the potential to achieve greater emission reductions (like cellulosic ethanol) are not cheap to produce. The USDA thinks differently about emission reductions. A USDA study found that greenhouse gas emissions from corn-based ethanol are about 39 percent lower than gasoline. In cases when ethanol is refined at natural gas-powered refineries, the emissions are even lower, around 43 percent below gasoline. According to a study by the Renewable Fuels Association, the savings to consumers resulting from the RFS averaged $0.22 per gallon between 2015 and 2018.

Unlike other renewable energy sources, biomass can be converted directly into liquid fuels, called biofuels. The two most common types of biofuels in use today are ethanol and biodiesel, both of which represent the first generation of biofuel technology.