I realize that boring old governmental policy stories have taken something of a back seat to the impeachment follies this month, but there is one ongoing issue that shouldn’t drop entirely off the radar. And it’s one that has both political ramifications for 2020 as well as a direct impact on both businesses and consumers. There’s a really good analysis over at the Atlantic this week by Mario Loyola and it deals with the ongoing battle over ethanol mandates and the Renewable Fuel Standard.
Loyola begins with a bit of history, describing how the United States began its flirtation with government ethanol blending mandates back in the seventies during the first time we were warned that the world was “running out of oil.” Jimmy Carter started pushing for mandatory gas rationing and the promotion of biofuels. That sort of faded away when oil quickly became plentiful. But under the tenure of George W. Bush, the fad roared back to life and we were saddled with the RFS.
But as the author goes on to point out, the original argument for the “need” for the RFS has disappeared. America is now the top energy producer in the world and nobody can hold us hostage like the Saudis did back in the day. But even more to the point, the mandates are not being put into effect as originally designed. We rely almost entirely on corn ethanol, but the original vision was for us to be using primarily “advanced biofuels” such as biodiesel and cellulosic ethanol from prairie grass by 2022. That’s now nothing more than a pipe dream, but we’re still stuck with the mandates and it’s made King Corn more powerful than ever.
The RFS program created both a gradually rising biofuel mandate, and within that mandate, a gradually rising proportion of advanced biofuels (particularly cellulosic ethanol) relative to corn ethanol, such that advanced biofuels are supposed to make up the majority of the mandated volume by 2022.
But the EPA has substantial authority to waive the statutory targets. In practice, that has rendered the RFS unpredictable and arbitrary, in addition to its other fine qualities. And, because cellulosic ethanol has never been able to overcome the technological hurdles it needs to clear to be viable, the EPA has had to waive the overall target every year since 2013.
There were two assumptions built into the original RFS structure, both of which required the ability to predict the future. One was that we would be producing huge amounts of biodiesel from sources like palm oil and recycled cooking oil. The other was that we would be pumping out massive volumes of cellulosic ethanol, derived from plants like switchgrass, which grows naturally all across the country.
Well, neither of those things happened. Biodiesel remains more of a cottage industry that’s very difficult to make a profit from. And the research into cellulosic ethanol hit one technological roadblock after another and never truly becoming viable in terms of mass production. So since there’s still a government-created “market” for ethanol, we’re left with fuel made from corn.
Corn is the least environmentally friendly way to create ethanol. It’s also a very inefficient fuel compared to gasoline so you wind up having to burn more of it to produce the same amount of energy. In short, we’re defeating some of the primary motivations that led us to start down this path to begin with. And yet the program endures for nothing other than political reasons. Midwestern states like Iowa want the government to keep demanding more and more corn ethanol to bolster agricultural markets. Meanwhile, refineries are stuck trading on a corrupt, fake market for RIN credits, driving some of the smaller ones toward insolvency.
The dream of corn ethanol has failed everyone across the board. But like most government mandates, once it’s been summoned into existence, it proves nearly impossible to kill. It would take a tremendous amount of political will to get rid of the RFS now, and that strength clearly doesn’t exist in the Trump administration. You won’t find it among the Democrats, either. And so we keep paddling upstream against the same forces for the foreseeable future.