I’ve written more articles about the problems with the Renewable Fuel Standard (RFS) here than I can count. What’s largely been lacking in this discussion is any sort of reasonable compromise that could be offered to supporters of this system other than a winner-take-all battle. Of course, the ethanol lobby has been so uncompromising in their demands, that most offers would be brushed off anyway. Still, there might be a path forward that could keep the ethanol companies in business while doing away with the RFS entirely.
This is a subject that Forbes energy analyst Robert Rapier has been tackling recently in a series of articles. His proposal is an interesting one and it offers a solution based on action taken by certain states, primarily in the midwest, of course, rather than relying on federal government mandates. His suggestion involves state-level incentives to create a corridor where flex fuel, also known as E85, is available in so many locations that drivers would make up for losing the national demand artificially created by the RFS. Here’s his brief summary.
My proposed solution is for the Midwestern states to band together to provide sufficient state incentives to develop a major Midwest corridor where E85 — a blend of 85% ethanol and 15% gasoline — is the primary fuel of choice for consumers. There is enough potential demand in the Midwest to consume nearly five times current U.S. ethanol production. This would shift control of ethanol demand from federal government decrees — where support is mixed — to the state governments that strongly benefit from the ethanol industry. (I have actually proposed such a solution for about a decade).
Before continuing, here are links to Rapier’s three previous articles, each of which is highly informative and deals fairly with both sides in this debate.
Rapier notes that two specific objections to his proposal have been raised by readers, neither of which should be seen as prohibitive. One complaint is that there aren’t enough flex fuel vehicles on the road to sustain that much of a demand for ethanol. But as the author points out, there are currently more than 22 million such vehicles on the road and many are concentrated in the midwest. If E85 was more ubiquitous at a reasonable price, drivers would be sucking it up in sufficient volume. (State incentives would be needed to keep the price down, at least initially, because you get lower gas mileage with E85.)
The second complaint is that refineries need ethanol to produce higher octane gasoline. But this argument is coming from people who apparently don’t understand how the refining process works. It’s true that most refineries can only turn out gasoline with an octane rating of between 87 and 90 without using additives. But as Rapier points out, this actually undercuts the arguments in favor of the RFS because refineries are in business to make money. If they need to use ethanol to get those higher octane ratings, they’ll buy it without being forced to do so. Further, they can blend gas with other products such as butane, alkylat or toluene and achieve the same results.
The bottom line is that the RFS was a bad idea from the beginning, even if it was well-intentioned. The government created an artificial demand for a particular product and punished those who were unwilling or unable to comply. If the influential midwestern states are so worried about keeping the ethanol market afloat, they should create their own demand for it following free-market principles. Make E85 attractive to flex fuel vehicle drivers and they will buy it. The market hates a vacuum and suppliers will fill that void without Big Brother holding a gun to their heads.