Economic Repercussions of the Renewable Fuel Standard
American Petroleum Institute’s Renewable Fuel Standard Facts:
The Energy Independence and Security Act of 2007 included an expanded Renewable Fuel Standard (RFS), which the EPA used to develop a final rule effective July 1, 2010. To comply with the Standard, biofuel producers and importers must blend increasing amounts of biofuels into gasoline and diesel.
However, there have been problems with the government’s original predictions regarding the supply and demand of gasoline; U.S. gasoline demand has dropped while supply has increased due to the shale and natural gas revolution in North America. Also, cellulosic technologies have not developed as quickly as expected and there are no commercial plants to date. The EPA rushed through approval of an up to 15 percent ethanol blend (E15) without adequate testing, leading to compatibility problems with E15, poor consumer acceptance and significant infrastructure and cost challenges. EPA proposed to address the problem, but has been incapable of finalizing its rule.
A study by NERA Economic Consulting (NERA) buttresses the argument that the RFS is irretrievably broken saying that, RFS ethanol mandates could:
- Lead to fuel supply disruptions that ripple adversely through the economy.
- Cause the cost of diesel to rise 300 percent and the cost of gasoline to rise 30 percent.
- Decrease U.S. GDP by $770 billion.
- Reduce worker pay $580 billion.
