The Renewable Fuels Standard: A Piece of “Broken Legislation”…OR Is It?

November 20, 2017

In the not-too- distant future, the Environmental Protection Agency (EPA) will be
finalizing the mandated minimum volumes for the 2018 Renewable Fuel Standard
(RFS), and, as such, the American Petroleum Institute (API) has some fundamental
concerns. For instance, API lobbyists have already begun solicitating both houses of
Congress, arguing that the mandate is “broken” and, therefore, legislators on both sides
of the aisle need to come together and either reform it or else repeal it completely. As
with any new piece of legislation, however, there are two sides to any issue with overall
public opinion affirming or denying its success. And the proposed Renewable Fuels
Standard is no different.


Speaking against the RFS, API Group Director, Frank Macchiarola, argued: “The reality
[behind the failing RFS proposal] is market forces, technological innovations and
investments by the oil and gas industry…all have combined with increased domestic
crude oil production to supersede the goals of the ‘broken’ RFS.”


That said, just what is it exactly that Macchiarola is arguing? For starters, in 2007 the
Renewable Fuel Standards minimum volumes were born out of an assumption that fuel
usage would steadily increase, following a predictable pattern that had been witnessed
in preceding years. However, actual usage—not to mention current projected
usage—does not mirror the projections used to create the minimum volumes mandated
by the RFS and the 2015 United States Information Administration (See graph below).

 


Initial thought contended that the minimum volume of renewable fuels would grow along
with consumer demand for fuel and would, likewise, compensate for a lack of growth in
domestic crude oil production. However, as one can deduce from the above graph,
consumer demand is actually dropping—in other words, the actual number of gallons of
mandated ethanol-blended fuel one year is actually a higher percentage of overall
volume just one year later. Moreover, domestic crude oil production is actually up, thus
it is not an issue of producers scrambling to come up with additional fuel; in fact, there
exists a greater surplus of fuel because of higher production coupled with lower
demand. The graph below, in spite of government predictions, confirms a significant
increase in domestic crude oil production.

 

 
So just where does this leave retailers? On the one hand, people are buying less fuel.
And when consumers do, in fact, buy fuel, it is proven that there really is not that high of
a demand for higher ethanol blends. Service station dispensers may list E-85 as a less
expensive fuel alternative; but when one factors in the fact that he or she may get less
bang for their buck with ethanol in the form of reduced gas mileage, the truth is the
individual actually ends up paying more for the higher blends. Furthermore, most
vehicles on the road cannot handle higher ethanol blends. E-85 aside, the majority of
automotive manufacturers have stated that their warranties will not cover damages
linked to using higher ethanol blends as their engines simply are not designed to run on
it.


This situation creates what has been notoriously dubbed the “blend wall.” To meet the
RFS mandate, fuel would have to have higher and higher ethanol content, breaching
the 10% level that has been thoroughly tested and is approved by UL, AAA, and the
vast majority of automotive manufacturers. In order to keep up with the governmental
regulations, fuel producers are forced to put more ethanol in the fuel than the consumer
truly desires, not to mention more than the automotive manufacturers have said is safe.
It could be argued that service stations simply need to sell more E-85; however, E-85
sales comprise less than one percent of annual gasoline demand. Put more bluntly,
consumers just are not clamoring for more ethanol.


So, all this said, just who is the Renewable Fuels Standard benefiting? Obviously, not
the automotive manufacturers; not US crude oil production; and certainly not American
consumers. Put a different way, NERA Economic Consulting predicts the
consequences of leaving this well-intentioned, but ultimately ill-fated, legislation in place
will include major fuel supply disruptions, decreased GDP, reduced worker pay, and, not
surprisingly, a 30% increase in the cost of gasoline and, far worse, an astronomical
300% rise in the cost of diesel.


The bottom line is, we’re all in the business of keeping our customers happy. We
provide the goods and services consumers are looking for and that is just how we make
our money. If consumers wanted more ethanol, they would simply buy more
ethanol—and gas stations across the company would gladly sell it! The solution is to
allow the market to adapt and evolve based on the needs and wants of the buying
public. And that will be the ultimate tell-all whether or not the Renewable Fuels
Standard is a benefit or a detriment to US consumers.


Looking for more information? Visit: www.filluponfacts.com to read more on the flaws in
the RFS mandate and to gain a better understanding of the reality of fuel supply and
demand.

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