Examining the Renewable Fuel Standard
The federal government provides a wide range of subsidies to boost the production and consumption of biofuels. Over several decades, Congress has enacted special tax breaks, direct grants, government-backed loans and loan guarantees to generate a larger biofuel and biodiesel market. U.S.’s biofuel policy is the Renewable Fuel Standard (RFS), created in 2005 through the Energy Policy Act of 2005, and expanded in the Energy Independence and Security Act of 2007, mandating billions of gallons of ethanol be blended into gasoline each year, with a peak of 36 billion gallons in 2022. After 2022, the Environmental Protection Agency (EPA) has discretion to set the limit (within certain limitations).
The problem with the RFS is not the use of biofuels themselves but rather a policy that mandates the production and consumption of the fuel. Having politicians centrally plan energy decisions best left for the private sector distorts markets and demonstrates the high costs and unintended consequences of government control. The RFS distorts commodity production and prices, artificially raises the price of fuel and food, and has adverse environmental effects. The alleged climate benefit increasing biofuel use is dubious at best. Even under the assumption that switching from oil to biofuel would reduce greenhouse gas emissions, the impact of the switch on the earth’s temperature would be negligible.
Congress should repeal the ethanol mandate in its entirety and allow consumers a choice at the pump. Biofuels have existed long before the Renewable Fuel Standard and if economically competitive, will remain long after it. Removing the mandate will spur a healthier market that promotes risk taking and entrepreneurial activity rather than government dependence for near-term survival through favorable policies and tax treatment. Importantly, policymakers should not just repeal the corn-based part of the ethanol mandate, leaving the least competitive part, the cellulosic requirement.