The demand for oil has been significantly reduced by the coronavirus outbreak, particularly impacting America’s small oil refineries. As a prelude to our inevitable economic re-launch, the federal government should consider some relief to the energy industry by removing the burdensome Renewable Fuel Standard (RFS). Eliminating this hardship will help small American oil refiners who pass on some of their costs to the suffering, damaged American consumer.
The RFS was a mandate created 15 years ago to help boost America’s energy security by supporting newer domestic sources of fuel. What it has become is a massive subsidy for agribusiness companies. There are now an increasing number of companies making foreign biofuel imported to the U.S. for the RFS. It is not helping America’s small energy companies.
The RFS requires a certain percentage of biofuels (made from soybeans, corn and potatoes for example) be mixed into gasoline for environmental reasons and, theoretically, for domestic energy producers who compete with foreign energy suppliers.
But the RFS is a drain on the American consumer. It drives up the cost of food and fuel costs.
Research from the University of California at Davis finds that increased demand for corn and soybeans due to the RFS increased prices by 30 percent and 20 percent, respectively. Higher crop prices harm consumers multiple times over. Corn is a key ingredient for many foods and an important feedstock for animals. Consequently, families pay more for cereal, chicken, turkey, beef, and all of the other food products that rely on corn as a staple input.
Farmers are using land to produce biofuels instead of food. “Economists at Kansas State estimate that the mandate increased corn acreage by 7.5 million acres on existing cropland. They estimate that 60 percent of the corn crop expansion between 1999 to 2006 and 2009 to 2016 is a result of the RFS.” Writes Mario Loyola,
In the United States, the cultivation of corn for ethanol now requires a staggering 38 million acres of land—an area larger than the state of Illinois. By comparison, the total area of cropland used to produce grains and vegetables that humans eat is only about twice that acreage. In other words, the U.S. devotes enough land to corn-ethanol production to feed 150 million people.
Small Oil refiners face a significant financial burden complying with these regulations, “RFS has exceeded $1 billion in some years, and for some small and mid-sized refineries, RFS compliance is one of the biggest expenses,” writes Nicolas Loris at the Heritage Foundation. And those costs are passed right on to the consumer and money spent by these small businesses on compliance could be better spent expanding and growing their company.
Some will claim that the biofuels are necessary to protect the environment from fossil fuels but corn-based ethanol requires fossil fuels to process. A National Academies report states, the RFS “may be an ineffective policy for reducing global greenhouse-gas emissions because the extent of emissions reductions depends to a great degree on how the biofuels are produced and what land-use or land-cover changes occur in the process.”
Energy companies were left on the side-lines in the $2T CARES act, but Congress and President Trump should extend relief to this critical industry.