More than 10 years after the Renewable Fuel Standard (RFS) was expanded and finalized in 2007, policymakers are still wrestling with how to implement this big-government boondoggle. Unintended consequences litter the past decade of the RFS regime, but reform has been hard to achieve even as the toll to consumers and taxpayers mount. As we near the 2022 horizon, when the Environmental Protection Agency (EPA) is set to become the sole arbiter of the RFS, Congress needs to act while it still can.
The profound failures of the RFS are no surprise to any student of free markets. Government meddling creates market distortions and triggers a host of painful repercussions. These are both seen and unseen, intended and unintended. Often, due to the law of dispersed costs and concentrated benefits, the effect can be marginal for most people and largely undetected.
That’s not at all the case with the RFS.
There are few federal policies where so many can see so tangibly the cost of government interference as in the transportation fuel marketplace. Increased volumes of corrosive ethanol have wreaked havoc on small engines such as motorcycles and chainsaws. Marine engine failure can be caused by phase-separation, when water and ethanol settle out of the fuel mixture into the bottom of the tank, stranding boaters far from shore. Lower energy content in ethanol blends means lower gas mileage (and higher costs) for drivers who have to fill up more often.
The repercussions are also felt outside these direct hits to the family budget. RFS incentivizes corn and soybean cultivation at the expense of other crops. The artificial demand mandated by Washington makes it justifiable for agribusinesses to plant on environmentally sensitive land, leading to habitat loss. Corn growing depletes the soil, increasing the need for fertilizers that then run off, affecting water quality and leading the uptick in harmful algae blooms and dead zones in the Great Lakes and the Gulf of Mexico. And taxpayers get another hit to the wallet to fund programs to clean up these hazards at the local, state and federal level.
Crop diversification has fallen as land devoted to ethanol production has jumped. The diversion of more than 40 percent of corn production to Americans’ gas tanks has injected unnecessary risk into the food chain where one drought (such as the one in 2012) or other disaster could make costs skyrocket for food producers and consumers.
By playing favorites with commodities, the RFS is currently contributing to a growing “corn glut,” exacerbated by high yields and trade uncertainty. Like squeezing one end of a balloon, government meddling in one area of the farm economy necessarily leads to problems elsewhere. This poking and prodding from Washington, with the goal of pouring more corn into fuel tanks, makes our farm economy less resilient and less responsive to market signals.
Despite all this, so far Congress has failed to unravel the RFS web — trapping taxpayers. To its credit, the EPA has used its authority to adjust the Renewable Volume Obligations (RVOs) by setting volumes under the statutory thresholds. And, more recently, after a Philadelphia area refiner was bankrupted by the volatile Renewable Identification Number (RIN) market (itself another toxic byproduct of the ethanol mandate), the EPA has provided hardship waivers that exempt some small producers from compliance.
Without congressional action, however, there’s little the EPA can do to lift this burden on consumers and the economy. While the EPA can turn some dials in the RFS formula, such as forcing higher blends like E15 into the marketplace and displacing the E0 blend that many small engine users seek, the RFS is fundamentally at odds with real-world consumption habits and free-market principles.
Government meddling in markets never ends well. And soon, Congress could be leaving even more power to dictate the fuel choices of consumers in the hands of an agency with a legacy of overreach. Consumers and taxpayers shouldn’t have to keep paying such a high price for past mistakes. It’s time to inject some common sense into our economic engine and take on the broken RFS.
Founded in 1969, the National Taxpayers Union is the “Voice of America’s Taxpayers.” Its mission is to achieve favorable policy outcomes using the most effective pro-taxpayer team on Capitol Hill and in the states. @NTU.