Consumers Get Short-changed in RFS Debate

By Bob Dinneen | September 12, 2012

This summer’s drought is taking a toll on America.  It has hemmed in the productive power of American farmers.  It has brought cries of doom and gloom for livestock and poultry producers.  And, it has caused knee-jerk, emotionally charged reactions for Capitol Hill and state capitols all across the country.  

The events of this summer have brought an avalanche of calls to end America’s production and use of renewable fuels like ethanol.  In the name of livestock industry profits, we must stop ethanol production today, or so we are told.  Hiding behind claims of concern for consumer pocketbooks, corporate livestock interests, factory poultry operations and food manufacturers have petitioned the U.S. EPA to waive the requirements of the renewable fuel standard (RFS) to prevent higher prices for consumers.  That is quite magnanimous of these industries.

The fact is that consumers would be much worse off if the calls to end domestic ethanol production were heeded.  Not only would tens of thousands of jobs all across rural America be in jeopardy, but consumers would begin to see immediate spikes in gasoline prices if ethanol— today 10 percent of the gasoline supply and 50 to 60 cents cheaper than gasoline—were eliminated from the marketplace. 

Simply put, waiving the RFS likely would result in a net increase in annual household spending of at least $24 to $85 in 2013. This increased burden on the family budget would be particularly unwelcome at a time when unemployment remains high and economic recovery remains sluggish.

Here’s how:  if EPA waived the RFS for next year, food inflation might reach 3.35 to 3.44 percent instead of 3.5 percent, according to USDA, and average household food expenditures for 2013 might fall to $6,533 to $6,527 instead of $6,536. In other words, waiving the RFS might save $3 to $9 per household for the full year, or roughly 0.8 to 2.5 cents per day. Yet, eliminating ethanol from the gasoline supply would put upward pressure on prices at the pump.  According to the Energy Information Administration, the average household consumes approximately 1,100 gallons of gasoline annually. Research from Iowa State University, Purdue University, Louisiana State University and others suggests that a potential 500 million to 1.4 billion gallon reduction in ethanol under a waiver would result in an increase in gas prices of 3 to 8 cents per gallon.  Therefore, waiving the RFS would increase average household gasoline expenditures by at least $33 to $88 for the year, offsetting the miniscule savings a waiver might produce on food expenditures.

The renewable fuel standard waiver language clearly states that EPA must look at the whole economy in conducting research for the waiver requests and come to a finding of severe economic harm resulting from the implementation of the RFS.  Clearly, comparing just consumer food prices to consumer gasoline price demonstrates more harm than good would come from granting a waiver.  Moreover, when the cost of gasoline is considered as a factor in the overall price for food in grocery stores, it’s obvious that eliminating ethanol use would not only cause pain at the pump, but erase any miniscule savings that might have resulted from a lower corn prices as a result of less ethanol production.

EPA, Congress and governors across the country would do well to keep a broader economic picture in mind than narrowly focusing on the profit margins of a few select industries.

Author: Bob Dinneen
President and CEO,
Renewable Fuels Association
(202) 289-3835