Latest posts by Isaac Orr (see all)
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- How the Keystone Pipeline Spill Proves Pipelines Are Safe - January 10, 2018
- Blame Government, Not the Market, For Dwindling Coal Industry - January 9, 2018
On the campaign trail, Donald Trump promised he would stimulate the economy by lifting job-killing regulations and mandates on the energy industry that hurt American workers and consumers.
As someone who was born and raised on a dairy farm in Wisconsin and has seen the adverse impacts of the Renewable Fuel Standard (RFS) firsthand, I want to urge the new president to phase out the RFS entirely and “make ethanol grain again.”
The RFS, which mandates that renewable fuels (up to this point, corn ethanol) be blended with gasoline, has been a failure by almost any metric.
Originally promoted as a way to reduce the United States’ dependence on foreign oil and consumer costs at the pump, the RFS drives up the cost of doing business in farm country and has failed to achieve many of its stated goals.
Ethanol-mandate advocates love to plot charts that show increasing ethanol production and decreasing imports of crude oil and finished gasoline products. They argue that the available data prove fuel mandates have helped Americans wean themselves off foreign energy sources.
However, these charts — which only show correlation, not causation — are highly misleading.
The United States consumes about 19.6 million barrels of oil per day. Globally, 96 million barrels of oil are consumed daily, or about 35 billion barrels per year. When one considers that there are 42 gallons in every barrel, the record-setting 14.7 billion gallons of ethanol produced in 2015 amounts to only 350 million barrels of ethanol. This is only about 18 days’ worth of oil-based fuel consumption in the United States, or 1% of annual world oil consumption.
It is true that net crude oil imports have been cut in half over the past several years, but this is because hydraulic fracturing, commonly called “fracking,” has nearly doubled U.S. oil production since 2008. America’s growing energy independence is not due to ethanol mandates.
Officials at the Energy Information Administration estimate that America could be totally energy independent by 2026, but should this occur, it will be because of U.S. oil and natural gas development, not ethanol production.
Not only has ethanol done little to help America become energy independent, it has also failed to reduce consumer costs at the pump. Ethanol is more expensive than gasoline, because a gallon of ethanol contains 33% less energy than a gallon of pure gasoline.
The math looks something like this: An average gallon of gasoline costs $1.59 before state and federal taxes are added. A gallon of ethanol costs $1.49. On the surface, it appears that ethanol is cheaper, but because drivers get 33% fewer miles per gallon with ethanol than gasoline, their costs are actually higher. ($1.49×0.33= $.49. $1.49+$.49=$1.98).
The ethanol mandate has also driven up the cost of doing business in farm country. Increased demand for corn caused prices of land, seed, and farm machinery to rise.
For instance, in 2005, the average cost of rent for farmland in central Illinois was $147 per acre, but after seven years of the ethanol mandate that price has nearly doubled to $270 per acre.
There is no dispute that the ethanol mandate provided a temporary stimulus to rural America, but it did so by diverting 40% of the nation’s corn crop to fuel production. Corn growers have responded by producing more corn and, as a result, prices have fallen below the cost of production.
Like all government programs, the ethanol mandate is subject to the law of diminishing returns. Corn producers need an ever-higher mandate to keep corn prices on an upward trajectory, but most cars can only run on fuel containing 10% ethanol.
As a result, the ethanol mandate has been a double whammy for farmers who took out loans to buy equipment at artificially inflated prices. Now, they are left struggling to pay off their debts.
The RFS is a failed experiment. It did not reduce U.S. dependence on foreign oil or reduce consumers’ costs, and it continues to distort grain markets and disrupt farmers’ market-driven business model.
The Trump administration has already taken action to streamline the permitting of the Keystone XL and Dakota Access pipelines. Next up on the list of things to do should be to phase out the ethanol mandate, “making ethanol grain again.”
[Originally Published at Investor’s Business Daily]