Renewable fuels mandate: Still broken, still in need of action

As Americans hit the road this summer and gas prices are in the news, the Trump administration continues to seek a solution to what’s proven to be a thorny issue – the Renewable Fuels mandate (RFS). Now more than a decade old, this is the law that forces more and more ethanol into our fuel supply. While Midwestern corn farmers surely appreciate government-created demand for their product, a wide range of others have concerns with the effects of the RFS including restaurant operators, boaters, small engine manufacturers, poultry farmers, anti-hunger groups and wildlife organizations. 

President Trump himself has convened multiple meetings on the RFS and is searching for a way to fix it. The reason the RFS needs to be addressed is that the law does not match today’s reality. Our existing vehicles, engines, and infrastructure can only handle so much ethanol until we hit the “blend wall” in which potentially several negative unintended consequences are triggered. While the law pushes more ethanol into our fuel, it never contemplated that overall gasoline demand would drop, which has happened. In fact, this year gasoline demand is down 12 percent from where it was expected to be when the RFS was passed. By 2022, it’ll be 22 percent lower than forecasted. The result is that we are adding more and more ethanol into less fuel. Something has to give. 

{mosads}In the short term, unless EPA adjusts the ethanol volume requirements to reflect actual market realities, the blend wall could be breached. In other words, the mandate will force more ethanol into the fuel supply than can be accommodated through standard E10 (10 percent ethanol) gasoline. Additionally, CBO has found that complying with the mandate as currently written could increase fuels prices in a meaningful way. In the long term, we are left with continuing uncertainty from statutory requirements that conflict with today’s market realities.

Where should the excess ethanol go?  Well, almost three out of four of vehicles on the road today are not manufacturer approved to use higher ethanol blends like E15 (15 percent ethanol fuel). Extensive testing by the Coordinating Research Council (CRC) — the gold standard in vehicular research for the better part of a century — has determined E15 could damage engines and fuel systems and even void manufacturers’ warranties.  What about Flex Fuel Vehicles that can take E85 fuel?  They represent only 8 percent of the vehicle fleet, and E85 accounts for about 1/10th of 1 percent of gasoline demand – a drop in the bucket. 

Availability of both E10 and E0 (ethanol free fuel) is jeopardized by an RFS that mandates an ever-rising baseline amount of ethanol in the fuel supply. Consumers have made their fuel preferences clear. According to the Society of Independent Gasoline Marketers of America / National Association of Convenience Stores: “To date… most retailers that sell E15 or E85 have seen minimal sales of these products. Indeed, retailers have found that even consumers with E85-compatible flex-fuel vehicles tend to purchase E10.”  The RFS mandate takes us on a path of limited consumer choice, pushing higher-ethanol blends that drivers have demonstrated they do not want and that could even damage their vehicles.

The Trump administration’s leadership on this issue is to be commended.  Stakeholders have been convened several times at the White House to find a solution, which has proven elusive. Reported ideas on the table are not encouraging. As you may imagine, they would help some stakeholders and hurt others. This gets to the heart of the problem. Any White House action would not end the program.  Only Congress can end the mandate. The White House can address individual symptoms and tweak around the edges but cannot solve the core flaws of the outdated RFS – flaws that directly impact the American consumer.

When the RFS mandate was developed more than a decade ago, fuel imports and costs were on the rise, making the mandated use of corn-based ethanol seem to some like a viable option to lower both. Now that the United States is the world’s largest producer and refiner of oil and natural gas, we are in a new era. And, the United States has transitioned from a net importer of refined petroleum products to a net exporter.  The American energy renaissance has transformed our energy outlook and, accordingly, it is time to transform the outdated RFS policy. 

The primary goals of the RFS have been achieved, not by ethanol mandates, but market forces and technological innovations. It is past time to end the RFS so that we no longer have an outdated mandate standing in the way of our energy future.  A legislative solution offers the only path towards a permanent solution to protect consumers over the long term. By moving forward in a bipartisan, bicameral way, Congress is in position to deliver a win for American drivers.

Frank Macchiarola is Group Director of Downstream & Industry Operations at the American Petroleum Institute.