Rational Rationality, Redux

Dr. Robert M. Gresham, Contributing Editor | TLT Commentary June 2018

Congress is considering action to reverse the effects of the Renewal Fuel Standard.

© Can Stock Photo / sidneydealmeida

You may recall that I went on a rant in the April TLT about how policy makers often do not consider the whole picture when writing laws or regulations, especially when technical matters are involved. Indeed, these lawmakers likely earned Ds and Fs in science classes, assuming they even took any science classes. 

This is not to say their intentions are not good and often spurred by public sentiment, but the conception and execution often are flawed. The example I used was the Renewal Fuel Standard (RFS) as it pertained to the mandated use of biodiesel. In this case, these mandates led to forced use of a more expensive material that amounts to an indirect tax for U.S. citizens. Not only did the RFS not substantially reduce CO2 emissions, it increased deforestation in Argentina (while generating more CO2). Argentina reduced soy oil prices for countries other than the U.S., which amounted to price dumping. 

Additionally, the RFS has mandates for use of ethanol in gasoline. Ethanol is grown from corn and mixed into gasoline, again as required by the RFS. However, gasoline companies would likely blend in some ethanol anyway (regardless of whether their product was bio or petroleum based) because it adds value as a fuel additive. We are required by law to grow corn and soy beans for the two biofuels per the RFS. This is great for Midwest farmers (think money and votes), but it is a waste of soil nutrients that could be used to feed the global population.

As we know from STLE’s 2017 Emerging Trends Report (available for free at www.stle.org), there is a rapid global increase in demand, primarily from emerging nations, for food, goods, services and, of course, energy. This increase necessitates rational thinking to provide for the growing needs of these nations, as well as our own. The real goal is to improve efficiency and productivity as economically and sustainably as possible, while managing emissions.

Well, as much as I would like to think someone read my rant and took action, independently of my article there does seem to be a growing movement to, in some way, phase out the RFS. According to a recent article in the Wall Street Journal by Thomas Landstreet, founder of Standard Research and partner of N3L Capital Management, “Even ex-Rep. Henry Waxman of California, a key sponsor of the original legislation establishing the standard, said Thursday [March 8, 2018], that he favors phasing out the mandate.” Landstreet further notes that growing bipartisan support in Congress has led to the discussion of a Greener Fuels Act (1).

Historically, the mandates began with the Energy Policy Act of 2005, which were expanded by the Energy Independence and Security Act of 2007. This expanded the program by providing generous tax credits and subsidies for growers and blenders. It also established ambitious targets, increasing annually, for biofuels. 

Eventually this diverted 40% of the U.S. corn crop away from the food supply. This in turn led to harmful responses from the farming industry. Corn prices have historically floated around $2 per bushel; they rose in 2012 to $8 per bushel. Thus, farmers planted 17 million new acres with corn at the expense of soy beans, hay, wheat and cotton, thus driving those prices up as well. This resulted in livestock farmers culling herds due to the high cost of animal feeds, which again led to beef prices rising 60% from 2007-2012. Thus, the EPA froze the annual blend mandate, causing the bubble to burst.

Landstreet notes, “The country has endured a startling amount of economic disruption for what is clearly an inferior source of energy. Ethanol produces 34% less energy per volume than conventional gasoline, reducing cars’ fuel economy. As for its effect on the environment, a 2010 Congressional Budget Office study found that corn-based ethanol subsidies are terribly inefficient, with the government spending an estimated $754 per metric ton of avoided emissions—an astronomically high price tag compared with other policies. (The economics of climate change literature estimates the ‘social cost of carbon’ at far lower levels, meaning the program is inefficient even on its own terms.)”

Landstreet adds: “A 2008 study in Science found that converting natural environments for biofuel production can produce hundreds of times more carbon emissions than the biofuels themselves would save. No wonder ethanol mandates are losing support among environmentalists.”

Some of the early rationales were that the RFS would help with our energy independency. But now, with the deregulation of the shale oil industry, the U.S. is nearly energy independent.

As previously said, I have been critical of many of our efforts in the name of renewable, sustainable energy, food, emissions, etc.—initiatives, which, when you peel back the layers, often involve politics, greed, bad science, ill thought-out subsidies or tariffs and the like. Yet we continue to emit ever more CO2 while continuing to tax U.S. folks with the latest energy fads that don’t seem to have much or any economic benefit or true efficacy.

Let’s hope Congress can, with a little rational thinking, correct some of this with the Greener Fuels Act under discussion. Again, we really do need a little rational rationality.

1. Available at www.wsj.com/articles/biofuel-mandates-are-a-bad-idea-whose-time-may-be-up-1520800220.
Bob Gresham is STLE’s director of professional development. You can reach him at rgresham@stle.org.