The EPA vs. State Economies

November 29, 2012

The renewable fuel standard (RFS) is increasing the biofuel-blending requirements. This change can give rise to numerous damaging spillovers throughout the economy, says Marlo Lewis, a senior fellow in environmental policy at the Competitive Enterprise Institute.

  • This program requires refiners to blend increasing quantities of biofuel, which are mostly corn ethanol, into the nation's motor-fuel supply.
  • The 2012 target is to blend 13.2 billion gallons of biofuel into gasoline.
  • In 2013, the target is 13.8 billion gallons.
  • This year, 40 percent of the nation's corn will be used for ethanol manufacturing.
  • This alone will increase corn prices, harming state poultry, beef, pork and dairy farmers who use corn as animal feed.

Moreover, such an initiative does not follow sound economic reasoning.

  • In a competitive market, very few would buy ethanol as motor fuel because the substance has one-third less energy than gasoline and does not make up the difference in price.
  • At the current rate, on average, it would cost the consumer $500 a year to switch to E85, a fuel that is 85 percent ethanol.

Arkansas' experience demonstrates the damaging effects the RFS can have on a state economy. According to Arkansas governor Mike Beebe:

  • Virtually all of Arkansas is suffering from severe drought conditions, and accelerating corn prices impose a severe economic impact on the state's livestock producers.
  • While the drought may have triggered the price spike in corn, the fuel standard aggravates the problem -- the policy has boosted corn prices 193 percent since 2005.
  • Agriculture accounts for around 25 percent of the state's economic activity.
  • Indeed, the RFS will disproportionally hurt regions with extensive farming industries, while following inefficient market principles.

Source: Marlo Lewis, "The EPA vs. State Economies," National Review Online, November 19, 2012.

 

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