Biofuel Mandate Will Raise Gas Prices

July 11, 2014

The Congressional Budget Office (CBO) has estimated that gasoline prices will increase by 13 cents to 26 cents per gallon by 2017 if the Renewable Fuels Standard remains unchanged, according to the Daily Signal.

The Renewable Fuels Standard (RFS) encourages increased production of various forms of ethanol and biodiesel, and it mandates that fuel contain a certain amount of renewable fuel. But despite the fact that consumers do not want these fuels (and that advanced biofuels have failed to meet production and use targets), the oil industry is forced to produce them.

  • RFS advocates promised that production of cellulosic ethanol (made from non-edible plant material) would be able to match projected use, but they were radically wrong. Cellulosic ethanol has been largely unsuccessful.
  • While corn producers have been able to produce plenty of corn-ethanol, the low energy content in each gallon makes the fuel unattractive.
  • Refiners cannot legally add any more ethanol to E10 gasoline (10 percent ethanol, 90 percent gasoline), as it can only contain up to 10 percent ethanol.
  • Refiners are having a difficult time getting consumers to buy their 85 percent ethanol blend (E85 -- 85 percent ethanol, 15 percent gasoline) without selling it below production costs.

In order to meet RFS consumption targets, the CBO estimates that refiners would have to lower the price of E85 by as much as $1.27 per gallon to encourage sales. To do this, they would have to raise the price of their lower-ethanol content gasoline.

Almost 40 percent of American corn goes towards ethanol, not food, production. Hence, the RFS drives up commodity prices, food prices and the cost of both gasoline -- providing little environmental benefit along the way.

Source: David Kreutzer, "This Standard in One Reason the Price of Gas Will Increase," Daily Signal, June 30, 2014.

 

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