A new report from the Congressional Budget Office (CBO) suggests that full compliance with RFS requirements poses significant challenges and could increase fuel prices. The CBOs conclusions are largely based on a careless analysis that relies on unsupported assumptions. Further, the report blatantly acknowledges that the economic impact of substituting biofuels for gasoline and diesel (i.e., downward pressure on crude oil prices) has been purposely omitted. Finally, the CBO results contradict the findings of more credible research from independent university economists. Key flaws in the report are detailed below.
1. The reports main scenario contains a number of erroneous assumptions and fundamental errors that render the conclusions meaningless in the context of the ongoing debate over RFS implementation.
The exaggerated economic impacts discussed in the CBO report result primarily from the EISA Volume Scenario, in which the EISA statutory volumes of advanced biofuel (9 bg) and conventional renewable fuel (15 bg) are consumed in 2017. This scenario is based on the faulty assumptions below (among others):
[1] Philip K. Verleger, PKVerleger, LLC, Commentary: Renewable Fuels Legislation Cuts Crude Prices (Sept. 23, 2013), available at https://ethanolrfa.org/page/-/rfa-association-site/studies/Commentary-Renew%20Fuels%20Legislation%20Cuts%20Crude%20Ps_Verleger_2013.09.23.pdf?nocdn=1. [2] These analyses are available at https://ethanolrfa.org/pages/reports-and-studies#Petroleum [3] See http://www.card.iastate.edu/policy_briefs/archive.aspx
- Most important, CBO improperly assumes EPA will require waivered cellulosic biofuel volumes to be entirely offset by other advanced biofuels. EPA has the statutory authority to waive the advanced biofuel standard and total RFS by the same, or lesser, amount as the waiver of the cellulosic biofuel standard. Thus, for example, if only 300 mg of cellulosic biofuel are available in 2017, EPA could (and likely would) reduce the cellulosic biofuel standard from 5.5 bg to 300 mg, reduce the advanced biofuel standard from 9.0 bg to 3.8 bg, and reduce the total RFS from 24 bg to 18.8 bg. Biodiesel and renewable diesel could very likely account for most of the 3.8 bg advanced biofuel requirement, while primarily ethanol would be used to fulfill the statutory 15.0 bg requirement for renewable fuel. In this example, which entirely comports with EPAs statutory authority, required renewable fuel blending would be 5.2 bg lower (-22%) than the extreme scenario used by CBO.
- CBO somehow arrives at a total renewable fuel blend percentage of 14.5% in the 2017 EISA Volume Scenario (Table 1 of the report). However, EIA projects gasoline and diesel consumption of 191.7 bg in 2017, meaning the blend percentage from the EISA Volume Scenario would actually be 12.5%. But, as described above, CBO mistakenly assumes EPA will not exercise its authority to lower the advanced biofuel standard and total RFS by the same amount of the cellulosic waiver. If EPA were to use this discretion, as in the example above (i.e., total RFS of 18.8 bg), the total blend percentage for 2017 would be 9.8%.
- CBO assumes only 1.5 bg of biodiesel (2.0 billion RINs) will be used toward the advanced biofuel standard in 2017. EPA data show that 1.57 bg of biodiesel was produced in 2013, generating 2.36 billion RINs. In addition, 386 million gallons of renewable diesel were produced, generating another 657 million RINs. Thus, biodiesel and renewable diesel generated more than 3 billion RINs in 201350% more than CBO assumes will occur in 2017.
- CBO assumes ONLY corn ethanol is used to meet the statutory requirement for 15.0 bg of renewable fuel in 2017. EPA data shows this to be an erroneous assumption. More than 250 million (2% of the total) renewable fuel (D6) RINs generated in 2013 came from non-ethanol biofuels, including renewable diesel, biodiesel, and butanol. The share of non-ethanol fuels generating renewable fuel RINs is expected to grow slightlyparticularly if EPA limits the advanced biofuel standard.
[1] Philip K. Verleger, PKVerleger, LLC, Commentary: Renewable Fuels Legislation Cuts Crude Prices (Sept. 23, 2013), available at https://ethanolrfa.org/page/-/rfa-association-site/studies/Commentary-Renew%20Fuels%20Legislation%20Cuts%20Crude%20Ps_Verleger_2013.09.23.pdf?nocdn=1. [2] These analyses are available at https://ethanolrfa.org/pages/reports-and-studies#Petroleum [3] See http://www.card.iastate.edu/policy_briefs/archive.aspx