All eyes are (still) on the White House Office of Management and Budget (OMB). Its been exactly one month since the Environmental Protection Agency (EPA) sent its final rule for 2014 RFS Renewable Volume Obligations (RVOs) to the OMB for review. And while the oil industry and its anti-RFS allies continue to push OMB and EPA to gut the program, RFA and other renewable fuel proponents remain hopeful that EPAs final rule abandons the problematic blend wall methodology and low-ball volumes that appeared in the proposal. It has been widely reported that the proposed rules surprising U-turn on RFS implementation was driven by unfounded fears about the potential effects of the program on retail gas prices. Apparently, oil industry lobbyists (along with well-connected investment firms and a particular airline) convinced some in the Administration that higher prices for RIN credits (Renewable Identification Numbers) would somehow translate to higher gas prices at the pump for consumers. And, of course, high gas prices are a political nightmare for any sitting President. Despite the total lack of evidence to support the high-RIN-price-equals-high-gas-price theory (see chart below), it is apparent that some quarters of the Administration continue to buy into the notion. But now a new working paper released by the Center for Agricultural and Rural Development (CARD) at Iowa State University confirms that the near-term statutory RFS requirements would not have any meaningful impact on regular gasoline (E10) prices and would, in fact, lead to much lower prices for high ethanol blends like E85. Along the way, the CARD paper completely debunks a study bought by the American Petroleum Institute (API) and a misguided analysis by the Congressional Budget Office (CBO). According to the CARD paper by Professors Sbastien Pouliot and Bruce Babcock:
- the effects of increasing ethanol mandates that are physically feasible to meet on the price of E10 are close to zero.
- Increased mandates can have a large effect on the price of E85 if the mandates are increased to levels that approach consumption capacity.
- Many in the oil industry have used the specter of higher pump prices to argue against increased mandates. These findings show that concern about the consumer price of fuel do not justify a reduction in feasible ethanol mandates.