EPA Disputes Predictions That Ethanol Regulations Will Increase Gas Prices 30% by 2015
(CNSNews.com) - Gas prices will increase about $1 per gallon by 2015 and take a $550 billion bite out of Americans’ take-home pay when the Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS) increases the ethanol mandate past the 10 percent “blend wall,” according to an October 2012 study by the National Economic Research Associates (NERA), commissioned by the American Petroleum Institute (API). (See NERA study.pdf)
The API launched an advertising campaign this week called “Fuel for Thought” to repeal the RFS regulations. The ads read: “The higher ethanol mandate could damage your engine. And void your warranty. Your engine won’t like it, but your mechanic will.” (See Fuel for Thought.pdf)
API Downstream Group Director Bob Greco said during a Monday press conference that the organization is pushing the White House and Congress for the elimination of RFS regulations, and supports Rep. Bob Goodlatte’s (R-Va..) bill, “The Renewable Fuel Standard Elimination Act” (H.R. 3098).
But EPA disputed NERA’s findings. In a statement to CNSNews.com, the agency claimed that the ethanol regulations will have “little net effect on retail fuel prices.”
The RFS regulations require a gradual increase in the percentage of ethanol that must be blended into fuel. In 2015, the mandate exceeds 10 percent ethanol, which is the maximum concentration the majority of conventional cars can handle without damage to their engines.
The NERA study found that under the latest regulations, gas prices will increase 30 percent from their current average of $3.64 per gallon, and diesel fuel prices will increase 300 percent by 2015. The study, “Economic Impacts Resulting from Implementation of the RFS2 Program,” estimates that higher fuel costs will cause a $770 billion decrease in the nation’s Gross Domestic Product.
Each gallon of renewable fuel is accompanied by a Renewable Identification Number (RIN), which serves as a tracking number and permit to produce the fuel. NERA predicted that as the ethanol blending increases above 10 percent, the costs of RINs will skyrocket, helping to cause the predicted rise in fuel prices.
That has already happened. “Renewable Identification Number credits, or RINS, that companies purchase in order to comply with the mandates have increased in price by 10-fold this year, hovering near all-time highs. This is a good indication that we’re hitting the blend wall, and consumers could start feeling the impacts soon,” Greco said Monday.
The Congressional Research Service (CRS) agreed that the price of RINs have increased dramatically, noting a “nine-fold increase” in 2013.
“It is unclear what is driving the increase, but concerns over the blend wall and a reduction in output from U.S. ethanol producers in the first quarter have increased concerns that the RFS mandates will be binding in 2013 or 2014 and that there will be a scarcity of RINs,” CRS said in a March 2013 report to Congress.
CRS added that “if a large portion of any increased RFS is met using ethanol, then the United States likely does not have the vehicles to consume the fuel. The 10 percent blend wall on ethanol in gasoline for conventional vehicles poses a significant barrier to expanding ethanol consumption beyond 14 billion gallons per year.”
EPA responded by saying that it is “aware of studies that have attempted to quantify the retail price impacts of RINs in 2013, with most estimates showing a fairly small impact.
“A number of factors can influence RIN prices including the price of oil; the price of feedstocks, such as corn for ethanol, and the supply and demand of RINs. Retail prices for fuel are the result of many factors, including the price of crude oil, the costs of refining, taxes, and various other factors. There is not a direct relationship between the price of a RIN and the retail price of fuel. The value of RINs is shifted among market participants – blenders, refiners, renewable fuel producers – and in many cases there will be little net effect on retail fuel prices.”
“Ethanol levels in gasoline are strictly regulated to ensure that the right vehicles run on the right fuel. EPA granted two partial waivers that taken together allow, but do not require, the sale of gasoline that contains up to 15 volume percent ethanol (E15) for use in model year 2001 and newer light-duty motor vehicles. These decisions were based on extensive vehicle testing conducted by the U.S. Department of Energy and other test data and information regarding the potential effect of E15 on vehicle emissions.
“E15 may be lawfully sold only after the manufacturer has registered the fuel and met the conditions of the partial waivers. This includes labeling requirements and a misfueling mitigation plan to help minimize the potential for use in vehicles not covered by the partial waivers,” the agency noted.
A fall 2012 survey by the American Automobile Association (AAA) found that 12 million out of 240 million light-duty vehicles currently on the road today are approved by manufacturers to use E15.
“Five manufacturers stated their warranties would not cover fuel-related claims caused by E15, and eight additional manufacturers stated that E15 did not comply with fuel requirements in owners’ manuals and may void warranty coverage,” AAA said a Feb. 26 press release.
“AAA is not opposed to ethanol, but we are against the way E15 has been introduced and sold to consumers. We welcome the committee’s support today as AAA calls for additional impartial research and for regulators and industry to suspend the sale of E15 gasoline until motorists are properly educated and protected,” AAA President and CEO Robert Darbelnet said at the time.
API says the adverse economic effects of E15 regulations don’t end with higher fuel prices. Costs for finished goods and services will increase as well, leaving consumers with less money to spend, resulting in lowered consumption. With lower demand, the need for workers also drops, which will increase unemployment.
The Renewable Fuel Standard regulations began in 2005 under the Energy Policy Act. In 2007, it was expanded to include the ethanol blending mandate under the Energy Independence and Security Act.
“[RFS] lays the foundation for achieving significant reductions of greenhouse gas emissions from the use of renewable fuels, for reducing imported petroleum, and encouraging the development and expansion of our nation's renewable fuels sector,” according to the EPA’s website.
The RFS requires the ethanol blend must be 10 percent in 2013. “Increasing ethanol blends to E15 for use in millions of cars currently on the road “could damage vehicles, void engine warranties, and damage gasoline station infrastructure. E85 remains a specialty fuel, with low consumer demand, and infrastructure investments from gas station owners would be required to expand distribution,” according to the API website.