The idea of requiring the nation’s gasoline supply to contain a certain amount of renewable biofuel was born in a short-lived doomsday fad of the 1970s. With experts warning that the world was quickly running out of oil, the shocks of ’73 and ’79 led President Jimmy Carter to call for wartime-style rationing of fuel and other draconian measures to avoid a “national catastrophe.” His proposals, fortunately, didn’t get much further than a small subsidy for corn ethanol.
Just a few years later, with its market share under assault from new non-OPEC oil producers, Saudi Arabia suddenly doubled production. Oil prices crashed around the world, and a decades-long oil glut ensued. So much for that doomsday fad.
As a way to replace dwindling reserves of oil, ethanol subsidies had a certain brutal logic, especially if oil prices were going to keep rising with no end in sight. But as a way to address climate change, the program never made any sense. Corn ethanol may well be worse for the climate than fossil fuels, and the program does significant damage to both the economy and the environment. Its sole beneficiaries are large agricultural corporations—and the politicians who serve them.
Corn ethanol is the mainstay of the nation’s Renewable Fuel Standard, which was created in 2005 when gasoline prices finally rose again, though that price shock, too, proved fleeting. The RFS creates a complex web of targets for both corn ethanol and “advanced biofuels.” To qualify as “advanced,” biofuels such as biodiesel (from sources such as palm oil and recycled cooking oil) and futuristic cellulosic ethanol (from sources such as prairie grass and tree bark) must have a significantly lower greenhouse effect than corn ethanol. The RFS program created both a gradually rising biofuel mandate, and within that mandate, a gradually rising proportion of advanced biofuels (particularly cellulosic ethanol) relative to corn ethanol, such that advanced biofuels are supposed to make up the majority of the mandated volume by 2022.
But the EPA has substantial authority to waive the statutory targets. In practice, that has rendered the RFS unpredictable and arbitrary, in addition to its other fine qualities. And, because cellulosic ethanol has never been able to overcome the technological hurdles it needs to clear to be viable, the EPA has had to waive the overall target every year since 2013.
Each year the EPA dictates the required overall volumes of various biofuels for the following year or two. It then combines those numbers with federal projections of overall fuel consumption to arrive at a percentage amount of ethanol that each gallon of gasoline produced by a refinery must contain. Responding to the government-created demand, ethanol producers swing into action. To create a credit-trading scheme, each new gallon of pure renewable biofuel is assigned a unique renewable identification number. That “RIN” becomes a tradable credit when that gallon of biofuel is blended with enough regular gasoline to meet the RFS.
The scheme creates a major conflict between two of America’s most powerful special-interest groups: oil producers and refineries on the one hand, and corn-ethanol producers on the other. With many hundreds of billions of dollars at stake, the result is tectonic political pressures on the government. The fault line, as it were, is the “blend wall”: how much ethanol can be blended into the nation’s fuel supply without corroding automobile engines or violating the EPA’s own emissions standards for ozone and particulate matter. With the nation’s current automobile fleet, that number turns out to be about 10 percent, which is why virtually all the gasoline you put in your car is at least E10.
But because the EPA’s percentage-volume obligations are set above the effective blend wall for many refiners, many still “owe” the EPA lots of RINs even after blending all the ethanol they reasonably can into their gasoline. So refineries have little choice but to buy RINs from those who have already blended fuel for themselves or someone else, usually purchasing RINs related to biodiesel instead. That leaves a lot of refiners chasing a small number of excess RINs. The resulting scarcity drives up prices, and produces volatility in both the ethanol and biodiesel markets.
The compliance burden falls most heavily on large refiners, but it most immediately threatens the small ones, for whom the law has created a case-by-case hardship exemption. As a result, small refiners put enormous pressure on the White House and the EPA to exempt them from the RFS. And because the EPA tends to grant the small-refinery exemptions in batches (in August of this year it granted 31 of them), the exemptions drive RIN prices down. Angry corn producers then besiege the White House with an army of hired lobbyists and members of Congress, demanding that the EPA allow the sale of higher-percentage ethanol blends and promulgate a higher overall target-volume RFS. As a result of these opposing forces, the government oscillates between helping refineries and helping corn producers, in a pattern that has been almost perfectly continuous since the Obama administration first exercised the refinery exemptions, in 2013.
Ethanol mandates are a marvelous candidate for deregulation—but they are caught in the middle of such a withering cross fire of special-interest groups that nobody in the White House wants to touch the issue with a 10-foot pole, as I saw firsthand during my years there. In October 2018, after months of hesitation and internal consternation, President Donald Trump ordered the EPA to move toward allowing E15 to be sold year-round and suggested fixes to the RIN market, and earlier this year the EPA proposed a higher overall volume RFS. The sale of E15 may create a backlash once the public learns about the downsides of higher ethanol blends, especially for older vehicles. Moreover, the problems of the RIN market are not endogenous to that market; they are created by the underlying RFS program, and a higher-volume RFS will make those problems worse. Officials in the EPA’s Office of Air Regulation, who have the misfortune of being required by law to administer the program, struggle to make anyone happy. It’s an impossible task.
A major 2011 study by the National Academies of Sciences found that biofuels can be cost-competitive with fossil fuels only in an economic environment of high oil prices. It assessed that biofuels would only be competitive with fossil fuels by 2022 (when the statutory RFS targets expire) if gasoline was about $5 a gallon (or $191 per barrel of crude oil). Even then, that represented the Department of Energy’s worst-case scenario projection for 2022. Then came the shale revolution, and now the Department’s projected worst-case scenario for 2022 is significantly lower, about $4 a gallon ($140 per barrel of crude oil), and more likely $2.50, or even $2.
In fact, perversely enough, the RFS expands the supply of gasoline, thereby helping keep fossil-fuel prices low in the long run. That’s particularly perverse from the climate’s point of view. The single biggest obstacle to a completely carbon-free future is the fact that automobiles, airplanes, and ships are tethered to oil as an energy source—whereas almost everything else that consumes energy just needs to connect to the electricity grid. If federal officials ever got serious about climate change and facilitated rapid deployment of nuclear energy, electricity production could be down to zero carbon emissions within a decade or two. If on top of that all, vehicles were electric, you’d be close to zero carbon emissions for the economy as a whole. By expanding the supply of gasoline, the RFS program helps ensure that gasoline-powered cars remain on the road longer.
Cheap gasoline is nice in the short term, but in exchange for that, the RFS gives us more expensive food. In the United States, the cultivation of corn for ethanol now requires a staggering 38 million acres of land—an area larger than the state of Illinois. By comparison, the total area of cropland used to produce grains and vegetables that humans eat is only about twice that acreage. In other words, the U.S. devotes enough land to corn-ethanol production to feed 150 million people.
The diversion of arable land for ethanol production constricts the supply of both crops and cropland that are available for food, with a particularly pronounced impact on livestock feed, and hence on meat. Price signals cause farmers to switch from other crops to corn production, seeking higher returns. As a result, the price of all foods—not just those directly related to corn—increases, and because the U.S. is the world’s largest exporter of food, food prices increase all over the world. Few Americans realize that to subsidize corn-ethanol production, they are paying almost twice as much for ground beef as they did before the RFS was created. The supermarket price of both flour and rice jumped about 50 percent after the RFS was created, and never fell back. The ethanol program functions as a hidden food tax—the most regressive of all taxes. And the effects on poor Americans are magnified for poor countries that depend on imports of food.
The RFS program mandates that corn ethanol have at least 20 percent lower carbon emissions than petroleum-based gasoline. But in the decade since the program’s full implementation, many studies have shown that the greenhouse-gas impacts collaterally associated with ethanol production—the full “carbon-cycle” effect—negate that 20 percent reduction and may even make corn ethanol worse for the climate than fossil fuels.
A large amount of fossil fuel is required to produce, grow, harvest, transport, and especially process a gallon of ethanol, eating up much of the difference in carbon emissions between ethanol and regular gasoline. As a National Academies report puts it, the RFS “may be an ineffective policy for reducing global greenhouse-gas emissions because the extent of emissions reductions depends to a great degree on how the biofuels are produced and what land-use or land-cover changes occur in the process.” Moreover, as the report notes, the production and use of ethanol results in higher emissions of ozone, particulate matter, and sulfur oxide than fossil fuels. Studies have demonstrated that corn production with nitrogen-based fertilizers releases high levels of nitrogen oxide into the atmosphere, which not only destroys ozone but has a higher greenhouse effect than carbon dioxide. And when those costs are added to the lost carbon sequestration from deforestation and other land-use changes, the impact on greenhouse-gas emissions from ethanol production is at best only slightly beneficial, and could be even worse for the climate than gasoline.
For all its problems, corn ethanol is not the worst biofuel. That title must go to palm and soybean oil, the mainstays of Europe’s biodiesel programs. Whereas corn ethanol leads to significant loss of temperate forests and prairies, the European Union’s biofuel programs have led to devastating losses of tropical rain forests around the world as countries from Indonesia to Brazil clear them rapaciously to tap into the EU’s rich subsidies for palm seed and now soybeans. In 2018, the EU finally voted to end palm-oil subsidies, but its equivalent of the RFS remains, and it still encourages biodiesel from plants that grow best in the tropics. The policy is environmentally suicidal.
Rain forests are the planet’s single most valuable mechanism of carbon capture. Palm-oil biodiesel may have 80 percent lower emissions than regular diesel, but much of that palm oil is grown on land cleared of tropical rain forests, and when you take that reduced carbon-capture into account, according to a 2009 United Nations report, palm-oil biodiesel may result in 800 percent more carbon emissions than fossil-fuel diesel. And diesel isn’t just for trucks: Ninety-four percent of the world’s freight moves by diesel fuel on sea and land.
Worse still, the loss of natural habitat to produce biofuels has dramatically accelerated the global biodiversity crisis. The most conservative estimates are that by 2050, at least 20 percent of all current land species will have been driven to extinction, almost entirely due to the loss of natural habitat from agriculture. The need to feed a rapidly increasing human population already spelled big trouble for biodiversity, but regulators in the U.S. and Europe have managed to make the problem dramatically worse in just a decade with a climate policy that leaves the climate worse off as well.
Renewable biofuels are not necessarily doomed. If advanced biofuels can be economically competitive and avoid the impacts of corn ethanol on poor people and on the environment, they will be a welcome addition to our future energy portfolio. But today’s corn-ethanol program is a glaring failure, and it is unconscionable that politicians of both parties are conspiring to keep it alive despite knowing full well what its problems are.
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