Cumulative Facts on the Renewable Fuel Standard

Bob Greco
Posted July 26, 2013

Earlier we took a look at claims by the Renewable Fuels Association (RFA) that ethanol production was “a particularly important catalyst” and “major driver” of declines in finished motor gasoline imports (Spoiler Alert: No).  Today, continuing the Sisyphean task of correcting false narratives put forth by the RFA, let’s look at the notion that ethanol is leading the way in providing energy security.  RFA’s statement in a House hearing this week:

In fact, cumulative new ethanol production since 2005 has accounted for 62% of new domestically-produced liquid fuels, while cumulative new U.S. crude oil production has accounted for 38%.

“Cumulative new?”  Sounds like an early post-punk band.  Didn’t they open for The Icicle Works once?  Sorry, trying to match an irrelevant statement with an immaterial comparison. Back to the matter at hand, let’s break this down by stepping out of the energy space for a moment. 

Imagine you own a donut shop and it produced 5,000 donuts a day last year.  Now this year you produce 5,380 a day while a new donut shop produces 620 a day.  The new shop can claim to have produced 62 percent of new donuts in the system, but also claiming that this makes them the Donut King is ridiculous.  Moving back to energy, let’s look at the larger picture, domestic production of crude oil and ethanol from 2005 through 2012:

We see some big gains for the ethanol industry from 2005 to 2008, and good for them – though it would be better if their gains weren’t at the expense of consumers and taxpayers through a series of government regulations, subsidies and mandates. But still, good for them.  You will also notice that between 2005 and 2008 domestic crude oil production declines, but then innovation and (private)  investment kick in, launching the shale energy revolution and a dramatic increase in domestic crude oil production.

The current Renewable Fuel Standard (RFS) was passed in 2007, so in a discussion of the RFS and its impact on energy and the economy (the entire point of the House hearing) it makes sense to look at the years following its passage (2008), not the years before. Since the RFA wants to use “cumulative new” as an indicator, as silly as that might be, looking at the numbers, an intellectually honest version of its statement should read:

In fact, cumulative new domestic oil  production since the passage of the RFS has accounted for 76% of new domestically-produced liquid fuels, while cumulative new U.S. ethanol production has accounted for 24%.

I’m sure they will want to get a corrected version to the House as soon as possible.

So at this point I would like to thank the RFA for putting us on this train of thought, because in the end all this shows is that the RFS was based on an entirely different reality when it comes to our domestic fuel supply (see above) and our domestic fuel demand (see here).  It is time to let markets adjust to this new reality by eliminating artificial government mandates.  It is time to repeal the RFS.