WASHINGTON — A new independent analysis from the Center for Agricultural and Rural Development (CARD) at Iowa State University found that ethanol expansion under the Renewable Fuel Standard (RFS) program reduces gas prices and suggests that Congress and the Administration have been misled about the impacts of RIN credits on retail gas prices. Partially in response to the notion that RINs affect retail gas prices, the Environmental Protection Agency recently issued a proposed rule that would lower the blending requirements for conventional ethanol from 14.4 billion gallons to 13.01 billion gallons.
The analysis “Impact of Increased Ethanol Mandates on Prices at the Pump,” by Professors Bruce Babcock and Sebastien Pouliot, concludes that RFS policies decrease gas prices and should not be a reason to reevaluate or revamp the RFS. The paper shows that as RIN prices increase, the retail prices for both E85 and E10 decrease. It states, “As we demonstrate here, one of the costs that does not need to be considered is an increase in the pump price of fuel, because we show that the most likely outcome from increasing ethanol mandates is a drop in pump prices, not an increase.”
According to the analysis, “Our results should reassure those in Congress and the Administration who are worried that following the RFS commitment to expanding the use of renewable fuels will result in sharply higher fuel prices for consumers. There may be sound policy reasons that could justify Congress revisiting the RFS. However, concern about higher pump prices for consumers is not one of them.”
Bob Dinneen, President and CEO of the Renewable Fuels Association, weighed in on the analysis, stating, “Many ethanol opponents have used higher RIN prices to scare people into believing that gas prices will rise if the RFS remains in place. This study puts that argument to bed once and for all. The RFS is working as intended. It’s time for our country’s leaders to take a good hard look at ethanol and realize the positive impact it has on our environment, our economy, and our consumers. The new CARD analysis takes the gas price fear out of the equation.”
Babcock and Pouliot also point out that Congress should look at the cost and benefit of renewable fuels as a whole instead of focusing specifically on the concerns of biofuels opponents whose motivations are often driven by their bottom line.
The analysis states, “Other arguments often put forth by biofuel opponents concerning significant impacts of expanded biofuel production on consumer food prices and the lack of ability to consume quantities of ethanol beyond E10 similarly lack a solid economic foundation. The reason the oil industry and much of the livestock industry have joined forces against biofuels is one of simple industry economics: their industries would benefit from cheap corn and reduced competition from ethanol. Rather than taking sides with different industry groups in this policy debate, Congress and the Administration should focus on whether the benefits of increasing renewable fuels by reducing fossil fuels are worth the costs. If they are, then support for renewable fuels should not be abandoned.”