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Revisiting the RFS, Part 2: Land Use and Gas Prices

Part 2 of coverage of Tuesday’s House Energy and Commerce Committee hearing on the Renewable Fuel Standard, with a look at what witnesses had to say about the economic and environmental issue.

Bob Dinneen, CEO and President of the Renewable Fuels Association, defended the RFS, saying that it “makes more sense today then when it was passed.” He argued that the RFS plays a major role in reducing the price of gasoline and U.S. dependence on foreign oil; curtailing greenhouse gas emissions; creating new jobs; and revitalizing rural America.

He claimed that this year’s mandate, if met, will bring GHG emission reductions equivalent to taking 2.5 million cars off the road. He also addressed the recent Searchinger report arguing that biofuel production may actually cause increased GHG emissions. Dinneen cited a response to the study questioning its underlying model and said that more research is needed to address the issue. Searchinger himself has countered such critiques of the study, saying that its conclusions hold regardless of adjustments to the model.

Dinneen also testified that biofuels are also lowering oil prices, citing a recent Merrill Lynch report suggesting world oil prices would be 15 percent higher without the current expansion of biofuel production. He called for greater investment in delivery methods and transportation infrastructure to bring ethanol to where its needed quickly and cheaply.

Charles Drevna, President of the National Petrochemical & Refiners Association offered an opposing view, asking Congress to do away with the RFS and instead let the market dictate the integration of alternative (note: not “renewable”) fuels into the transportation fuel mix. He told the hearing audience that the mandates not only distort the market, but stifle competition and innovation.

He took issue with Dinneen’s claim of lower gas prices from the introduction of biofuels, saying that adding ethanol to fuel does not actually translate into cost savings at the pump. Because current biofuels have less energy content then gasoline, cars end up requiring more fuel, which offsets lower prices he said. To solidify his claim, Drevna cited a report which found that E85 ethanol cost eighty cents more per gallon then gasoline when its price was adjusted for its lower combustion efficiency.

Drevna also disagreed with Dinneen that biofuels are reducing the cost of gasoline because ethanol production is subsidized, offering the appearance of lower prices. But he failed to note that the government has been very generous in supporting oil production in recent years. As Sam Davis and Dan Weiss of the Center for American Progress point out, in 2004 and 2005, big oil companies received tax breaks worth over $17 billion over the next decade. This assistance, they also say, “continues even as BP, ConocoPhillips, and Shell just posted record first quarter 2008 profits—a combined total of $20.8 billion.”

If the ethanol subsidy is removed, Drevna argued, ethanol would be uneconomical in comparison to gasoline on a thermal energy scale. He also claimed that the U.S. lacks the necessary infrastructure to meet the mandates, leaving refiners to unfairly pay the price of penalties imposed by Congress. He asked committee members to do away with the current tariff on imported ethanol to afford flexibility to refiners trying to meet these increased RFS mandates.

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