The following content is sponsored by AFPM
Biofuel Mandates: Out of Sync With Transportation Landscape
In 2005, the Renewable Fuel Standard (RFS) was enacted so that transportation fuel like diesel and gasoline will contain renewable fuel. The motives behind this were to reduce America’s dependence on foreign oil markets, improve climate initiatives, and bring gas prices down.
However, over time it became evident that the forecasts that the RFS was built on were largely incorrect. This infographic from AFPM dives into the world of biofuel and breaks down why the current policies are out of sync with modern transportation.
But before we begin, let’s first explore the basics of biofuels.
What Is Biofuel?
Biofuel is transportation fuel derived from biological resources, like plants. This is in contrast to fossil fuels like gasoline and diesel, which are made up of nonrenewable petroleum. In addition, biofuels break down into conventional biofuels and advanced ones.
Conventional biofuels are any fuel derived from starch feedstocks like corn and grain. In fact, ethanol derived from corn represents one of the largest components of the biofuel market in America. For instance 97% of gasoline in the U.S. contains ethanol and 94% of that ethanol comes from starch in corn grains.
Advanced biofuels are second generation biofuels. They’re considered more complex, and come from non-food biomass like plant materials and animal waste. More advanced technologies are required to extract fuel from these resources. However, the impact on the food chain is minimized.
Here are two examples of advanced biofuels:
- Biomass-based diesel: A diesel fuel substitute made from renewable feedstocks
- Cellulosic biofuel: Fuel that is often derived from cellulose or other non food-based renewable feedstock
The Ethanol-Gasoline Dilemma
Since the 1990s, the amount of ethanol in gasoline has creeped upwards of 10% from less than 1%. This is a problem that stems from gallon specific mandates. As the amount of gasoline consumed in the U.S. declines, ethanol’s portion of the fuel mix represents a larger portion of the overall pie.
|Year||Ethanol consumption (billions of gallons)||Ethanol consumption (% of motor gasoline)|
The bulk of automobiles on U.S. roads as well as water-born engines have what’s referred to as an ethanol limit—the highest ethanol blend a vehicle can safely be fueled with. E10, which is 10% ethanol, is the recommended limit for most existing cars today. And filling up with anything higher may lead to corrosive damage, extensive repairs, and engine failure.
We Have A Problem: Biofuel Mandates Are Too Big
The 10% limit is an issue most didn’t anticipate at the time the RFS came to be, and here’s why things are going awry.
RFS mandates are out of touch with supply and demand dynamics. Biofuel and ethanol consumption in America is near all-time-highs with some 12 billion gallons consumed in 2020. At the same time, gasoline demand is some 30 billion gallons below the forecasts when the RFS passed.
What’s more, this is leading to unintended consequences and ineffective business practices:
- First, a surge in advanced biofuel imports is occurring. Given the RFS mandate requires more ethanol than the U.S. gas supply can absorb, refiners are forced to pay hefty fees for advanced biofuels from foreign markets. In 2020, the cumulative cost stood at a staggering $5.3 billion, nearly 15x the amounts imported in 2011.
- Second, these exorbitant import costs are being passed on to consumers in the form of higher fuel costs. For example, the RFS obligations have led to an average 20 cent per gallon increase in 2021.
- Third, fuel manufacturers are paying billions of dollars in compliance credits to satisfy the RFS’ obligations. In many cases, this expense is greater than total labor and wages expenses and threatens to make businesses in this space anti-competitive.
Reform: Bringing RFS Mandates In Line With Reality
When congress passed the RFS in 2005, few, if any, could have predicted the state of energy markets today.
Key projections like increasing fuel consumption and decreasing domestic crude oil production failed to transpire. As a result, the RFS needs to undergo urgent reform in order to be better aligned with the realities of modern gasoline and diesel markets.
For more information, visit afpm.org
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