The Obama administration set new standards Monday for ethanol levels in fuel, enraging competing industries that had battled for months to influence the contentious regulations.
The final renewable fuel standard (RFS) unveiled by the Environmental Protection Agency (EPA) is more stringent than an earlier version of the rule proposed in May but falls short of the threshold set forth in a 2007 law.
Acting Assistant EPA Administrator Janet McCabe defended the standard, which requires oil refiners to mix more biofuel into their gasoline supply, as striking a balance between the ambitious goals of Congress and what is achievable. ...
The standard, announced on the same day President Obama made an impassioned appeal for action to counter climate change at a global summit in Paris, spurred swift criticism back at home.
The agency earlier this year proposed requiring oil refiners blend to 16.3 billion gallons of ethanol into their fuel in 2015 and 17.4 billion gallons next year, which means gasoline would have contained about 10 percent ethanol. Those figures jumped to 16.93 billion gallons this year and 18.11 billion next year.
Oil interests argue that increasing the amount of biofuel in gasoline will raise prices at the pump and do further damage to vehicle engines.
I was a discussant for a paper, "Retrospective Benefit-Cost Analysis of EPA’s Renewable Fuel Standard" (by Sofie E. Miller at George Washington University), presented in a Society for Benefit-Cost Analysis session at the SEA meetings. I learned a lot from the experience. I was unaware of a 2009 paper by Hahn and Cecot in the Journal of Regulatory Economics who found that the renewable fuel standard was expected to generate more costs than benefits*. Sofie is updating that analysis to include the additional climate change impacts (large net costs), among other things. It seems to me that if a lower standard (10 billion gallons) has negative net benefits (i.e., is a bad idea) then a higher standard is an even worse idea. If the environmental benefits are mostly negative the program seems to be just a large subsidy to corn farmers.
*Note: One of the major benefits included by Hahn and Cecot is the monopsony benefit in the world oil market. Given that the U.S. is a large oil consumer, if we import less oil then world oil prices fall. Hahn and Cecot use a price reduction of $8/barrel and Sofie uses something less. At first glance it seems shaky to me that there would be any measurable effect on oil prices from the 14 billion gallons of ethanol produced in 2014 which is about 10% of U.S. gasoline consumption and about 2%** of world oil consumption [source: EIA]. Is 2% enough to have monopsony power.
**I did this one hurriedly. Does it pass the smell test?