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Food for the Table, Not for the Gas Tank

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Food for the Table, Not for the Gas Tank

With prices skyrocketing, it’s time for Washington to suspend—and ultimately repeal—the Renewable Fuel Standard. March 14, 2022
Infrastructure and energy
Economy, finance, and budgets
Politics and law

We live in a highly interconnected world, so it’s no surprise that the shockwaves from Russia’s invasion of Ukraine are reverberating around the globe. Energy prices are spiking as the U.S. and other countries impose embargoes on Russian fossil fuels. And a looming global food shortage threatens to be even more disruptive. Between them, Ukraine and Russia account for about one-third of the wheat available on the world’s export markets. They also export large shares of corn, barley, vegetable oils, and other foodstuffs. Today, Ukraine’s ports are shut down and exports are at a standstill. Meantime, Russia is hoarding grain for its domestic market, and Hungary has suspended exports in anticipation of shortages. Other countries are likely to follow suit.

The Ukraine conflict is also disrupting trade in the commodities that make food production possible. Russia, a major supplier of fertilizer, may cut off exports of those chemicals. In other countries, shortages of oil and natural gas will further reduce the production of fertilizer and other agricultural inputs. And, of course, fuel shortages will hinder agriculture and the transportation of foodstuffs around the world. A Ukrainian official estimated that the war could cut global supplies of major agricultural products between 10 percent and 50 percent. In the U.S., food prices were skyrocketing even before the invasion. The price of beef has climbed nearly 20 percent since January 2021. And even though the U.S. is a major food exporter, our domestic prices are tied to international markets. American consumers are in for the kind of shock they haven’t seen since at least the 1970s.

Typically, when supply disruptions roil markets, political leaders can’t do much about it. But in the coming food crisis, the U.S. actually has a powerful policy lever. With a single bold move, the Biden administration could free up food supplies while also reversing a policy blunder that hurts consumers, increases greenhouse-gas emissions, and damages ecosystems across the U.S. It would require some political courage, but Biden could move to suspend—and push ultimately to repeal—the Renewable Fuel Standard.

Enacted as part of the Energy Policy Act of 2005, the RFS program was meant to increase U.S. fuel supplies and promote green-energy innovation by requiring that transportation fuel, heating oil, and jet fuel contain growing portions of renewable biofuels. In 2007, Congress expanded the program and set even more ambitious targets.

But problems emerged from the start. For one, the program is mind-bendingly complex, delineating four types of biofuels, setting annual targets for each, and awarding refiners various credits for meeting their “Renewable Volume Obligation.” The EPA has the authority to change or waive these rules at whim, making the program “unpredictable and arbitrary,” writes Competitive Enterprise Institute senior fellow Mario Loyola in The Atlantic. According to one estimate, RFS “compliance alone is adding about 14 cents to refiners’ cost per gallon of gasoline and diesel.”

Over time, a program intended to encourage new clean-energy sources evolved into a policy that pays farmers and refiners to turn food into fuel. In theory, the policy was supposed to spur the development of climate-friendly fuels such as cellulosic ethanol—that is, alcohol made from high-cellulose plants like switchgrass—or advanced biodiesel made from algae or crop waste. But making fuel from those sources remains technically challenging and far too costly. It’s much easier to make fuel from crops that are already packed with accessible energy. That mostly means corn (which, as any moonshiner knows, can easily be fermented into alcohol) and soybeans, whose rich oil readily combusts in diesel engines. Since manufacturers can’t produce enough of the more advanced fuels, the EPA routinely grants refiners waivers allowing them to rely mostly on those corn- and soy-based fuels.

Though mostly invisible to the public, the RFS program affects the lives and pocketbooks of all U.S. consumers and has remade the face of American agriculture. Today, roughly one-third of U.S. soybean oil production is used to make biofuels. Corn-based ethanol has an even bigger footprint. Virtually every gallon of gasoline sold in this country contains 10 percent ethanol, the maximum allowed by law. (A small number of gas stations also sell E85, an 85 percent ethanol blend that can only be used in specially designed engines.) Growing the corn to make all that ethanol requires a staggering 38 million acres, an area larger than the state of Illinois. If used to grow food for human consumption, Loyola writes, that acreage could feed 150 million people.

By diverting about 40 percent of the U.S. corn crop to ethanol production, the RFS program drives up food prices across the board. Since corn is a critical livestock feed, higher corn prices have inflated meat prices. The cost of ground beef has climbed almost 100 percent since the program began. Wheat and rice prices have also gone up as many farmers shifted to growing corn instead. As Loyola concludes, “The ethanol program functions as a hidden food tax—the most regressive of all taxes.” Those effects are felt not just in the U.S., but around the world.

RFS mandates dramatically increase demand for corn—and thus encourage farmers to put more acres into production and to farm their existing fields more intensively by planting corn crops more frequently. That reduces wildlife habitat, as acreage that might otherwise be prairie or woodland gets pressed into producing ethanol crops. According to a massive new study from the Department of Energy, the intensive corn farming demanded by RFS mandates also leads to “sizable increases in associated environmental impacts including nitrate leaching, phosphorus runoff, and soil erosion.”

Given all those costs, one would assume the RFS program must have some powerful benefits that justify its continued existence. But recent research shows the mandates don’t even achieve the two things they were meant to accomplish: reducing fossil-fuel use and cutting greenhouse-gas emissions. If anything, it worsens these problems. Planting, fertilizing, and harvesting corn and then processing it into ethanol requires lots of energy. Researchers debate whether the resulting gallon of ethanol contains a bit more energy than went into it or a bit less, but the balance appears to be a wash at best. Rather than replacing fossil fuels, then, the RFS program simply converts those fuels into a more expensive form. Corn ethanol also backfires when it comes to reducing emissions. According to the new DOE study, “the carbon intensity of corn ethanol produced under the RFS is no less than gasoline and likely at least 24 percent higher.”

Why didn’t the U.S. get rid of this policy years ago? Politics, of course. The ethanol mandate isn’t just a stealth tax on food consumers and motorists—it’s also a roundabout subsidy to farmers and to agriculture companies such as Archer Daniels Midland that dominate the ethanol industry. Corn is a major crop in more than half of U.S. states, so there aren’t too many lawmakers eager to turn off the ethanol spigot. This is particularly the case for any politician who dreams of running for president, as America’s top corn-producing state is Iowa. John McCain came out against ethanol subsidies in his 2008 campaign, but he was a rare exception.

The political hurdles to rethinking the RFS program are daunting. But, as Americans face shocking inflation in energy and food prices, they will demand that Congress and the White House do something. In a vague but intriguing March 3 article, Reuters reported that the Biden administration is “studying whether waiving biofuel blending mandates could help offset a surge in prices for key food ingredients.” (The EPA press office declined to respond to a request for comment.) Perhaps the unnamed officials in the Reuters article were floating a trial balloon.

Alex Smith, a food and agriculture analyst at the Breakthrough Institute, a pragmatic environmentalist think tank, told me in an email exchange that RFS reform could have a broad impact. “If rolling back RFS requirements means that some of that corn and soy production goes towards food end uses instead of RFS,” he said, “the added supply of corn products and soy oils could help reduce the costs of a number of basic food goods domestically, and if we export that excess supply, globally.”

The public wouldn’t feel these benefits overnight. Sorting out the logistical challenges would take time. And some grain production would continue to be used for fuel additives. Ethanol helps gasoline refiners raise the octane level in their fuel, so most would continue to purchase smaller amounts of the product. Of course, sudden changes in the RFS program would mean economic challenges for many farmers. But those disruptions would be mitigated by global demand for farm products, which will likely be at record highs for the foreseeable future. Over time, growers would adjust to a market that isn’t distorted by renewable-fuel mandates. They could grow a wider variety of crops and make decisions based on consumer demand rather than working in lockstep with counterproductive government policies.

The RFS program was the result of two acts of Congress, so it’s worth asking whether the White House has the authority to change it by executive action. But the EPA already exercises enormous leeway in adjusting (and often waiving) RFS rules—after all, the exotic biofuels the program was set up to promote still barely exist. In the short term, the agency could simply change the policy as a response to the ongoing emergency. Eventually, Congress will need to reform—or, better yet, scrap—the entire program.

Whatever the political challenges, reforming the RFS program is the right thing to do. “RFS is a misuse of hyper-productive American agricultural land,” Smith says. “Food inflation domestically and the potential for food shortages in other countries should make it obvious that agricultural lands should be used to produce food.” This would be a good time for President Biden and his team to remember that Obama-era mantra: never let a crisis go to waste.

Photo by Robert Nickelsberg/Getty Images

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