EPA biofuel rule: energy solution or economic burden?

The EPA's Renewable Fuel Standard program has attracted controversy for driving up food prices and the cost of gasoline. Republican lawmakers lambasted the EPA's fuel standard in a hearing on Capitol Hill Wednesday, but supporters say the standard is flexible and an important part of a transition to alternative fuels.

The push for alternatives to petroleum-based fuels has run into a wall of mounting criticism.

Amid declining gasoline demand, fuel producers are struggling to keep pace with the Environmental Protection Agency's expanding Renewable Fuel Standard program (RFS). But supporters say the EPA's standard offers flexibility, and is a critical part of reducing the country's reliance on foreign oil.

The brewing controversy has pit biofuel advocates and the EPA against the oil industry and fuel manufacturers who say the standards impose an unnecessary economic burden on consumers. Fueling cars with corn also has significant consequences for agriculture, putting upward pressure on food prices. 

Republican lawmakers lambasted the standard in a House Oversight Committee hearing Wednesday.  

"By requiring refiners to produce a product that consumers can’t use and don’t want, it is only logical that this constriction of the market will increase fuel prices, causing economic damage," Rep. James Lankford (R) of Oklahoma said in prepared remarks. "Because of the over-reliance on food-based ethanol as a renewable fuel, the RFS has a negative impact on our food supply and security."

The Renewable Fuel Standard aims to blend 36 billion gallons of renewable sources into transportation fuels by 2022. Much of that comes from ethanol, but today's cars and trucks were built to handle only so much of the corn-based fuel.

As gasoline demand decreases and the renewable standard continues to rise, gasoline producers are finding themselves against a so-called "ethanol blend wall," saying they have exhausted the available options for meeting the government's requirements.

Manufacturers must purchase ethanol credits to make up for any shortfall. The price of those credits has skyrocketed, as much as 1,400 percent in the first three months of 2013, according to the Financial Times.

In an effort to relieve the glut, the EPA is permitting gasoline with greater portions of ethanol – 15 percent instead of 10 percent – but some say that tests the limits of today's automobiles and puts undue burden on consumers.

"EPA's actions to approve E15 despite scientific evidence showing millions of automobiles could face engine and fuel system damage is an unnecessary risk to consumer safety, automobiles and small engines," said Jack Gerard, president of the American Petroleum Institute (API), a Washington-based trade association, in remarks prepared for Wednesday's hearing.

The standard could spark a 30 percent increase in gas prices and decrease gross domestic product by $770 billion by 2015, according to a study commissioned by the API.  

The increasing demand for corn ethanol has upended agriculture markets. When the RFS was first created in 2005, ethanol made up about 14 percent of the country's corn production, according to a May 2013 report from the USDA. By 2012, that level had increased to roughly 42 percent. The growing focus on corn for energy has contributed to a 40 percent rise in crop prices between 2001 and 2012.  

The standard's advocates acknowledge a shift in fuel dynamics can have negative consequences for energy and agriculture markets. But the standard provides for flexibility, they say, and, if implemented gradually, help ease reliance on oil from the country's second most energy-intensive sector.

For example, the EPA can adjust the target levels on a yearly basis and offer waivers during droughts. Last August, nearly a dozen states applied to waive the standard after the summer's record droughts decimated supplies and drove up prices. The EPA rejected those requests.

"[W]hat is commonly called the 'blend wall' is, in reality, more like a set of speed bumps," Jeremy Martin, senior scientist at the advocacy group Union of Concerned Scientists, said in prepared remarks. "There is no reason we need to fuel up with at least 90 percent gasoline forever. But if we try to change our fuel mix faster than our vehicles and fueling infrastructure can accommodate, we may undermine the transition we need to make."