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Ethanol lobby blasts oil industry

September 22, 2012

New Oil Industry Paper Favors Gasoline Imports, Higher Diesel Prices Over RFS
Renewable Fuels Association

A report released this week by EPRINC, an oil industry-funded research group, suggests a multi-year suspension of the Renewable Fuel Standard (RFS) could reduce U.S. ethanol use by more than half. To offset this loss in ethanol supplies, the EPRINC paper suggests a variety of economically impractical and politically infeasible options could be pursued—ranging from ramping up gasoline imports to reducing diesel fuel and heating oil production in an attempt to extract more gasoline from crude oil. The Renewable Fuels Association (RFA) pointed out that in attempting to tear down the RFS, the EPRINC report actually underscores the importance of the program and highlights the lack of sensible or economic options available to refiners if ethanol use is severely curtailed.

“If you do away with the RFS over the long term and less ethanol is available, as EPRINC is suggesting, you leave a gaping hole in the gasoline supply,” said RFA President Bob Dinneen. “The options available to fill that hole just don’t make economic sense and would further increase fuel prices for consumers. Ironically, the EPRINC report actually underscores why the RFS is so important; it highlights the fact that cutting ethanol out of our gasoline supply would result in increased dependence on imported oil and refined products, or would force refiners to make a choice between maximizing gasoline or diesel production. Consumers lose in either case. Clearly, the best option is not to tinker with the RFS and let it continue to work as intended.”

Dinneen pointed out other major flaws in the new EPRINC report, such as internal inconsistencies regarding the report’s characterization of the flexibility of the RFS. On one hand, the report states that the RFS has “created inelastic demand for ethanol,” but then on the other hand, it acknowledges that ethanol production has plummeted by about 15% since the beginning of the year “…as high corn prices have caused many ethanol producers to idle production.”

“They call the RFS ‘inelastic’ but then point out that the ethanol industry has adjusted quickly to higher corn prices by reducing production,” Dinneen commented. “EPRINC clearly misunderstands the flexibility that is inherent to the RFS program that is allowing the ethanol industry to respond rationally to market signals.” Dinneen noted that recent projections from both USDA and FAPRI show the ethanol industry reducing its corn consumption in 2012/13 more than the livestock feeding industry.

Further, the EPRINC paper repeats illogical criticisms of a series of studies by the Center for Agricultural and Rural Development (CARD) that show ethanol significantly reduces gasoline prices. Specifically, the report parrots critiques of the CARD study originally made by an economist at MIT, who previously received funding from Chevron. The CARD economists responsible for the research on ethanol’s impact on gas prices responded strongly to the MIT criticism here and here.

Finally, Dinneen noted that the EPRINC report demonstrates an obvious lack of understanding of the role of animal feed co-products produced by ethanol facilities.

For a more detailed response to the EPRINC report, click here.

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Bob Clark September 22, 2012

So, if the ethanol industry is so market responsive, why is there a need for a renewable fuel standard. The latter artificially distorts the efficiency of solutions available only through true freely operating markets. Ethanol industry should prove its importance competitively rather than forcing it by the heavy hand of (inefficient) government.

Ethanol won’t go away if the renewable fuel standard is removed because it still would be needed to oxygenate the gasoline stream, putting a floor of 3% of gasoline composition going to ethanol.

The more ethanol put in the gasoline stream, the more often people have to stop at the gasoline station because ethanol gets a lot less miles to the gallon than pure petroleum based gasoline. The Majors actually make bank when there are more stops at the gasoline station because folks visit their convenience stores more often. Oil companies got you coming and going, so they maybe actually just are arguing what is logical as it makes not a whole lot of difference for them (other than having to deal with the huge government bureaucracy surrounding renewable fuels standard).

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