Why Opposing the RFS Is Bad for Our National Security and Our Economy

By Brent Erickson
Executive Vice President and Head, Industrial & Environmental Section,
The Biotechnology Industry Organization

Big oil companies and refiners continue the drumbeat against the RFS, even in the face of more Middle East military conflict, political instability and higher gas prices that are a result of the turmoil overseas. Amidst heavy lobbying efforts from Big Oil, the Obama administration has still not issued the final 2014 RFS rules, and the delay is sending the wrong market signals. It now appears that the rule will be released even later than last year’s rule. Advanced biofuel companies need assurance that the market will be open so that they can continue to raise capital and make necessary investments to produce cleaner, less costly biofuels. With the high level of uncertainty over the RFS, investment has been significantly chilled.

In the meantime, motorists are paying the highest price in six years for gasoline going into the Fourth of July weekend, because oil prices have remained above the $100 per barrel mark for much of the second quarter of 2014. The common wisdom about the cause of high oil prices is the crisis in Iraq. Who knows how long this latest crisis will last or how much more instability we will see creep into the Middle East oil producing regions?

Of course, U.S. refiners are laughing all the way to the bank as usual. They are making healthy profits from new sources of North American crude oil, which remains less expensive than Brent crude. And they are profiting from increased exports of both crude oil and refined products. But while the United States has come close to its stated goal of energy independence, consumers are still feeling pain at the pump.

The high gas prices could force U.S. consumers to cut back, or force them into tough decisions about how to spend very limited resources as their paychecks are stretched, which creates a cycle of constrained economic growth. As consumers put more money into their gas tanks, the U.S. economic engine slows. And the clear problem is that U.S. energy prices remain tied to volatile world oil prices.

Having domestic alternatives to foreign oil – in addition to increased energy efficiency – is the only way to achieve real energy security. And that is the reason the RFS was adopted in the first place. It was designed to break up Big Oil’s monopoly of the U.S. transportation fuel market and provide motorists with a choice at the pump. And it has worked.

Increasing production of biofuels has lowered their cost – they now present a significant opportunity to reduce the costs of transportation fuel. Without the RFS in place, U.S. consumers would be paying even higher prices for gasoline – as much as $1.50 more per gallon. Increased production of advanced biofuels would bring additional opportunities to displace high-priced oil from the market and give consumers a break.

And yet, the Obama administration proposed to put the brakes on this successful program. It proposed that in 2014 the United States should use less cheap, cleaner biofuel and more expensive oil than in 2013, reversing course on a policy that has increased U.S. energy independence and saved consumers money. And it did so because the oil refiners cynically claimed that compliance with the RFS would cost consumers. The plain fact is that the refiners buy and sell RINs from each other, and competition keeps them from passing the cost to consumers.

The biofuels industry, and more importantly, American families, need a final 2014 RFS rule in place as soon as possible. It is an understatement that the suspense is killing us. Uncertainty undercuts investment in advanced biofuels, reducing the prospect for increased production in the future. It also delays investment in the infrastructure to provide consumers choice at the pump and access to less costly transportation fuels. Big Oil and the refiners need to think more about U.S. national security interests and less about growing their already large profits. And the administration needs to act now in order to protect consumers from high oil prices over the long road.