by Michael Bastasch
Replacing the federal biofuel mandate with a mandate to sell more fuel-efficient gasoline could end up being a cure that’s worse than the disease, according to a new report.
A so-called high-octane fuel standard (HOFS) “is simply not the elegant solution that some contend it is,” Philip Rossetti, director of energy policy at the right-leaning American Action Forum (AAF), wrote in a new report.
A HOFS was recently pitched by Republicans as a replacement for the Renewable Fuel Standard (RFS) that was signed in to law in 2005. The RFS requires refiners to blend ever-increasing amounts of biofuel — mostly corn-based ethanol — into gasoline.
Resistance has grown to the RFS over the years because of its high compliance costs for refiners. The RFS cost $76 billion over the last decade without achieving its stated goals, an April 18 AAF report found.
As resistance builds to the costly RFS, Republicans seem open to replacing a biofuel mandate with a mandate for more efficient fuel — fuel with higher octane. Rossetti said both policies have their downsides.
“In fact, the RFS raised prices, and a HOFS would too,” Rossetti wrote in a report released Wednesday.
While higher octane fuels can be more fuel efficient, there are some basic technical and economic issues that make a HOFS problematic, Rossetti argued.
Ethanol is high in octane, but “[m]oving to a high-octane ethanol blend of 25 percent (E25) or higher would require even more corn to be used for ethanol, which would then put upward pressure on corn prices — and thus fuel prices,” Rossetti wrote.
Drivers would need high-performance engines to fully take advantage of high-octane fuel, so “the fuel economy benefits that are supposed to justify such costs would end up being a wash to consumers,” Rossetti added.
However, refiners and automakers favor a HOFS to replace the RFS or act as a replacement for Obama-era fuel economy standards President Donald Trump’s administration announced it would do away with back in April.
Europe already mandates gasoline be 91-octane or higher, which adds to the price of fuel. Regular gasoline sold at U.S. stations is 87-octane and premium grades with higher octane levels cost about 50 cents per gallon more.
“America deserves at least as good a fuel as Europe has,” General Motors Executive Dan Nicholson said at an auto industry summit in April. “It will have customer value if it’s done correctly. We’ve studied it, and we know that it’s cost-effective.”
The ethanol industry opposes replacing the RFS with a HOFS. Ethanol interests fear scrapping the RFS for a HOFS would cut demand for biofuels.
But Emily Skor, CEO of the pro-ethanol group Growth Energy, recently told Congress a HOFS would “possibly” be beneficial if it also grows the biofuel industry like the RFS would.
While HOFS would reduce the costs to automakers in meeting fuel efficiency standards and reduce refiners compliance costs for the RFS, Rossetti said it would be a bad deal for consumers.
“Corn producers and refiners win due to the increased demand for ethanol and premium fuels. Vehicle manufacturers win because they can comply with fuel-economy standards more easily, and the regulation encourages people to retire their older vehicles and buy new ones,” Rossetti wrote.
“The losers, in contrast, are consumers, who incur high upfront costs to realize marginal long-term benefits and are forced to purchase different (and likely more expensive) fuel types by government fiat,” Rossetti wrote.
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