Study finds RFS offers substantial benefits to U.S. economy

RFS has lowered gasoline prices, decreased crude oil imports and added value to U.S.-produced agricultural commodities.

August 23, 2017

3 Min Read
ethanol plant in corn fields
Jim Parkin iStock

A new economic modeling study that will be published soon in the American Journal of Agricultural Economics found that the Renewable Fuel Standard (RFS) has substantially benefited the U.S. economy by lowering gasoline and crude oil prices, cutting crude oil imports, adding value to U.S.-produced agricultural commodities and reducing U.S. greenhouse gas (GHG) emissions.

“The results confirm that the current RFS program considerably benefits the agriculture sector but also leads to overall welfare gains for the United States,” according to the study’s authors, Iowa State University economists GianCarlo Moschini, Harvey Lapan and Hyunseok Kim. “We find that the RFS has indeed proved to be a remarkably effective tool for farm support.”

The analysis found that the RFS saved the U.S. economy $17.8 billion in gasoline expenses in 2015 compared to a case where no RFS existed. That’s equivalent to $142 per American household. Gasoline prices were 18 cents/gal. (9.5%) lower because of the RFS. In addition, the RFS is responsible for increased federal tax revenues.

Further, the results highlight the impact of the RFS on domestic energy security, showing that “the RFS leads to a modest contraction in domestic crude oil production and a larger decline in imports of crude oil.” According to the study, crude oil imports would be nearly 200 million barrels lower in 2015 than if the RFS did not exist. Furthermore, domestic crude oil production was only 0.3% lower in the “2015 RFS” case than in the “no RFS” case.

The RFS program was also found to have boosted the value of the U.S. agriculture sector by $14.1 billion, or nearly $6,800 per American farm. Without the RFS, the model found that corn prices would have averaged just $2.75/bu. in 2015 -- far below the cost of production. However, with the RFS in place, corn prices averaged $3.68/bu. -- a 34% increase over the “no RFS” case.

“The results that we have presented confirm that the current RFS program considerably benefits the agriculture sector,” the authors reiterated.

Meanwhile, even though the authors used overly conservative assumptions about the GHG savings associated with biofuels usage, they found that an increased use of biofuels in 2015 under the RFS did reduce carbon emission in the U.S. (by about 29 million tons of carbon dioxide equivalent).

Finally, the study examined the impacts of an “optimal” case that maximized the economic benefits of the RFS according to the model structure. Under this case, the economists found that "it would be desirable to expand corn-based ethanol production beyond the 15 billion gal. cap" envisioned by the U.S. energy bill. The model showed that the optimal amount of ethanol blending in the near term is 16.8 billion gal., equating to a blend rate of nearly 12%. Such a scenario would result in a 14% reduction in gas prices, $28.7 billion in economy-wide savings on gasoline expenses ($228 per U.S. household), additional reductions in crude oil imports and slight increases in corn production and the value of corn.

“This new study confirms that American families and our nation’s economy significantly benefit from the Renewable Fuel Standard,” Renewable Fuel Assn. president and chief executive officer Bob Dinneen said. “Whether it is lower gas prices, decreased oil imports from hostile nations, a more valuable agriculture sector or reduced greenhouse gas emissions, this study underscores that the RFS is indeed delivering on its promise and meeting the goals established by Congress when it adopted this seminal energy policy.”

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