The following piece originally ran as a press release created and distributed by the Renewable Fuels Association.
A new economic modeling study that will soon be published in the American Journal of Agricultural Economics finds that the Renewable Fuel Standard (RFS) has substantially benefitted 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 the RFS in 2015 saved the U.S. economy $17.8 billion in gasoline expenses, compared to a case where no RFS existed. That’s equivalent to $142 per American household. Gasoline prices were $0.18 per gallon, or 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 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 were nearly 200 million barrels lower in 2015 than if the RFS did not exist. Meanwhile, 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 corn prices would average just $2.75 per bushel in 2015, far below the cost of production. However, with the RFS in place, corn prices averaged $3.68 per bushel – 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,” write the authors.
Meanwhile, even though the authors used overly conservative assumptions about the GHG savings associated with biofuels usage, they found that “…the increased use of biofuels [under the RFS in 2015] does reduce carbon emission in the United States (by about 29 million tCO2e).”
Finally, the study examined the impacts of an “optimal” case where the economic benefits of the RFS are maximized according to the model structure. Under this case, the economists find “…it would be desirable to expand corn-based ethanol production beyond the 15-billion-gallon cap envisioned by the EISA legislation.” The model finds that the optimal amount of ethanol blending in the near term is 16.8 billion gallons, 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.
“The new study confirms that American families and our nation’s economy significantly benefit from the Renewable Fuel Standard,” said RFS President and CEO Bob Dinneen. “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 in indeed delivering on its promise and meeting the goals established by Congress when it adopted this seminal energy policy.”
NCGA is taking a series of actions to do our part to help contain the spread of the coronavirus (COVID-19) and the economic fallout it is creating for corn farmers and our customers. Short term, this means instituting policies to protect the health and safety of our stakeholders and the broader communities we serve. Long term, we’re focused on creating solutions to help corn farmers and our customers recover from the financial impacts of this crisis.
CommonGround is a group of farmers connecting with consumers through conversations about science and research and personal stories about food and misinformation surrounding farming. Supported by the NCGA and state corn organizations.
The Soil Health Partnership (SHP) is a farmer-led initiative that fosters transformation in agriculture through improved soil health. Administered by NCGA the partnership has more than 220 working farms enrolled in 16 states. SHP’s mission is to utilize science and data to partner with farmers who are adopting conservation agricultural practices that improve the economic and environmental sustainability of the farm.