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Role of Biofuels in U.S. Energy Policy

The Energy Information Administration (EIA) forecasts that the world will require 53 percent more energy in 2035 than in 2008 in order to sustain modest economic growth. There’s little doubt that our world, and our nation, will need all commercially viable energy sources for decades into the future.

Today, most of the gasoline sold in the United States includes some ethanol, and renewable fuels will be an important part of our energy mix in the years ahead. That said, allowing market forces and consumer preferences to determine where and how ethanol is consumed is the most effective and least costly way to integrate ethanol into our nation’s transportation fuels system.

Key Policies

Congress passed the Renewable Fuel Standard (RFS) as part of the Energy Policy Act of 2005. Only two years later, Congress made this mandate five times larger through the Energy Independence and Security Act of 2007. The new RFS included extremely aggressive targets and timelines for increasing biofuels production. RFS and other policies set in the Energy Policy Act of 2005 instituted:

  • Biofuels consumption mandates, which require companies to blend large quantities of biofuels into the fuel supply by a specific date.
  • Fuel-blend waivers, which allow higher blends of ethanol-laced gasoline to be sold and purchased in the market, without sufficient testing or labeling to prevent misfueling.
  • Subsidies and loan guarantees, which direct taxpayer dollars to support or invest in fledgling biofuels companies.

Unfortunately, the RFS failed to meet many of its goals. Let’s take a closer look at the history and outcomes associated with each policy type:

Consumption Mandates

Through the RFS, Congress directed the EPA to establish regulations that would “ensure U.S. transportation fuel contained a minimum volume of renewable fuel”―mainly from corn-based ethanol.

The amended RFS in 2007 expanded the biofuel requirement to 36 billion gallons into gasoline, diesel and jet fuel by 2022. Each year, the EPA also sets a secondary mandate for cellulosic biofuels. The problem: cellulosic ethanol does not exist for commercial purchase―and according to the EPA’s own data, quotas have failed abysmally.

Fuel-Blend Waivers

In addition to mandating the amount of biofuels produced and blended into our gasoline supply, in late 2010 and January 2011, the EPA granted waivers for the use of E15.The waiver asked the EPA to allow the use of ethanol in each gallon of gasoline up to 15 percent (a blend known as E15) in 2001 and newer vehicles.

This decision was made despite the objections of numerous consumer advocates and automakers―and even though studies to examine engine effects were incomplete.

A May 2012 Coordinating Research Council study found that some cars running on E15 experienced engine damage—and even failure. Automakers have warned that E15 could void manufacturers’ warranties. Companies such as Toyota and Lexus have even placed warning labels on gas caps, along with owner’s manual instructions about not fueling with E15.

Subsidies & Loan Guarantees

In recent years, biofuels have received billions in government support―from tax credits to DOE loan guarantees. At one point, the ethanol industry enjoyed a 54-cents-per-gallon ethanol import tariff. It also fought to maintain the VEETC tax credit, which cost taxpayers $30.5 billion over its lifetime.

To this day, the industry still receives millions of dollars in loan guarantees. These subsidies and loan guarantees waste taxpayer money on technologies that are years away from commercialization. A Friends of the Earth report found that, when looking at the policies collectively, biofuels will have received more than $400 billion in subsidization between 2008 and 2022.