Forbes: The Renewable Fuel Standards Mess

September 16, 2013

Michael Lynch, September 15 – Pity the American farmer.  Now, if Senators Klobuchar and Grassley are to be believed, they have been the victims of monopolistic behavior by the oil companies, who are limiting sales of ethanol-enhanced gasoline by requiring gasoline stations to carry premium fuel.  At the same time, the New York Times is reporting that some believe that large Wall Street firms have profited from trading ethanol credits, driving up their cost.  So, we have banks against the oil industry against the farmers, apparently.

Ignored in all this is one of the worst-designed government policies since we had caverns full of surplus cheese.  The Renewable Fuel Standard mandated the blending of ethanol into gasoline, which is bad enough, but it also set precise gallon targets for the industry, on the presumption that gasoline consumption would continue rising.  The 2005 government prediction of gasoline consumption in 2013 is proving too high by more than twenty five billion gallons, leaving over a billion gallons of ethanol orphaned (or companies buying credits to offset their failure to blend them).

This is the same as if the government demanded that school systems serve a particular number of lunches, and if there weren’t enough students, to pay penalties for the wasted food.  Or predicted the number of vasectomies, and if hospitals didn’t find enough, um, customers, they would be forced to buy credits.  Adding insult to injury, the Senators are complaining of anticompetitive practices, despite the blatant market interference they are championing!