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RFS offers substantial benefits to US economy new study finds

A soon to be published economic modeling study finds that the Renewable Fuel Standard (RFS) has substantially benefited the US economy by lowering gasoline and crude oil prices, cutting crude oil imports, adding value to US-produced agricultural commodities, and reducing US greenhouse gas (GHG) emissions.

Entitled “The Renewable Fuel Standard in Competitive Equilibrium: Market and Welfare Effects” the study has been carried out by researchers at the Center for Agricultural and Rural Development, Iowa State University and will soon be published in the American Journal of Agricultural Economics.

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

Boost to agriculture and wider economy

The analysis found the RFS in 2015 saved the US economy US$17.8 billion in gasoline expenses, compared to a case where no RFS existed. That’s equivalent to US$142 per American household. Gasoline prices were US$0.18 per gallon, or 9.5 percent, 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.”

Bob Dinneen, President and CEO of the Renewable Fuels Association (RFA).

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 percent 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 US agriculture sector by US$14.1 billion, or nearly US$6 800 per American farm. Without the RFS, the model found corn prices would average just US$2.75 per bushel in 2015, far below the cost of production.

However, with the RFS in place, corn prices averaged US$3.68 per bushel—a 34 percent increase over the “no RFS” case confirming that the current RFS program “considerably benefits the agriculture sector.”

Optimal blend

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 percent. Such a scenario would result in a 14 percent reduction in gasoline prices, US$28.7 billion in economy-wide savings on gasoline expenses (US$228 per US 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. 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,” said Bob Dinneen, President and CEO of Renewable Fuels Association (RFA) in a statement.

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