From Ethanol Shuffle to Ethanol Tourism— Why the RFS Does Not Make Sense

Abstract

The U.S. fuel ethanol industry has experienced phenomenal growth in recent years, with roughly a 3.6-fold increase in ethanol production since 2005 (RFA, 2012). A fuel blender’s credit (the Volumetric Ethanol Excise Tax Credit), a secondary tariff on imported ethanol, and mandatory use of renewable fuels supported the development of the industry. However, two of these three policy instruments— the federal tax credit and the secondary tariff— were allowed to lapse at the end of 2011. The Renewable Fuels Standard (RFS)—which sets annual mandates for renewable transportation fuels sold in the United States— has been maintained and currently requires 15.2 billion gallons of renewable fuel, an increase of roughly 9% from last year, to be contained in motor vehicle fuels in 2012 (EPA, 2011). In an earlier assessment of U.S. biofuels policies (Yano, Blandford and Surry, 2010), we argued that the mix of policies did not make economic sense, particularly in terms of their impact on international trade. In this article we examine whether things have changed and focus on the key issue of whether the RFS should continue to be applied.