Of Cows and Corn: Why the RFS Has to Go
In the mid-1930s, Congress was concerned that falling milk prices would bankrupt small dairy farmers. So it passed a “temporary” dairy price-support program. Under the program, which was eventually formalized as the Commodity Credit Corporation, the federal government bought surplus milk, butter, and cheese from farmers who couldn’t otherwise sell them at sufficiently high prices.
Not surprisingly, problems soon arose. Dairy farmers produced more milk, which the federal government then had to do something with. By 1983, the federal government was stockpiling $4 billion surplus cheese, butter and nonfat dry milk in cool caves in Missouri.
So, they put in place a number of measures to try to get rid of it. They banned imports and began to sell or “dump” butter and dry milk overseas, charging prices less than the U.S. government had paid for it. They began distributing billions of dollars of surplus cheese, butter and dry milk to the poor. They paid farmers $995 million to retire 10,000 dairy cows from production, heck, they even paid farmers to slaughter their cows ($1.3 billion) thereby ticking off cattle farmers and meat producers.
All of which just goes to show that when the government intervenes in the market system, it does not go well.
Take for example the federal corn-ethanol mandate. A decade ago Congress passed legislation creating the federal Renewable Fuel Standard (RFS) — requiring that Americans put 36 billion gallons of ethanol and other biofuels in their gas tanks annually by 2022.
The RFS was crafted to promote energy security and help the environment. The energy security goals, however, are being addressed by dramatic increases in domestic oil production, which have lowered U.S. oil imports to levels not seen since the mid-1990s. Thanks to vast domestic shale reserves and safe hydraulic fracturing, the U.S. is the world’s leading producer of oil and natural gas.
The problem with this regulation is that the EPA’s assumptions of growing demand for high-ethanol fuel blends are simply wrong. The high ethanol blends that EPA is pushing — E85 and E15 — are not compatible with most cars on the road today and they could potentially put American consumers and their vehicles at risk. Consumers have shown they have little to no interest in purchasing increasing amounts of high ethanol fuels, which stands in stark contrast to the consumer demand for E0 — non-ethanol gasoline. In 2014, E85 demand remained flat at just 0.15 percent of gasoline demand, while E0 represented nearly 7 percent of demand — up from 3.4 percent in 2012.
As a recent National Journal story noted:
“It’s easy to understand why. Ethanol erodes rubber, …and can destroy carburetors and pumps in older boats, damage classic cars and wreck small engines like those in lawnmowers and other outdoor equipment.”
In addition, a new University of Tennessee report finds that the RFS and its ethanol mandates fall short on a number of environmental fronts.
Just as the destructive dairy policy of the 1930s, what the RFS has become is an illustration of the pitfalls of government trying to mandate consumer behavior. The RFS is broken and should be repealed. Ultimately, Congress has to fix this problem. EPA can nibble around the edges like a large piece of cheese, but the reality is that Congress must fix the mess they started a decade ago.
“I think that it was a bad experiment,” Ward says. “They need to rethink it.”