RFS Compliance: Death Spiral or Investment in E85?

Bruce A. Babcock, Sebastien Pouliot
November 2013  [13-PB 16]

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Suggested citation:

Babcock, B.A. and S. Pouliot. 2013. "RFS Compliance: Death Spiral or Investment in E85?" Policy brief 13-PB 16. Center for Agricultural and Rural Development, Iowa State University.

Executive Summary

The American Petroleum Institute (API) commissioned NERA Economic Consulting to study “the economics and compliance issues related to the implementation of the Renewable Fuel Standard (RFS2).” NERA’s October 2012 report finds that ethanol and biodiesel blend walls create insurmountable barriers to the amount of biofuels that can be consumed in the United States. Once these blend walls are hit, producers of gasoline and diesel will only be able to comply with biofuel blending mandates by reducing domestic sales of gasoline and diesel. NERA argues that such cuts will make it even more difficult to meet blending mandates in subsequent years, thus leading to further reductions in gasoline and diesel sales. This series of fuel sales reductions leads to an upward “death spiral” in fuel prices, with severe harm to the US economy.