CRS Report Shows Ethanol Tax Will Cost New England Economy $20 Billion11/10/2015
Washington, D.C., – A federal mandate is on track to cost the New England economy nearly $20 billion between 2005 to 2024, according to a new report by the Center for Regulatory Solutions, a project of the Small Business and Entrepreneurship Council (SBE Council). The report also finds that this mandate, known as the Renewable Fuel Standard (RFS), reduces labor income by $7.3 billion and labor demand by 141,000 job-years from 2005 to 2024. That’s the equivalent of 7,050 lost jobs per year, each and every year over a 20-year time period.
The CRS report is the second in a series of reports set to be released this month on the economic and environmental impacts of the RFS since it was passed into law in 2005. The first report examined the economic and environmental cost of the mandate on the state of Ohio. It found that the RFS produced an additional 1.92 million metric tons of CO2 emissions in the state since 2005 — the emissions equivalent of adding nearly 400,000 cars to the road in a single year — while adding $440 million in additional transportation fuel costs for Ohioans in 2014. This new report on the costs of the RFS on New England explains how corn ethanol mandates have cost New England consumers anywhere from $200 million to over $2.5 billion in higher fuel costs, depending on which state they reside. The 10-year cost across all six states totaled more than $5.6 billion.
“Washington’s decade old corn ethanol mandate has been a series of broken promises that have taken its toll on our economy and our environment,” said Karen Kerrigan, President of CRS and SBE Council. “As our report outlines, these broken promises will cost the New England economy nearly $20 billion dollars if EPA moves forward with congressionally mandated levels and thousands of good paying jobs a year. Small businesses across New England are wondering when the federal government will finally put an end to this disaster of a policy. There is no justification for it.
“The broad bipartisan opposition to this Washington mandate from New England is overwhelming. Just last week Rep. Welch (D-VT) led a bipartisan letter of 183 members of Congress to the EPA requesting that the fuel requirements be lowered. Efforts to expose the RFS by individuals and organizations such as Bill McKibben, Al Gore, and the Boston Globe have been loud and clear: no matter your politics, this is a flawed policy any way you slice it.
“Given the overwhelming consensus against the corn ethanol mandate on both environmental and economic grounds, it’s hard to believe that Secretary of State Kerry and President Obama can travel to Paris to negotiate a new climate agreement while the administration continues to back this nonsensical mandate. EPA’s announcement this month will be a clear indication of whether the administration lives up to its climate rhetoric or is beholden to political interests.”
The CRS reports are part of a larger effort to expose the real economic and environmental impacts of the RFS on New Englanders and the nation. CRS plans to rollout additional reports in the coming weeks, and the American Council for Capital Formation is currently running ads across New England, putting the spotlight directly on the environmental impacts of the RFS on the United States.
In July 2005, Congress passed and President George Bush signed the bipartisan Energy Policy Act, which established the Renewable Fuels Standard (RFS). The RFS created a set of mandates – known as Renewable Volume Obligations (RVOs) – that require ever-increasing volumes of ethanol to be added to the nation’s fuel supply. In May 2015, EPA again announced new proposed volumes to increase the amount of ethanol used in vehicles, creating new concern amongst a wide variety of bipartisan stakeholders.
Supporters of the ethanol mandate promised a cleaner environment, enhanced energy security, and greater economic support for domestic farmers and rural communities across the country. However, the targets set by Congress, which included a mandate for consumption of cellulosic ethanol, have proved elusive because converting cellulosic feedstock into usable energy is much more challenging than starch-based crops, like corn. Despite this setback, EPA administrator Gina McCarthy – whose agency is responsible for implementing the RFS – is pledging to get the RFS mandate “back on track” and eventually align its targets with congressional mandates.
The CRS report spotlights research from the scientific community which has warned about the environmental impacts of corn ethanol since the mandate’s inception. In fact, these findings led the EPA’s Inspector General to announce on Oct. 15 that it would conduct an investigation into EPA’s calculation of the lifecycle environmental impacts of the RFS. The investigation follows years of media scrutiny of the RFS, which raised serious concerns about the impact of corn-ethanol mandates. In 2013, the Associated Press reported that the rush to plant corn “wiped out millions of acres of conservation land, destroyed habitat and polluted water supplies.” In 2008, TIME magazine concluded that ethanol “increases global warming, destroys forests and inflates food prices.” As the Boston Globe Editorial team described it this May, “the federal mandate for ethanol, known as the Renewable Fuel Standard, has very little to recommend it.”
Key Findings of the Report
- “The analysis finds that New Englanders lost nearly $6.29 billion in economic output from 2005 to 2014 due to the RFS, and another $13.67 billion in future output is at risk. In other words, the RFS, by the time it is finally done, will extract almost $20 billion from New England’s economy and transfer that wealth directly back to corn ethanol producers in the Midwest.”
- “The negative impact on household budgets and businesses that this wealth transfer precipitates will manifest itself in myriad ways – starting with lower demand for labor, costing the New England economy thousands of jobs every year. According to the analysis, the RFS will reduce labor income by $7.3 billion, and labor demand by 141,000 job-years, from 2005 to 2024. That’s the equivalent of 7,050 lost jobs per year, each and every year over a 20-year time period.”
- “Most of these economic harms derive from the fact that ethanol and gasoline are priced similarly, but ethanol provides consumers with only two-thirds of the energy content 5 per gallon compared to gasoline. In other words, New Englanders are paying the same price for ethanol as gasoline, but are getting one-third less mileage for each gallon of ethanol they consume.”
- “From 2005 to 2014, corn ethanol mandates, in the form of higher fuel prices, cost New England consumers anywhere from $200 million to over $2.5 billion, depending on the state in which they live. The 10-year cost across all six states totaled more than $5.6 billion.”
- “In just 2012 alone, New England farmers spent over $63.4 million more for animal feed than they otherwise would have as a result of increased corn prices due to RFS mandates.”
- “In 2014 alone, higher fuel costs across New England due to ethanol mandates totaled roughly $890 million.”
- “The higher fuel costs in each state, made possible by federal corn ethanol mandates, are roughly equivalent to: 55 percent of Connecticut state funding on highways and bridges in fiscal year 2016; 80 percent of Maine’s “critical priorities” budget for the elderly and disabled, nursing homes, primary care access and mental health services; 150 percent of Massachusetts state funding for community colleges for fiscal year 2016; 200 times New Hampshire’s spending on the Office of Veterans Services in fiscal year 2016; 57 percent of Rhode Island funding for natural resources agencies, including the Department of Environmental Management and the Coastal Resources Management Council; 84 percent of Vermont spending on traffic and safety operations in 2016 and 2017 combined.”
- “Based on the data presented in those analyses, the RFS cost New England dairy farmers approximately $63.4 million extra than they might have otherwise had to pay under a non-RFS scenario. Vermont dairy farmers in particular get hit hard under the mandates, spending an extra $40 million more on feed in 2012 alone.”
- “A 40% increase in corn prices – which is at the upper end of the scale – would lower farm margins by at least $63.4 million. The bottom line is that higher corn prices due to the RFS have increased costs for livestock farmers. Vermont and Maine see the largest losses under this policy, with costs increasing $40 million and $10.5 million, respectively, under a 40% corn price increase scenario.”
- “Massachusetts pays the lion’s share of the RFS’s costs ($9.3 billion), while Connecticut ($4.6 billion) and Maine ($1.9 billion) round out second and third place.”
- “To be sure, support for the RFS remains strong in pockets of the Midwest where the vast majority of corn production takes place, and especially in Iowa, home of the first-in-the-nation presidential caucuses. But even in the Corn Belt, there is a rising tide of opposition to the RFS.”
- “In addition to adding to GHG emissions and making climate change worse, the ethanol lifecycle emits higher concentrations of ozone precursors relative to gasoline. Nitrogen oxides and volatile organic compounds (VOCs) react in the atmosphere in the presence of sunlight to form ground-level ozone.”
- “Ethanol production also exacts a heavy toll on water resources, from growing crops to processing those materials into the fuel. The 2011 NAS study61 found that the increase in corn production had adverse environmental impacts on surface water and groundwater, including hypoxia, harmful algal blooms and eutrophication. The NAS paper predicted that additional increases in corn production – mandated under the law thanks to the RFS – would have additional negative environmental consequences.”
The Center for Regulatory Solutions is a project of the Small Business and Entrepreneurship Council, a 501c(4) advocacy, research, education and networking organization dedicated to protecting small business and promoting entrepreneurship. For twenty-three years, SBE Council has worked to educate elected officials, policymakers, business leaders and the public about policies that enable business start-up and growth.