BY BENJAMIN ZYCHER:
Oh what a tangled web it weaves when first the Biden administration practices to deceive. That is a slight paraphrase of Sir Walter Scott’s famous observation, but it is wholly appropriate as a general description of the Biden administration’s desperate efforts to avoid political responsibility for the sharp increases in fuel costs for which its fossil-fuel policies are almost entirely to blame. The incoherence of those policies is blatant, combining tightening constraints — formal, informal, direct, indirect — on investment in domestic crude oil production capacity and associated infrastructure (e.g., pipelines) with exhortations to both foreign and domestic producers to expand output in the here and now so as to reduce the adverse political effects of high fuel costs.
Last month there was the announcement that over the next six months 1 million barrels per day (mmbd) of crude oil will be released from the Strategic Petroleum Reserve (SPR). That this wholly ad hoc response will have virtually no effect on fuel prices was obvious from the very beginning, intended largely to allow the administration to move past a few news cycles, a reality borne out by the actual movement of oil prices in the immediate aftermath of the announcement.
The administration’s tangled web has served to deceive only itself, a state of abject confusion both reflecting and encouraging muddled thinking on the part of administration officials focused intently on what can be measured rather than what actually matters. And so the latest gasoline policy gambit is not surprising: The administration announced early this week that the clean air rules limiting summer gasoline blends to a gasoline/ethanol blend of 90/10 percent (E10) will be waived — an emergency is upon us — so that this summer a 85/15 percent blend (E15) will be allowed for sale.
Where to begin? The Trump administration attempted the same stunt in 2019, not because of high gasoline prices but instead in an effort to curry favor with the U.S. agricultural sector damaged by Trump’s mindless trade war with China. (Can it surprise anyone that such machinations are a bipartisan game?) A federal court overturned that rule, deciding that the Trump EPA had exceeded its legal authority, an outcome that the Supreme Court declined to review.
In any event, the Biden announcement claims that allowing summer sales of E15 will reduce gasoline prices by 10 cents per gallon by increasing the effective supply of ethanol feedstock available for refinery production of gasoline. With national average gasoline prices a bit higher than $4 per gallon, that dime would represent a reduction of about 2.5 percent. The administration has neglected to mention that ethanol contains about a third fewer btu — actual energy content — than gasoline, so that the use of E10 results in a reduction in miles per gallon of 3-4 percent, and 4-5 percent for E15.
So even if we accept the administration’s price assertions, the reduced fuel economy will offset the price reduction to some substantial degree. Unsurprisingly, the asserted price reduction of 10 cents per gallon is deeply dubious, as a recent study from the Government Accountability Office reports:
Evidence from studies, interviews with experts, and GAO’s analysis suggest that the nationwide Renewable Fuel Standard (RFS) was likely associated with modest gasoline price increases outside of the Midwest and that these price increases may have diminished over time.
GAO’s analysis of the effect that state ethanol mandates had on gasoline prices also showed gasoline price effects that differed in the Midwest and elsewhere. Specifically, during the period GAO studied, when the ethanol mandates in Minnesota and Missouri were in effect, all else remaining equal, retail gasoline prices were lower by about 8 and 5 cents per gallon in these states, respectively, than they would have been without the mandates. In contrast, when the ethanol mandates in Hawaii, Oregon, and Washington were in effect, GAO’s model showed that retail gasoline prices were higher by about 8, 2, and 6 cents per gallon, respectively, than they would have been without the ethanol mandates.
There is the further matter that of the 150,000+ fueling stations in the U.S., only about 2300 sell E15, most of which are located in the Midwest, a market response consistent with the GAO finding quoted above. Moreover, because sales of E15 have not been allowed during the summer months, and because E15 officially is not approved for autos older than the 2001 model year — even apart from the manufacturers’ own recommendations driven by corrosion concerns and other issues — it is no surprise that most fueling stations have not made the investments needed to sell it despite sizeable subsidies for doing so.
Just as the Trump attempt to facilitate the use of E15 was a gambit wholly political aimed at midwestern constituencies, the same is true for the new Biden effort, also driven by political concerns in agricultural regions. As with the Biden desperate jawboning of OPEC+ and domestic oil producers as central components of a futile effort to shift blame for high fuel prices — they are the “Putin price hike” — the politicized use of the SPR will have virtually no effect, the threats attendant upon the “9000 unused leases” canard will have no effect other than a reduction in bids for future leases, proposals for “windfall profits” (excise) taxes on oil producers will have only perverse effects, fuel tax holidays and other such manifestations of desperation will have no effects, and the same is true for the new E15 gimmick.
Only a sustained commitment to policies facilitating expanded private investment in the development of fossil reserves — an important form of national wealth — and associated infrastructure can lead the Biden administration out of the fuel-cost morass that it has created for itself and for all of us. But that would require an abandonment of the deeply dubious “climate crisis” narrative, a reversal utterly impossible for this administration narrowly and for a Democratic party in which the left is likely to be the median voting bloc. And so at least until 2025 we can expect more gimmickry, more mendacity, more incoherence, and more perverse policy stances.
Is this a great country or what?
Benjamin Zycher is a senior fellow at the American Enterprise Institute.
This article originally appeared at Real Clear Energy
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April 17, 2022