The president’s recent promise to restore the market for U.S. biofuels is vital to the farm economy, but it takes on even greater urgency amid turmoil in the Middle East and rising fuel prices.
Following the recent attacks on Saudi Arabia’s oil facilities, crude oil futures jumped nearly 20 percent. It was the largest spike we’ve seen since the Gulf War against Saddam Hussein in 1991. The impact on U.S. motorists will be felt for months, if not longer. Industry analysts anticipate that drivers can expect to pay about 10 to 25 cents more per gallon due to the attack.
Ultimately, much will depend on how long it takes to fully restore the kingdom’s petroleum output. The drone attack knocked out about 5.7 million barrels per day of production, equal to more than 5 percent of global demand.
We’ve seen this scenario before. Even the threat of action by Saudi Arabia, Iran or other actors can have profound impact on what U.S. consumers pay for fuel. Just a few months ago, crude oil prices surged after tanker attacks in the Strait of Hormuz, which runs between Iran and Saudi Arabia.
That reality stands in stark contrast to the narrative we often hear from the petroleum lobby, which claims that increased crude oil production means that biofuels and other alternatives are no longer needed.
The simple truth is that the U.S. economy remains painfully vulnerable to the whims of the global oil market. We consume 20.5 million barrels of petroleum per day, and we import nearly 10 million barrels of crude oil per day. We also export a significant volume of petroleum, primarily in the form of refined products.
As a result, elevated oil output is a great story, but it’s cold comfort to cash-strapped families that pay higher prices for fuel when foreign nations cut exports. Fortunately, we do have alternatives, including the world’s largest biofuel industry, which already supplies more than 10 percent of America’s liquid fuel. Currently, both the ethanol and biodiesel industries are operating below their full capacity.
At a time when U.S. farmers are desperate for new markets and fuel supplies are at risk, every one of America’s biofuel plants should be running at full steam. Instead, the Environmental Protection Agency has granted dozens of special “hardship” exemptions to some of the largest and most profitable oil companies in the world, including Exxon and Chevron. The exemptions allow refiners to sidestep biofuel quotas and push alternative fuels out of reach for consumers.
With more than 4 billion gallons exempted by the EPA, the handouts have nullified growth opportunities promised under the Renewable Fuel Standard and cut U.S. ethanol consumption for the first time in 20 years.
Already, dozens of biofuel plants have been forced by the EPA to close their doors or throttle back production. Just recently, another ethanol plant — Siouxland Energy in northwest Iowa — became the latest victim of the EPA’s demand destruction. The closure could cut 80 million gallons of American-made ethanol out of the fuel supply.
Aside from destroying rural manufacturing jobs, these closures have cost U.S. farmers a market for about 1.4 billion bushels of corn. The timing could not be worse, given the years-long decline in farm income and the ongoing trade war.
It appears the president has taken notice. He recently tweeted that “Farmers are going to be so happy when they see what we are doing for Ethanol.” But rural leaders aren’t taking anything for granted.
Unless the EPA restores demand for biofuels in the agency’s 2020 biofuel targets, due this November, nothing else the administration might consider will hold much value. Too many farmers and biofuel workers have already lost their jobs or income.
By that same token, drivers won’t see much relief until lower-cost biofuels are put back on the market. Right now, higher ethanol blends such as E15 save consumers up to 10 cents per gallon. As of the Friday before the attack, ethanol was trading at $1.36 per gallon — far less than unblended gasoline. And that savings could grow as oil prices rise. More importantly, homegrown biofuels — produced from local crops at more than 200 plants across the heartland — provide a valuable measure of immunity from geopolitical conflicts in the Middle East.
Former Missouri Sen. Jim Talent spearheaded the Renewable Fuel Standard in 2005, and he currently serves as co-chair of Americans for Energy Security and Innovation.
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