November 14, 2013

Fracking Puts Ethanol On Defense In Industry Clash

By: Daniel Smith

Two energy industries—one perennially vilified and the other relatively unknown—are currently hashing out their differences under the guise of an ongoing battle in Congress over pork barrel farm bills and food stamp cuts. Buoyed by a meteoric rise in supply, oil seems well positioned to outmaneuver the EPA and farmer’s unions supporting ethanol subsidies, as pressure to reform the Renewable Fuel Standard mounts following a recent bipartisan measure introduced by the House.

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With hydraulic fracturing becoming more widely accepted throughout the United States, the oil industry finds itself with a good problem to have—more product than they know what to do with. Some would argue that a resultant weak demand leaves oil in the lurch until destinations for this rapidly growing resource can be determined. Gene McGillian of Tradition Energy postulates that “North America is creating an avalanche of oil that doesn’t seem to have a home right now”.

Yet this temporary problem of creating equilibrium in a flourishing U.S. domestic energy market seems preferable to the challenges faced by the EPA and farmer’s unions seeking to maintain a national emphasis on bio-fuels. The impractical and lofty RFS, implemented by the EPA in 2007, has left a bloated ethanol industry with a long term supply and demand problem – with no clear resolution readily apparent. Put simply, the success of bio-fuels is dependent on the successful enforcement of the RFS restrictions. Unfortunately, these restrictions have proven unrealistic – and often times, impossible for corporations dealing in fossil fuels to follow.

According to a recent Reuters study, Delta Airlines has been forced “to buy credits to make up [for] its blending shortfall – at a cost of $66 million for the past two quarters.” Consequently, the EPA has hastily reneged on previous requirements of the RFS, already moving to reduce the 2014 quota for corn-based ethanol fuel used in gasoline from 14.4 billion to 13 billion gallons. The EPA is also in the process of re-evaluating their previous 10 percent blending figure after considerable pressure from various refineries, whose findings have shown that injecting “more than the traditional ten percent ethanol into gasoline [would risk damages] to most car engines on the road today.”

As the novel appeal of renewable energies being used on a large scale has worn off in favor economically viable and practical measures, it would appear a seminal moment in the country’s energy future lies ahead. Congress has taken the first step towards reforming the Renewable Fuel Standard. It remains to be seen how the EPA will respond in the near future, but the potential ramifications for renewable energy in the long term are significant.

With continued discoveries of shale oil and gas leading to an unforeseen boom in domestic energy production, there seems to be an opportunity for the line in the sand between environmentalists and industry leaders to be considerably blurred—if not moved altogether in favor of crude oil production. With a recent report by NPR estimating that roughly “five million acres of land” once set aside for conservation have been necessarily degraded by the process of creating corn ethanol fuel, it is somewhat difficult to see renewable energy sources retaining their ‘clean energy’ moniker for much longer.

If bio-fuels and other renewable energy sources hope to keep pace with fossil fuels in the ongoing fight for our country’s natural resources, the EPA may need to make considerable changes to the stringent RFS. Only then will renewables have an opportunity to regain their status as the energy resources of the future—the sustainable stewards our nation seeks.

Daniel Smith is an intern at Heritage Action.