The Renewable Fuels Standard
Congress adopted the Renewable Fuels Standard (RFS) in 2005 and expanded it in 2007. The program requires oil companies to blend increasing volumes of renewable fuels with gasoline and diesel, culminating with 36 billion gallons in 2022.
One of the most successful energy policies ever enacted in the United States, the RFS has laid the foundation for further private investment in the domestic biofuels industry. The RFS has helped generate jobs, revive rural economies, reduce oil imports, lower gasoline prices, reduce air pollution, and cut greenhouse gas emissions.
A lot of anti-ethanol rhetoric floats around the halls of Washington, DC, influential businesses and non-profits, media reports, and the homes of Americans. In response, the Renewable Fuels Association (RFA) attempts to correct the misconceptions regarding ethanol in general and the Renewable Fuel Standard (RFS) in particular.
- First and foremost, there is no “corn ethanol subsidy.” The Volumetric Ethanol Excise Tax Credit (also known as the “blender’s tax credit”) expired five years ago in 2011. Further, it was gasoline blenders — not ethanol producers — who received a 45 cent per gallon tax credit for each gallon of ethanol blended. The Small Ethanol Producer Tax Credit also expired in 2011.
- The Renewable Fuel Standard (RFS) is not a “subsidy.” The RFS is not a tax incentive or subsidy in any way, shape, or form. The RFS has absolutely no impact on the federal budget or tax revenues. Rather, the RFS is a program that guarantees lower-carbon biofuels will have access to a fuel market that is overwhelmingly and unfairly dominated by petroleum.
- There is also no such thing as a “corn ethanol mandate,” let alone an “ethanol mandate.” The RFS does not mandate the use of corn ethanol or any other type of ethanol for that matter. Rather, the RFS requires that oil companies blend increasing volumes of renewable fuels, without specifying the type of renewable fuel. In fact, oil companies may meet their RFS obligations by blending and marketing biogas, renewable diesel, renewable jet fuel, biobutanol, biodiesel, and a host of other renewable fuel options. While a wide variety of renewable fuels are being produced today, ethanol has been the highest-volume and lowest-cost renewable fuel available to meet RFS requirements.
- What about oil subsidies? While the ethanol industry does not receive any federal subsidies or tax breaks, the oil industry continues to receive an estimated $4–5 billion annually in tax breaks, including some programs that have existed for more than a century.
- In 1916 — a full century ago — Congress created the “intangible drilling cost” provision. This allows oil companies to write off up to 70 percent of their drilling costs and to depreciate the rest.
- In 1926, Congress created the “depletion allowance,” which effectively modified the tax code to account for the “depletion” of oil reserves. Under the provision, an oil producer may deduct 15 percent of any gross income from a well. Unlike normal depreciation, this deduction may be claimed by oil companies indefinitely.
- The “domestic manufacturing deduction” was extended to oil companies in 2004.
- The oil industry receives other sundry tax incentives, subsidies, and breaks, including the “foreign tax credit,” “credit for production of nonconventional fuels,” “credit for enhanced oil recovery costs,” and others.