While the never-ending debate about ethanol goes on and on,
a renowned energy economist who served as an adviser on energy issues in both
the Ford and Carter administrations noted the impact of renewable fuels beyond
the environmental benefits.
Philip K. Verleger said the renewable fuels legislation
supported by then-President George W. Bush and Congress has successfully driven
down crude oil prices.
Those prices today are between $15 and $40 per barrel lower
than they would be had Congress not endorsed the president’s proposals to boost
ethanol production and blending with gasoline, according to Verleger.
“Today, the Bush measures add the equivalent of Ecuador’s
crude oil output to the world market at a time of extreme tightness,” he wrote.
In 2007, Congress passed the Energy Independence and
Security Act, which amended the renewable fuels program to raise the use of
ethanol and other renewables as alternatives to petroleum.
“These fuels have replaced a significant volume of petroleum
consumed in the U.S. EISA increased the required renewable fuel amount by
400,000 barrels per day in 2010 and 2011, 500,000 barrels per day in 2012 and
nearly 700,000 barrels per day in 2013. The total amount blended into the
petroleum mix from 2008 to 2012 was 700 million barrels,” Verleger said.
“Had Congress not raised the renewable fuels requirement,
commercial crude oil inventories at the end of August would have dropped to 5.2
million barrels, a level 200 million barrels lower than at any time since
“The lower stocks would almost certainly have pushed prices
higher. Crude oil today might easily sell at prices as high as or higher than in
2008. Preliminary econometric tests suggest the price at the end of August would
have been $150 per barrel.
“According to the August 2013 issue of Petroleum Economic Monthly, the U.S.
renewable fuels program has cut annual consumer expenditures in 20132 between
$700 billion and $2.6 trillion. This translates to consumer paying between 50
cents and $1.50 per gallon less for gasoline.”
This is good news for U.S. consumers, but the global trend
differs. The Energy Information Administration recently reported that global
consumption of petroleum products reached a record high of 88.9 million barrels
per day in 2012.
Consumption did decline in North America and Europe, but
whatever drop was realized on those two continents in the use of gasoline,
diesel fuel, jet fuel, heating oil and others was more than outpaced by growth
in Asia and other regions of the world, according to the 25x’25 Alliance.
“To look beyond our own backyard shows an upward consumption
trend that has run virtually unabated, and with that increase in fossil fuels
comes with it an inherent inelasticity in the oil market,” the alliance
“Demand may be down here in the U.S., but prices remain high
because overall demand remains high across the world. The EIA analysis shows
U.S. consumers remain vulnerable to the global oil market shocks that push
prices up at the gas pump, whether they come from conflict in the Middle East or
natural catastrophes that shut down oil production.
“The EIA report underscores the longstanding need to pursue
renewable alternatives and to continue building on a biofuel sector that has
widely demonstrated over the past decade a number of economic and environmental