CBO: Most of E15 provision's cost is farm support payments

(The Center Square) – A year-round E15 provision in the U.S. Senate farm bill would increase direct spending by $6.6 billion over a decade, more than the $4.8 billion for the entire bill, the Congressional Budget Office says.

E15 is gasoline blended with up to 15% ethanol, mostly from corn. Summer sales are generally restricted under the Clean Air Act because the fuel evaporates faster in hot weather. The bill would allow year-round sales nationwide.

Most of that cost is farm support payments, not fuel policy. The budget office attributes $8 billion of the increase to the Price Loss Coverage and Agriculture Risk Coverage programs, which pay farmers when crop prices fall, partly offset by $1.4 billion less in crop insurance spending. The bill overall would add $4.4 billion to the deficit, after counting new revenue, CBO said.

Those figures cover direct spending, which flows automatically once a bill becomes law. The bill separately authorizes $24.6 billion that Congress would have to appropriate, and CBO estimates $23.6 billion of that would be spent through 2036.

The bill's total is lower than that one provision because other parts score as savings. The largest is a nearly $4 billion reduction in discretionary spending by the Commodity Credit Corporation.

The Renewable Fuels Association, which represents ethanol producers, said the cost comes from the bill's changes to the Renewable Fuel Standard rather than from E15 itself.

"The year-round E15 provision by itself is cost-neutral and would have no impact on the budget, while saving consumers billions of dollars at the pump," Renewable Fuels Association President and CEO Geoff Cooper said in a statement to The Center Square.

He said the spending increase is "entirely tied to" a provision permanently exempting small refiners from blending 500 million gallons of renewable fuel each year.

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In its May estimate of similar House legislation, CBO explained the mechanism. Exempting small refiners lowers the required volume of renewable fuel, cutting demand for biomass-based diesel. Its largest feedstock is soybean oil, so soybean prices fall, and because corn and soybeans compete for planted acres, corn prices fall with them. Lower prices trigger the farm programs more often.

E15 by itself is not what drives the cost.

"Taken by itself, allowing year-round sales of E15 would tend to reduce the deficit," CBO wrote in the May estimate, because more ethanol demand raises corn prices and lowers farm payments.

The bill also raises the cap on additional base acres, the historical acreage that determines which farms get payments, from 30 million to 31.5 million. CBO scores that at $851 million and says the estimate reflects interactions with the E15 provision. Congress allocated the first 30 million acres in last year's Working Families Tax Cuts.

"Expanding base acres is not fiscally responsible," Josh Sewell, director of research and policy at Taxpayers for Common Sense, told The Center Square, calling it a way "to permanently direct more subsidies to a subset of farmers, with no guarantee those farms are actually in need." Payments follow the base crop rather than what's planted, he said, so a farm with corn base collects on corn prices even if it grows soybeans.

Under the Senate bill, CBO also found costs on refiners that it did not score. The bill would end the case-by-case hardship exemptions small refiners request from the Environmental Protection Agency and replace them with automatic exemptions based on past production. Requiring the agency to shift that exempted volume onto other refineries would raise their compliance costs by "billions of dollars annually," CBO said, and the office could not determine the cost to small refineries that hadn't previously sought an exemption.

Matthew Wester, a spokesman for Senate Agriculture Committee Chairman John Boozman, R-Ark., did not answer questions about CBO's figures. He told The Center Square that negotiations are underway on a final farm bill that can pass both chambers in the lame-duck session, and that "any CBO score that you're seeing doesn't reflect those discussions."

Ethanol producers say year-round E15 would lower pump prices. A May analysis by the University of Missouri's Food and Agricultural Policy Research Institute, which modeled E15 expansion together with the refinery exemptions, found the savings land mostly on diesel, which it projected would fall 30 to 56 cents a gallon, while gasoline prices tick up a penny to three cents.