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Category — Ethanol and biofuels

The Ethanol Mandate: Don’t Tweak, Abolish (a costly fuel without a public purpose)

[Editor note: This post is taken from a new policy brief, The Latest Unanticipated Consequence in the Ethanol Fiasco, released by the Mosbacher Institute for Trade, Economics, and Public Policy at Texas A&M University. Professor Griffin, who directs the Mosbacher Institute, is also author of U.S. Ethanol Policy: Time to Reconsider? in The Energy Journal (Fall 2013).]

Executive Summary

  1. The 2007 mandates to steadily increase ethanol content in gasoline have hit yet another roadblock.
  2. Falling — instead of rising — gasoline consumption means that fuel blenders can no longer absorb the mandated ethanol quantities and still produce gasoline with no more than 10% ethanol content.
  3. Auto manufacturers strongly object to raising the ethanol content above 10%.
  4. Now, the EPA has proposed a one-time, one year waiver relaxing the 2014 mandate.
  5. A better solution would be to eliminate ethanol mandates altogether.

Background

When the 2007 ethanol mandates were passed, lawmakers were looking at forecasts of rising gasoline consumption out to 2022 and beyond. Washington reasoned that with growing gasoline consumption, mandating sharply rising ethanol content in gasoline was achievable with most vehicles using E10 gasoline.

Shown on the left scale of Figure 1 was the Energy Information Administration’s (EIA) 2006 gasoline consumption forecast. The EIA predicted that 2007 gasoline consumption would rise from 9.6 million barrels per day (MMB/D) and would grow to 11.5 MMB/D by 2022 — a 20% increase. At the time of the 2007 legislation, ethanol production stood at 0.6 MMB/D – or 6% of the volume of gasoline.

The 2007 ethanol mandates called for the consumption of ethanol to rise from 0.6 MMB/D to 2.35 MMB/D by 2022 (left scale on Fig. 1). This meant that by 2022, the average gasoline blend pool would contain about 20% ethanol (right axis of Fig. 1). [Read more →]

January 23, 2014   1 Comment

The Folly of E15 Anti-hydrocarbon Policies

The Clinton Administration said back in 1999: “Biomass will be for the next century what petroleum was for this century.” [1] But with expensive experience with money and performance, we now know that U.S. EPA’s E-15 ethanol plan is bad for our pocketbooks, environment and energy policy.

The Obama Administration’s anti-hydrocarbon ideology and “renewable” energy mythology continues to subsidize crony capitalists and the politicians they help keep in office – on the backs of American taxpayers, ratepayers and motorists. The latest chapter in the sorry ethanol saga is a perfect example.

Bowing to pressure from ADM, Cargill, Growth Energy and other Big Ethanol lobbyists, Lisa Jackson’s Environmental Protection Agency has decided to allow ethanol manufacturers to register as suppliers of E15 gasoline. E15 contains 15% ethanol, rather than currently mandated 10% blends.

The next lobbying effort will focus on getting E15 registered as a fuel in individual states and persuading oil companies to offer it at service stations. But according to the Associated Press and Washington Post, Team Obama already plans to provide taxpayer-financed grants, loans and loan guarantees to “help station owners install 10,000 blender pumps over the next five years” and promote the use of biofuels.

Pummeled by Obama policies that have helped send regular gasoline prices skyrocketing from $1.85 a gallon when he took office to $4.00 today – many motorists will welcome any perceived “bargain gas.” E15 will likely reduce their obvious pump pain by several cents a gallon, thus persuading people to fill up their cars, trucks and maybe even boats, lawnmowers and other equipment with the new blends.

That would be a huge mistake. [Read more →]

April 24, 2012   5 Comments

Is Windpower the Ethanol of Electricity? (Part II: Environmental Issues)

Part I examined the true costs of ethanol and windpower to find that both were highly uneconomic compared to their alternatives. Both government-dependent fuels are also inferior products, making a straight comparative cost comparison misleading.

The environmental characteristics of both ethanol and windpower are also problematic compared to their more energy-dense, consumer-preferred alternatives.

Is Ethanol Green?

Given the high cost of the ethanol mandate, the putative benefits – energy independence, green jobs creation, environmental improvement – come at a steep price. But costs aside, there are other reasons to doubt whether these benefits are real. The gulf between hype and reality is perhaps greatest when it comes to environmental performance.

The negative environmental externalities associated with petroleum-derived fuels – particularly oil spills, air pollution, and greenhouse gas emissions – have long been a major focus of the environmental movement and federal regulators. Thus, many simply assumed that ethanol, by supplanting some of the gasoline supply, would be an improvement. Unfortunately, the mandate is teaching us, the hard way, that ethanol has plenty of its own environmental negatives.

Environmental organizations have raised concerns about the increased inputs of energy, pesticides, and fertilizer to grow the additional corn now needed to meet fuel as well as food demand. The same is true for the stress on water supplies, especially now that corn production has been expanded into locales where rainfall is insufficient and irrigation is needed. Land previously in its natural state has been converted to cropland. The facilities that distill the corn into ethanol also require significant energy and water inputs and produce industrial emissions.

The use of ethanol in motor fuel has had a mixed impact on air quality. It lowers some types of pollutants, such as carbon monoxide, but increases others, such as the evaporative emissions that contribute to smog. In fact, certain high-volatility components of gasoline must be removed before adding ethanol in order to prevent the overall blend from violating Clean Air Act requirements in high smog areas. [Read more →]

September 29, 2010   24 Comments

Is Windpower the Ethanol of Electricity? (Part I: Economics)

Repeating past mistakes is an unfortunate but common part of federal policy, and perhaps no more so than with  energy. Indeed, much of the Obama administration’s “clean energy economy” and “energy independence” agenda is a virtual repeat of the follies from the 1970s – failed attempts by Washington to pick winners and losers amongst alternative energy sources and energy-using technologies, as well as taxes and regulations that exacerbated the very concerns they were supposed to address.

One of the Reagan Administration’s lesser-remembered successes was the repeal of much of this government meddling beginning soon after taking office in 1981. Reagan’s turn away from energy central planning and towards free markets brought down energy costs and helped launch a long period of economic growth.

Of course, this decades-old lesson may be lost on younger politicians, bureaucrats, and activists who seem unaware that their energy policy ideas are proven failures from the age of disco. But the same cannot be said of efforts to enact a federal renewable electricity standard (RES), as this would be a near-exact repeat of a blunder that was launched just a few short years ago – the renewable fuels mandate.

Part I of this two-part post will review the lessons of the RFM, or ethanol. Part II tomorrow will turn to windpower, the central energy of the RES. Indeed, the requirement that ethanol be added to the gasoline supply has quickly proven to be an economic and environmental failure. Congressional proposals mandating wind and other renewable sources of electricity show all the signs of becoming a similar flop, but with far more serious implications.

The True Cost of Ethanol

It should come as no surprise that the renewable fuels mandate has raised the cost of driving. After all, if ethanol was cost competitive with petroleum-derived gasoline, it would have caught on without substantial government intervention. Nonetheless, despite repeated promises during the 2005 energy bill debate to help provide relief for high pump prices, Congress mandated that a specified amount of renewable fuels –mostly ethanol derived from corn – be added to the gasoline supply.

The 2007 energy bill increased the mandate substantially. The law raised the targets to 13 billion gallons of renewable fuels in 2010 -12 from corn, and the rest from non-corn renewables like cellulosic ethanol and biodiesel. This is a near-tripling of ethanol use over the last five years. The mandate increases each year and will reach 36 billion gallons by 2022, with 15 billion gallons coming from corn and 21 billion from non-corn renewables. [Read more →]

September 28, 2010   10 Comments

The Ethanol Tax Credit – It’s Worse Than You Think

[Editor note: Harry de Gorter is Professor in the Department of Applied Economics and Management at Cornell University; Jerry Taylor is a senior fellow at the Cato Institute specializing in energy and environmental policy.]

The nonpartisan Congressional Budget Office (CBO) recently issued a report on how the corn-ethanol tax credit costs $1.78 to reduce one gallon of gasoline consumption and $754 to reduce one ton of greenhouse gases. The Wall Street Journal immediately noted that “to put that [latter] number in perspective, the budget gnomes estimate that the price for a ton of carbon under the cap-and-tax program that the House passed last summer would be about $26 in 2019”.

While this study is being used by critics of the tax credit - which will cost about $30 billion over the next five years and is up for reauthorization this year - the CBO nonetheless severely underestimates the true costs of the ethanol tax credit in their calculations because:

(1) It ignores the existence of the ethanol consumption mandate (the Renewable Fuel Standard);

(2) It assumes each (energy equivalent) gallon of ethanol produced due to the tax credit replaces a gallon of gasoline;

(3) It ignores the fact that with an ethanol consumption mandate, the ethanol tax credit subsidizes gasoline consumption instead, and

(4) It erroneously suggests that the ethanol consumption mandate has not been binding in the past.

We analyze each error in turn. [Read more →]

August 6, 2010   5 Comments

The Undulating Oil Plateau: Peak without Decline

For some peak oil advocates who are nervous about the idea of a post-apocalyptic vision of society, it has become popular to argue for a peak and plateau rather than a peak and decline of 3–5% per year, as some of the original work postulates. This seems more palatable than calling for a global upheaval, Hollywood notwithstanding.

The original peak and decline scenario was based on the bell curve popularized by M. King Hubbert. A number have disputed the shape of the curve, arguing for a Gaussian curve instead, for example. But they are avoiding the basic question of causality. The appearance of a bell curve appears to be more coincidence than anything else, since it is not often replicated in reality. The 1998 Scientific American article, “The End of Cheap Oil,” by Colin Campbell and Jean Laherrere, contained the laughable figure of several stylized oil fields’ production curves surmounted by a bell curve and the assertion that the one aggregated to the other.

More recently, some peak oil advocates have ‘modeled’ national production as following a rise, plateau, decline shape that, in the most general sense, is accurate, but again assumes that all nations follow a fairly similar path, which implicitly assumes that geology determines that path. In fact, in many cases the level of the peak and subsequent production patterns are due more to fiscal terms than geology, as can be seen by several countries where changing government policies led to a reversal of the decline, such as in Argentina or Venezuela.

The CERA work does not fall into this pattern, however, not just because the author(s) are not in the peak oil camp in any form. [Read more →]

December 3, 2009   2 Comments

Stunningly Trivial Emission Reductions from the Renewable Fuel Standard Program: More MAGICC–this time from EPA

On May 5, 2009, EPA Administrator Lisa Jackson signed a proposed rule to implement changes in the federal Renewable Fuel Standard (RFS) program required by the 2007 Energy Independence and Security Act (EISA).

Congress created the RFS–commonly known as the ethanol mandate–in the 2005 Energy Policy Act. The leading rationale then was energy security. It was supposed to reduce our dependence on foreign oil. EISA increased the size of the mandate from 7.5 billion gallons a year in 2012 to 36 billion gallons a year in 2022.

In addition, EISA established greenhouse gas (GHG) reduction standards that fuels must meet in order to qualify as “renewable.” Arguably, this was the first regulatory global warming policy that Congress ever enacted. Well, how much global warming will it avert? Answer: Too little for scientists to detect even if the new mandates are enforced throughout the 21st century. [Read more →]

May 8, 2009   6 Comments

Mandated Flex-fuel Technology: Throwing Bad Regulation After Bad

One dumb government intervention in energy markets typically begets another, as special interests lobby to counteract the unintended (although not unforeseen) consequences of some previous intervention they championed. The federal ethanol mandate, also known as the renewable fuel standard (RFS), provides a recent example.

Thanks to this Soviet-style production quota system, which Congress created in 2005 and expanded in 2007, daily corn ethanol production in February increased by about 17,000 barrels to 647,000 barrels per day, despite weak motor-fuel demand and poor to negative profit margins for ethanol producers

Unsurprisingly, inventories of unsold ethanol increased by 1.5 million barrels in February and about 20% of new capacity added last year is idle. An ethanol glut is one of the factors that have bankrupted several ethanol companies. Other factors include high feedstock (corn) prices in 2008–itself a consequence of the mandate—and the collapse of crude oil and gasoline prices in 2009.

To eliminate the glut, the Renewable Fuels Association (RFA) has petitioned EPA to increase from 10% to 15% the amount of ethanol that may be blended into regular gasoline.  In other words, RFA proposes to increase by 50% the amount of ethanol you buy each time you fill up. The small-engine industry worries that gasoline containing 15% ethanol might damage lawnmowers, motor boats, generators, and even some cars. Significant research suggests that higher ethanol blends will increase air pollution (see here and here). None of this bothers RFA one bit.

Although not overtly a mandate, raising the blend ceiling to 15% would likely make 15% the industry standard, because refiners are under constant legal pressure to increase the amount of ethanol they blend into the nation’s fuel supply.  Under the 2007 RFS, corn ethanol used in motor fuel must increase from 9 billion gallons in 2008 to 15 billion in 2015. 

The ethanol industry enjoys a multitude of market-rigging privileges including the RFS, tariffs to keep out cheaper Brazilian ethanol made from sugar cane, and a 45-cents-per-gallon blenders tax credit for each gallon of ethanol sold in motor fuel. Take away those policy stilts, and practically no ethanol would be produced or sold as motor fuel.

But, claim ethanol apologists, ethanol would become fully competitive with gasoline, even out-compete gasoline, if ethanol were “allowed” to compete. Huh? The argument goes like this. [Read more →]

May 4, 2009   10 Comments

Sound Science for Thee, but Not for Me (does ethanol analysis apply in Obama's new science world?)

Earlier this week, President Obama signed an administrative directive to ensure that scientific fact – not ideological fancy – informs federal policy. Well, good for him. Now that he’s overturned the Bush administration’s prohibitions against using federal money to undertake some forms of research associated with embryonic stem cells, up next should be an administrative about-face on corn ethanol as a means of addressing climate change. Alas, the possibility that Obama will admit error on this matter is only slightly better than the possibility that Jessica Simpson will someday win the Nobel Prize for physics. Ideology trumping science? Bad. Politics trumping science? Business as usual.

Regardless, let’s quickly review the literature on ethanol and climate change. [Read more →]

March 13, 2009   5 Comments

Ethanol & Greenhouse Gas Emissions – Reconsidering the University of Nebraska Study

The debate about the environmental impact of ethanol rages on. Last month, the most recent study on the greenhouse gas (GHG) emissions associated with ethanol use was published by researchers from the University of Nebraska (Liska et al.). That analysis used the most recent data available on individual facility operations and emissions, observed corn yields, nitrogen fertilizer emissions profiles, and co-product use; all of which prove important because of improved energy efficiencies associated with ethanol production over the past several years. The authors found that the total life-cycle GHG emissions from the most common type of ethanol processing facility in operation today are 48-59 percent lower than gasoline, one of the highest savings reported in the literature. Even without subtracting-out the GHG emissions associated with ethanol co-products (which accounted for 19-38 percent of total system emissions), ethanol would still present GHG advantages relative to gasoline. The ethanol lobby went wild.

This may be the best study on the subject, but it is not the final word. There are three fundamental problems with the analysis. [Read more →]

February 18, 2009   5 Comments