EPA’s Downward Revision of Cellulosic Target Reminds Us (again) That Government Can’t Create Viable Green Energy Industries

by William Yeatman on April 23, 2014

in Blog

Remember President George W. Bush’s hydrogen car initiative? Or maybe you recall President Barack Obama’s pledge to create 5 million green jobs? Or O’s commitment to put 1 million electric vehicles on the road by 2015? You probably don’t remember any of these promises, because none of them came even close to fruition.

Yesterday, we were given a(nother) helpful reminder that government cannot create green energy industries from scratch, when the EPA revised its cellulosic ethanol production quota precipitously downward. That this lesson in limits occurred on Earth Day is apt.


Cellulosic ethanol is a transportation fuel made from anything other than food. Supposedly, it’s the next big thing in green energy: a “biofuel” with a lower carbon footprint than regular gasoline. There was no cellulosic industry in the U.S. in 2007, when Congress decided to create one. To this end, lawmakers simply mandated ever-increasing volumes of production, until 2022, when cellulosic ethanol is supposed to account for about 10% of the total market for transportation fuels.

Take a moment to appreciate how stupid this is! Politicians sought to overhaul a core market in the world’s biggest economy, and their primary method of doing so was to…command that the market bend to its will, stat! Evidently, Members of Congress think they’re genies.

By statute, cellulosic ethanol was to appear (magically?) in the following increments: 100 million gallons in 2010; 250 million gallons in 2011; 500 million gallons in 2012; and 1 billion gallons in 2013. Thereafter, the mandate continues to grow, albeit in a less geometric fashion, until it hits 16 billion gallons a year in 2022.

And here’s a corresponding list of what’s actually been produced: 0 gallons in 2010; 0 gallons in 2011; and 20,000 gallons in 2012. While we still don’t know the 2013 figures, KiOR Inc., a cellulosic biofuel company on which EPA had counted to meets its 2013 cellulosic standard, recently announced it had idled production. So it doesn’t appear as if there’s been a breakthrough.

Alas, it gets stupider. Congress tasked EPA with implementing its production quotas, and the agency has the authority to adjust the target. Obviously, this is a tough job. On the one hand, there are pie-in-the-sky statutory targets; on the other, none of the stuff is being manufactured.

Nevertheless, EPA’s execution of this difficult duty leaves much to be desired. Instead of relying on actual data (such as cellulosic production data through a few months of the year for which EPA is choosing a target), the agency has acted on the word of what cellulosic ethanol producers claim they can make. Of course, these are the very businesses that benefit from the cellulosic mandate. They have a financial incentive to be unrealistically optimistic.

As a result, EPA has been revising Congress’s impossible targets such that they become only somewhat less impossible. In 2011, for example, EPA revised the Congress’s 250 million gallon target to 6 million gallons, but, in fact, 0 gallons were produced. For 2013, EPA’s original target was greater than 14 million gallons. Last year, this target was revised down to 6 million gallons. And yesterday, EPA revised the 2013 target down even further, to 810,000 gallons. Again, it doesn’t seem likely that the actual figure will be significantly different from zero.

EPA’s miscalculations have consequences for those parts of the transportation fuel market that function well. Refiners, importers, and blenders are on the hook for fines due to the fact that they’ve been required to use millions of gallons of cellulosic that don’t exist. The greater the margin by which EPA gets it wrong, the greater their financial penalty.

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