Search: ethanol

Post image for EPA Doubles Down on E15 — Literally

The Soviet-style production quota for ethanol, pompously titled the Renewable Fuel Standard (RFS), is in trouble. The RFS requires more ethanol to be sold than can actually be blended into the nation’s motor fuel supply. This “blend wall” problem will get worse as RFS production quota and federal fuel economy standards ratchet up, forcing refiners to blend more and more ethanol into a shrinking motor fuel market.

Here’s the math. Total domestic U.S. motor fuel sales in 2011 stood at 134 billion gallons. Although the U.S. population is increasing, overall motor gasoline consumption is projected to decline by 14% as fuel economy standards tighten between now and 2025. Already, the 2013 blending target for “conventional” (corn-based) biofuel – 13.8 billion gallons — exceeds the 13.4 billion gallons that can be blended as E10 (a fuel mixture containing 10% ethanol).

By 2022, the RFS requires that 36 billion gallons of biofuel be sold in the domestic market, including 21 billion gallons of “advanced” (low-carbon) biofuel, of which 16 billion gallons are to be “cellulosic” (ethanol derived from non-edible plant material such as corn stover, wood chips, and prairie grasses). Because commercial-scale cellulosic plants still do not exist, the EPA repeatedly has had to dumb down the cellulosic blending targets.

Eventually, though, the EPA will have to mandate the sale of at least a few billion gallons of advanced biofuel, just to keep up the pretense that the RFS is something more than corporate welfare for corn farmers. In any event, by 2015, refiners will have to sell 15 billion gallons of corn-ethanol — roughly 1.6 billion gallons more than can be blended as E10.

A side effect of the blend wall is the recent “RINsanity” of skyrocketing biofuel credit prices. The EPA assigns a unique Renewable Identification Number (RIN) to every gallon of ethanol produced and a credit for each gallon sold as motor fuel. Refiners who cannot blend enough ethanol to meet their quota can use surplus credits accumulated during previous years or purchased from other refiners.

Because the blend wall makes the annually increasing quota more and more difficult to meet, RIN credits are suddenly in high demand. Credits that cost only 2-3 cents a gallon last year now sell for about 70 cents. Consumers ultimately pay the cost — an extra 7 cents for each gallon of E10 sold, or an additional $11.7 billion in motor fuel spending in 2013, according to commodity analysts Bill Lapp and Dave Juday. Ouch! Ethanol was supposed to reduce pain at the pump, not increase it.

The ethanol lobby offers two fixes for the blend wall. Neither is workable. The EPA thinks it has another card up its sleeve. [click to continue…]

Post image for Biofuels Policy Itself is Warning That It’s Near Breaking Point

[Below is a guest post by Bill Lapp & Dave Juday]

Millions of American motorists across all income levels could be impacted this year by an indirect fuel tax that could amount to as much as $11.5 billion, all due to failures of the Renewable Fuel Standard (RFS) — the nation’s flawed biofuels mandate.

Under the RFS, which was expanded under the 2007 Energy Independence and Security Act (EISA), two broad categories of biofuels — conventional biofuel from corn, and so-called advanced biofuel from sources including Brazilian sugar ethanol and biodiesel made from vegetable oil and rendered animal fats — were to be steadily phased into the gasoline supply over 15 years.   Now, just five years into the schedule, the program is nearing its breaking point.  The barometer indicating the pressure under which the biofuels mandate operates is an arcane mini-cap-and-trade system for biofuel compliance credits known as renewable identification numbers (RINs).

Basically, the system works like this.  Each gallon of biofuel is assigned a 38-digit code known as a RIN, which effectively act as a serial number that tracks that gallon of biofuel through the supply chain, from production to the retail fuel market. RINs are detached from the biofuel once it is purchased or blended by a refiner, and eventually are turned into the US Environmental Protection Agency (EPA) by refiners to demonstrate their compliance with the RFS.   Alternatively, refiners with excess RINs can sell them on a secondary market to other refiners who are short of their compliance obligations.

Consider, conventional ethanol RINs that sold at about four cents per gallon in December — and at about one cent a year ago — rose to a high of $1.06 in March.  Currently they are about 70 cents.  Likewise, advanced ethanol and biodiesel RINs are also now trading at 75 cents and 80 cents respectively.

With a 10 percent blend of biofuels mandated by the RFS and an average cost of RINs at more than 70 cents, the implicit cost could reach more than 7 cents per gallon for every retail gallon of gasoline and diesel fuel purchased. Across the whole fuel supply, this could equate to an annual hidden tax on motorists of more than $11.5 billion. And that could grow.  As Goldman Sachs has warned, “we believe that the risk to RIN prices is skewed to the upside over the near term.”

[click to continue…]

Post image for Why Is Congress Lethargic about Energy?

This week National Journal’s Energy Experts Blog poses the question: “What’s holding back energy & climate policy.” So far 14 wonks have posted comments including yours truly. What I propose to do here is ‘revise and extend my remarks’ to provide a clearer, more complete explanation of Capitol Hill’s energy lethargy.

To summarize my conclusions in advance, there is no momentum building for the kind of comprehensive energy legislation Congress enacted in 2005 and 2007, or the major energy bills the House passed in 2011, because:

  • We are not in a presidential election year so Republicans have less to gain from passing pro-energy legislation just to frame issues and clarify policy differences for the electorate;
  • Divided government makes it virtually impossible either for congressional Republicans to halt and reverse the Obama administration’s regulatory war on fossil fuels or for Hill Democrats to pass cap-and-trade, carbon taxes, or a national clean energy standard;
  • Democrats paid a political price for cap-and-trade and won’t champion carbon taxes without Republicans agreeing to commit political suicide by granting them bipartisan cover;
  • The national security and climate change rationales for anti-fossil fuel policies were always weak but have become increasingly implausible thanks to North America’s resurgence as an oil and gas producing province, Climategate, and developments in climate science;
  • Multiple policy failures in Europe and the U.S. have eroded public and policymaker support for ’green’ energy schemes;
  • It has become increasingly evident that the Kyoto crusade was a foredoomed attempt to put policy carts before technology horses; and,
  • The EPA is ’enacting’ climate policy via administrative fiat, so environmental campaigners no longer need legislation to advance their agenda.

[click to continue…]

Post image for Diverse Coalition Calls for Ethanol Policy Reform

On Wednesday, Rep. Bob Goodlatte (R-Va.) introduced H.R. 1461, a bill to repeal the renewable fuel standard (RFS) program, and H.R. 1462, “The RFS Reform Act,” a bill to eliminate the corn ethanol component of the RFS program, cap the amount of ethanol that can be blended into conventional gasoline at 10%, and require the EPA to set cellulosic ethanol blending targets at commercial production levels.

A diverse coalition of agriculture, business, environment, hunger, taxpayer, and free-market groups joined Rep. Goodlatte and co-sponsors at a press conference announcing the introduction of H.R. 1462. Spokespersons for 15 of the groups each provided a paragraph explaining their particular reasons for supporting RFS reform in a joint letter. Here’s what I wrote on behalf of the Competitive Enterprise Institute:

If ethanol is such a great deal, why do we need a law to make us buy it? Although ethanol is cheaper than gasoline by volume, ethanol has about one-third less energy than gasoline and does not make up the difference in price. Consequently, the higher the ethanol blend, the worse mileage your car gets, and the more you have to spend for fuel. For example, at today’s prices, the average motorist would have to spend an extra $400 to $650 a year to switch from gasoline to E85 (the highest commercial ethanol blend). Congress should stop forcing Americans to make a “fuel choice” that increases our pain at the pump.

 

Post image for Ethanol Mandate: Proud Milestone in the Glorious History of Central Planning

Today on National Journal’s Energy Experts Blog, I post a comment celebrating the Renewable Fuel Standard (RFS) as a triumph of centralized economic planning. You think I’m joking? Far from it. The RFS is working at least as well as other central planning schemes!

Well, okay, the RFS would be funny if it weren’t so destructive. A new report by NERA Economic Consulting warns that the RFS is heading for a “death spiral” — a vicious circle in which rising fuel costs, declining sales, and dwindling biofuel credits make compliance increasingly “infeasible.”

In one scenario analyzed by NERA, the death spiral produces a 30% increase in gasoline prices and a 300% increase in the cost of diesel fuel in 2015. Potential adverse macroeconomic impacts include a “$770 billion decline in GDP and a corresponding reduction in consumption per household of $2,700.” Ludwig von Mises coined a term for such debacles: “Planned Chaos.” [click to continue…]

Earth Hour Harms the Earth

by Hans Bader on March 20, 2013

in Blog

Earth Hour wastes energy and harms the planet.  Bjørn Lomborg, a Danish academic and environmental writer, recently lambasted Earth Hour, the annual tradition of turning off the lights, which falls on March 23:

In fact, Earth Hour will cause emissions to increase. As the United Kingdom’s National Grid operators have found, a small decline in electricity consumption does not translate into less energy being pumped into the grid, and therefore will not reduce emissions. Moreover, during Earth Hour, any significant drop in electricity demand will entail a reduction in CO2 emissions during the hour, but it will be offset by the surge from firing up coal or gas stations to restore electricity supplies afterwards.

And the cozy candles that many participants will light, which seem so natural and environmentally friendly, are still fossil fuels – and almost 100 times less efficient than incandescent light bulbs. Using one candle for each switched-off bulb cancels out even the theoretical CO2 reduction; using two candles means that you emit more CO2.

To some self-styled environmentalists and bureaucrats, symbolism is more important than reality.  The Environmental Protection Agency clings to ethanol mandates, imposing them despite growing evidence that they increase world hunger and mortality, and harm the environment.  As the Wall Street Journal noted, in October 2011,

the Competitive Enterprise Institute and Action Aid petitioned the EPA to review the so-called renewable fuel standard that mandates that 13.8 billion gallons of corn ethanol be blended into the gasoline supply next year. The free-market think tank and global hunger charity argued that the EPA’s technical regulations implementing the mandate did not meet “basic standards of quality” [since] EPA failed to consider multiple peer-reviewed studies documenting the link between ethanol and world hunger in its public health literature review, as required by law. That includes one paper that concludes that biofuel mandates are responsible for at least 192,000 premature deaths every year. Overall more people die from chronic hunger world-wide than malaria, tuberculosis and AIDS combined.

EPA disregarded this evidence, and denied the petition after a fourteenth-month delay.  (A request for reconsideration has been filed).

In 2008, a Washington Post editorial by two prominent environmentalists described how ethanol mandates have harmed the environment and spawned hunger across the world.   In “Ethanol’s Failed Promise,” Lester Pearson and Jonathan Lewis observed that “Turning one-fourth of our corn into fuel is affecting global food prices. U.S. food prices are rising at twice the rate of inflation, hitting the pocketbooks of lower-income Americans and people living on fixed incomes.  .  .Deadly food riots have broken out in dozens of nations in the past few months, most recently in Haiti and Egypt. World Bank President Robert Zoellick warns of a global food emergency.” [click to continue…]

Back in 2007, EPA issued a regulation known as the Renewable Fuel Standard (RFS), requiring billions of gallons of corn ethanol to be blended into the U.S. gasoline supply. This mandate is a continuation of the U.S. biofuel policy, and has been celebrated by environmentalists and GW alarmists as a way of reducing greenhouse gases and lowering our dependence on supposedly dangerous foreign oil.

In October of 2011, the Competitive Enterprise Institute and ActionAid USA petitioned EPA to review its position on the impact of its RFS mandates on world hunger. Since a large portion of available farmland is being used to grow corn for ethanol instead of for food, this lowers the food supplies drastically and in turn drives up prices. Our petition was based on the Data Quality Act, which enables anyone to seek correction of data that has been disseminated by a federal agency. The request argued that the information in EPA’s regulatory analysis and on the agency’s website incorrectly downplayed the impacts of the U.S. mandates on world hunger. To support this claim, CEI and ActionAid cited several studies showing that higher food prices from biofuel mandates have caused malnutrition in developing countries, resulting in nearly 192,000 excess deaths annually.

Not being in much of a hurry to examine if whether it might be partly responsible for such carnage, EPA exceeded its 90-day response deadline-three times. Fourteen months would pass before they finally, in December of 2012, denied the petition.

This delay is particularly ironic since the Obama administration and EPA frequently have complained about the slow pace of Congress, issuing executive orders and fuel economy regulations with the slogan “We Can’t Wait.” Apparently, when it comes to assessing whether their policies are killing people, they can.

EPA claimed that assessing deaths due to biofuel programs was beyond the scope of its analysis, which apparently only focused on the incremental effects of the U.S. biofuel mandate. CEI and ActionAid USA filed a request for reconsideration on March 11, providing new evidence of the policy’s devastating effects on food prices and global hunger. A copy of the request is appended to the end of this post. Given EPA’s alleged “global leadership” role and the fact that people in developing countries spend up to 80 percent of their income on food, the new request shows that the U.S. mandate alone has far-reaching negative implications that EPA should address.

The request was fittingly filed during the Government in the Sunshine Week, a national initiative to promote the importance of open government. However, given EPA’s notorious lack of transparency on other matters, we wonder what effect our request will have on the agency whose motto is “protecting people and the environment.” We have an in-house joke that EPA ought to take that slogan and insert the phrase “but not in that order” to the end of it.

CEI and Action Aid – March 2013 Data Quality Reconsideration Request by Competitive Enterprise Institute

Post image for EPA Cuts 2012 Cellulosic Blending Target to Zero

“U.S. EPA has altered its cellulosic biofuel requirements for 2012 — from 8.65 million gallons to zero,” today’s Climatewire reports. In January, the D.C. Circuit Court of Appeals vacated EPA’s 2012 cellulosic biofuels standard. “As a result,” Climatewire explains, ”obligated parties — oil companies required to show EPA that they blend biofuels in their fuel supply — won’t need to provide information on their compliance. The agency will submit refunds to companies that have submitted payments for 2012 cellulosic waiver credits.”

Who says there’s no justice in this world! For several years the EPA has fined refiners for not purchasing and blending ethanol made from switchgrass, wood chips, and other fibrous, non-edible plants. Refiners protested that there was no commercial cellulosic fuel to buy. The EPA argued that didn’t matter because the Renewable Fuel Standard (RFS) is meant to be “technology forcing.” The agency thus based each year’s cellulosic target on aspirational (rather than realistic) projections of how much cellulosic fuel would be produced. It then cheerfully collected fines for all the gallons of phantom fuel refiners did not blend.

The Court held that punishing refiners for what the ethanol industry failed to do is not “technology forcing”:

EPA applies the pressure to one industry (the refiners) [citation omitted], yet it is another (the producers of cellulosic biofuel) that enjoys the requisite expertise, plant, capital and ultimate opportunity for profit. Apart from their role as captive consumers, the refiners are in no position to ensure, or even contribute to, growth in the cellulosic biofuel industry. “Do a good job, cellulosic fuel producers. If you fail, we’ll fine your customers.” Given this asymmetry in incentives, EPA’s projection is not “technology-forcing” in the same sense as other innovation-minded regulations that we have upheld.

Zeroing out the RFS cellulosic blending targets established by the Energy Independence and Security Act (EISA) is long overdue. [click to continue…]

Post image for Study Links Ethanol Policy to Food Price Increases, Mideast Turmoil

A report published in October 2012 by the New England Complex Systems Institute (NECSI) links soaring corn and agricultural commodity prices to food riots and turmoil in North Africa and the Middle East.

Although several factors may contribute to political unrest, acknowledge Dr. Yaneer Bar-Yam and two co-authors, “the timing of violent protests in North Africa and the Middle East in 2011 as well as earlier riots in 2008 coincides with large peaks in global food prices.” In poor countries with little or no local agriculture to “buffer” swings in global supply conditions, the central government “may be perceived to have a critical role in food security. Failure to provide security undermines the very reason for existence of the political system.”

In short:

When the ability of the political system to provide security for the population breaks down, popular support disappears. Conditions of widespread threat to security are particularly present when food is inaccessible to the population at large.

Soaring food prices triggered food riots in both 2008 and 2011.

Figure explanation (references omitted): Time dependence of FAO Food Price Index from January 2004 to May 2011. Red dashed vertical lines correspond to beginning dates of “food riots” and protests associated with the major recent unrest in North Africa and the Middle East. The overall death toll is reported in parentheses. Blue vertical line indicates the date, December 13, 2010, on which Dr. Bar-Yam and colleagues submitted a report to the U.S. government, warning of the link between food prices, social unrest and political instability. Inset shows FAO Food Price Index from 1990 to 2011. [click to continue…]

Post image for Ethanol: Bad Deal for Consumers Gets Worse

Responding to the anti-Renewable Fuel Standard Hill briefing discussed on this blog yesterday, Tom Buis, CEO of ethanol trade group Growth Energy, asserted that “homegrown American renewable energy provides consumers with a choice and savings” (Greenwire, subscription required). Rubbish. Under the Renewable Fuel Standard (RFS), ethanol consumption is a mandate, not a choice. 

Buis’s claim that ethanol relieves pain at the pump sounds plausible because a gallon of ethanol is cheaper than a gallon of gasoline. However, ethanol has about one-third less energy than gasoline and does not make up the difference in price. Consequently, the higher the ethanol blend, the worse mileage your car gets, and the more money you spend to drive a given distance.

FuelEconomy.Gov, a Web site jointly administered by the U.S. Environmental Protection Agency (EPA) and the Department of Energy (DOE) calculates how much a typical motorist would spend in a year to fill up a flex-fuel vehicle with either E85 (motor fuel made with 85% ethanol) or regular gasoline. The exact bottom line changes as gasoline and ethanol prices change. The big picture, though, is always the same: Ethanol is a net money loser for the consumer.

For example, at prices prevailing in late November 2012, it cost $500 more per year to drive on E85. When I checked FuelEconomy.Gov last week, E85 cost the average motorist an additional $600 per year.

A bad deal just got worse. At today’s prices, it would cost an extra $700-$900 a year to switch from regular gasoline to E85. Some savings! Small wonder that our ‘choice’ to buy ethanol must be mandated.

  [click to continue…]