Marlo Lewis

CAFE, RFS Endanger Convenience Stores, Study Cautions

by Marlo Lewis on April 25, 2012

in Features

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Today, the National Association of Convenience Stores (NACS) published a study on the challenges facing the more than 120,000 U.S. convenience stores that sell motor fuel in a market increasingly shaped by the competing requirements of two federal programs: renewable fuel standard (RFS, a.k.a. the ethanol mandate) and corporate average fuel economy (CAFE).

I may have more to say about the study in a later post, but the skinny is that RFS and CAFE may whipsaw the retail fuel outlets upon which most of us depend to fill our tanks. CAFE will decrease the amount of fuel purchased and the frequency of consumer transactions at convenience stores, while the RFS will force convenience stores to make costly investments in storage tanks and blender pumps to sell increasing amounts and percentages of high-ethanol blends.

The excerpts below from NACS’s press release paint a disturbing picture on an industry caught in the regulatory cross hairs:

“RFS and CAFE policies cannot coexist without substantial changes in the retail and vehicle markets to accommodate significantly higher concentrations of renewable fuels, an unlikely scenario given that we may not even meet current requirements as they stand in 2012,” said John Eichberger, NACS vice president of government relations and the author of the new NACS whitepaper, The Future of Fuels: An Analysis of Future Energy Trends and Potential Retail Market Opportunities.

The Renewable Fuels Standard, revised by Congress as part of the Energy Independence and Security Act of 2007 (EISA), requires that increasing amounts of qualified renewable fuels be integrated into the motor fuels supply, culminating at a minimum of 36 billion gallons in 2022. This mandate was expected to increase renewables to approximately 20% to 25% of the overall gasoline market in 2022, about double the rate of 10.4% last year.

Meanwhile, in 2011 the Obama administration proposed new CAFE standards, which are expected to be finalized this summer, that seek to increase the average fleet fuel efficiency to an equivalent of 54.5 miles per gallon by 2025. The cumulative effect of the two mandates is that renewable fuels will be required to represent a significantly greater share of the market than originally anticipated — perhaps as much as 40%, or four times higher than today.

“This level of renewable fuels penetration in the market will impose significant economic burdens on the retail fuels market and consumers,” said Eichberger. “To meet such a high renewable fuels concentration, it is likely that most retailers in the country will have to replace their underground storage tank systems and fuel dispensers. For the convenience industry alone, this will require a minimum infrastructure investment that will add nearly $22 billion to the cost of retailing fuels.” [And where will they get the scratch, I wonder, with CAFE depressing motor fuel demand and sales?]

Even after this enormous infrastructure investment, it still may be impossible to satisfy the RFS, considering that only one in six consumers will drive vehicles capable of running on the mandated fuels. The U.S. Energy Information Administration (EIA) projects only 16% of on-road vehicles in 2022 will be flexible fuel vehicles.

“Unless something dramatic happens, we will hit the ‘blend wall’ within the next two years and will not be able to meet RFS requirements. This will trigger massive fines throughout the petroleum distribution system that will increase the cost to sell motor fuels,” said Eichberger.

An industry expert explains the problem to me as follows: [click to continue…]

Six Reasons Not To Ban Energy Exports*

by Marlo Lewis on April 19, 2012

in Features

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[* This column is a lightly edited version of my post earlier this week on National Journal’s Energy Experts Blog.]

You know we’re deep into the silly season when ‘progressives’ champion reverse protectionism – banning exports – as a solution to America’s economic woes. Congress should reject proposals to ban exports of petroleum products and natural gas for at least six reasons.

(1) Export bans are confiscatory, a form of legal plunder.

As economist Richard Stroup has often pointed out, property rights achieve their full value only when they are “3-D”: defined, defendable, and divestible (transferable). A total ban on the sale (transfer) of property rights in petroleum products or natural gas would reduce the asset’s value to zero (assuming no black market and no prospect of the ban’s repeal). To the owner, the injury would be the same as outright confiscation. A ban on sales to foreign customers would be similarly injurious, albeit to a lesser degree.

The foregoing is so obvious one is entitled to assume that harming oil and gas companies is the point. I would simply remind ‘progressives’ that the politics of plunder endangers the social compact on which civil government depends. Why should others respect your rights when you seek to deprive them of theirs? Every act of legal pillage is precedent for further abuses of power. Do you really think your team will always hold the reins of power in Washington, DC? [click to continue…]

Despite Kyoto, UK Carbon Footprint Bigger than Ever

by Marlo Lewis on April 18, 2012

in Blog, Features

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The European Union (EU) preens itself on being the global leader in the fight against climate change. EU politicians scold the USA for ‘failing’ to ratify Kyoto Protocol and enact cap-and-trade. Within the EU, the UK champions the most aggressive climate policies. So the UK’s carbon footprint must be shrinking, right?

Not according to a new report by the UK’s Department for Environment, Food, and Rural Affairs (Defra). The UK’s total net carbon dioxide (CO2) emissions rose 35% between 1990 (the Kyoto Protocol baseline year) and 2005. Emissions declined by 9% from 2008 to 2009 due to the worldwide recession. Nonetheless, the country’s carbon footprint was 20% bigger in 2009 than in 1990. How can this be?

Defra used a life cycle analysis (LCA) to estimate the UK economy’s net emissions. The agency examined not only the CO2 emitted by households and firms within the UK but also the emissions induced by the UK’s demand for imported goods. Carbon dioxide is emitted when goods are manufactured for export in, say, China, and then again when those goods are transported to the UK.

Emissions “embedded” in UK imports are increasing much faster than emissions from domestic production are declining. From 1990 to 2009, CO2 emitted by UK households and firms decreased by 14%. During the same period, emissions from imports directly used by UK consumers increased by 79% and emissions from imports used by UK businesses increased by 128%.

The Kyoto Protocol does not “cover” (regulate) import-induced emissions. So under Kyoto’s accounting rules, UK emissions are down. In reality, the UK has outsourced a sizeable chunk of its emissions along with its heavy industry. As one blogger commented, “The UK’s outsourced emissions almost double its carbon footprint.”

Source: Defra, UK’s Carbon Footprint 1990-2009

EPA’s ‘Carbon Pollution Standard’: Bait-and-Fuel-Switch

by Marlo Lewis on April 13, 2012

in Blog, Features

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Bait-and-switch is one of the oldest tricks of deceptive advertising. The used-car dealer “baits” you onto the lot with an ad promising low interest payments on the car of your dreams. When you get there, the dealer regretfully informs you the car has already been sold. But, no, you haven’t wasted your time, because he’s got this other great car — the “switch” — which has so many superior features and it will only cost you a little more per month.

An even less ethical variant of this tactic is employed in politics. Party A in a negotiation gives an assurance or promise to obtain Party B’s support for a law or regulation. Party A then reneges on the deal once the policy is on the books. EPA’s recently proposed “Carbon Pollution Standard” Rule is a posterchild for this tactic. [click to continue…]

Obama Fuel Economy Standards Could Price Almost 7 Million Drivers out of New Car Market – NADA

by Marlo Lewis on April 12, 2012

in Features

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In a report released today, the National Auto Dealers Association (NADA) estimates that the Obama administration’s model year (MY) 2011-2025 fuel economy standards could price nearly 7 million consumers out of the market for new motor vehicles.

Based on the National Highway Traffic Safety Administration’s (NHTSA’s) estimate that federal fuel economy standards will add $2,937 to the average cost of new vehicles during MYs 2011-2025, NADA estimates the standards will “remove 3.1-4.2 million households or 5.8-6.8 million licensed drivers from the new motor vehicle market by 2025.” If, as another recent NADA report concludes, the administration’s estimate is unrealistically low, and the actual additional cost due to regulation is $4,803, the standards will “remove 5.4-5.9 million households or 10.0-11.0 licensed drivers from the new vehicle market by 2025.”

The ‘theory’ underpinning NADA’s disturbing conclusions is straightforward. Lower-income households typically cannot purchase a new vehicle without a loan. To qualify for a loan, borrowers must meet minimal lending standards. The most important consideration is the household’s debt service to income (DTI) ratio. By increasing the cost of new vehicles, fuel economy standards can “increase DTI ratios and cause some consumers to no longer qualify for a loan on the least expensive new vehicle, thus removing them from the new car market.”

Currently, the least expensive new vehicle is the 2011 Chevrolet Aveo, which costs approximately $12,750 in 2010 dollars. An estimated 93% of all households “have a financial profile that would allow them to meet the 40% maximum debt to income ratio” and qualify for a loan to purchase a new Aveo. But if fuel economy standards add another, say, $4,000 to the cost, the portion of consumers eligible for financing would drop from 92.8% to 88.5% — a decrease of “5 million households, or 10.6 million of the 245 million licensed drivers expected for MY 2025.” [click to continue…]

Treasury OIG: Watchdog Pussyfoots Around Solyndra Debacle

by Marlo Lewis on April 6, 2012

in Features

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Earlier this week, the Treasury Department’s Office of Inspector General (OIG) released an audit report on Treasury’s role in reviewing, in March 2009, the Department of Energy’s (DOE’s) $535 million loan guarantee to Solyndra, the solar panel manufacturer that filed for bankruptcy in September 2011. Before going belly up, Solyndra burned through $528 million of the $535 million it received from Treasury’s Federal Financing Bank (FFB). Nearly all of the defaulted loan will be paid off by American taxpayers.

An agency’s OIG is supposed to be a watchdog guarding the public fisc from waste, fraud, and abuse. Watchdogs bark and even bite. This watchdog pussyfoots.

The title of the audit report is “Consultation on Solyndra Loan Guarantee Was Rushed.” Well, it was that. Treasury signed off on the Solyndra loan guarantee only two days after being asked on March 17, 2009 to vet it so that DOE could issue a press release touting the loan on the morning of March 20.

A more accurate title would be “Consultation on Solyndra Loan Guarantee Was Half-Assed.” Granted, government reports must eschew the use of idiomatic pejoratives. Nonetheless, the OIG did not have to make excuses for Treasury and DOE. The report ascribes to regulatory vagueness derelictions more reasonably attributed to negligence, incompetence, and pliancy in the face of political pressure.     [click to continue…]

EPA’s “Carbon Pollution” Standard for Power Plants: Four Ways Weird

by Marlo Lewis on March 28, 2012

in Blog, Features

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Yesterday, EPA proposed its first-ever “carbon pollution standard rule” for power plants. The rule would establish a new source performance standard (NSPS) for carbon dioxide (CO2) emissions from fossil-fuel electric generating units (EGUs). The proposed standard is an emission rate of 1,000 lbs CO2 per megawatt hour. About 95% of all natural gas combined cycle (NGCC) power plants already meet the standard (p. 115). No existing coal power plants do. Even today’s most efficient coal plants emit, on average, 1,800 lbs CO2/MWh (p. 134). EPA is effectively banning investment in new coal electric generation.

Like the rest of EPA’s greenhouse agenda, the proposed rule is an affront to the Constitution’s separation of powers. Congress never voted to prohibit the construction of new coal power plants. Indeed, Congress declined to pass less restrictive limits on coal electric generation when Senate leaders pulled the plug on cap-and-trade. Congress should reassert its constitutional authority, overturn the rule, and rein in this rogue agency. [click to continue…]

Antarctica: New Evidence Medieval Warm Period and Little Ice Age Were Global

by Marlo Lewis on March 23, 2012

in Blog, Features

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Did the Medieval Warm Period (MWP) and Little Ice Age (LIA) occur only in Europe, or were they global in scope?

This is a hotly debated question, because it is harder to make the case that the warmth of recent decades is “unusual,” “extraordinary,” or “unprecedented” and therefore something to stress about if global climate oscillates naturally between warming and cooling periods. The catastrophic anthropogenic global warming (CAGW) crowd tend to write off the MWP (~1000-1200 A.D.) and LIA (~1300-1850 A.D.) as regional phenomena, largely confined to Northern Europe. A new study finds evidence of the MWP and LIA in a region 10,000 miles south of Northern Europe: the Antarctic Peninsula. [click to continue…]

Sen. Wyden’s Anti-Keystone Amendment Goes Down in Flames

by Marlo Lewis on March 8, 2012

in Blog, Features

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The Senate just voted down two highway bill amendments on the Keystone XL Pipeline: the Hoeven amendment to permit the pipeline (56-42) and the Wyden amendment prohibiting exports of Keystone crude and petroleum products made from it (34-64). Both amendments required 60 votes for passage. Hoeven’s amendment missed by four votes, Wyden’s by 26.

Eleven Democrats voted for Hoeven’s amendment: Kay Hagan (N.C.), Joe Manchin (W.Va.), Mary Landrieu (La.), Jim Webb (Va.), Claire McCaskill (Mo.), Mark Pryor (Ark.), Jon Tester (Mont.), Mark Begich (Alaska), Bob Casey (Pa.), Kent Conrad (N.D.) and Max Baucus (Mont.). Bottom line: There is now clear majority support in both the House and Senate for expeditious approval of the Keystone XL Pipeline.

As this blog has argued previously, proposals like Wyden’s to ban exports of U.S. petroleum products would violate U.S. treaty obligations under the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA).

Wyden claims an export ban would increase domestic supplies of gasoline and diesel fuel and, thus, lower prices, benefiting consumers. But the ban would likely backfire, increasing pain at the pump. It would drive refining-related investment, production, and jobs out of the USA, curbing production at home while making higher-priced foreign imports more competitive.

Banning petroleum product exports is also just plain dumb if you’re one of those people — like Wyden — who deplore America’s trade deficit with China. Well, okay, what Wyden deplores most (or only) is America’s trade deficit in “environmental goods” like solar panels. If you don’t understand the economic logic behind this selective indignation, it’s because there is none.

Gross self-contradiction is not uncommon in politics, but the angst and handwringing over Keystone XL as an “export pipeline” by many self-styled trade hawks is material suitable for a Monty Python skit. In the meantime, sober commentary will have to do. ExxonMobil’s Ken Cohen hit the key points in a recent post.   [click to continue…]

Senate to Consider Pickens-Your-Pocket-Boonedoggle Bill

by Marlo Lewis on March 8, 2012

in Features

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This afternoon the Senate will begin voting on highway bill amendments, which include the Burr/Menendez amendment, a.k.a. the New Alternative Transportation To Give America Solutions (NAT GAS) Act. Its chief lobbyist and beneficiary is billionaire T. Boone Pickens. If Congress were subject to truth in advertising laws, the amendment would be called the Pickens Payoff Plan or the Pickens-Your-Pocket-Boondoggle-Bill.

The Texas gas mogul’s lobbying for billions of dollars in tax credits for natural gas vehicles, fueling stations, and motor fuel is all about patriotism and energy security and has nothing to do with rent seeking or corporate welfare. Just ask him! “I’m sure not doing this for the money,” Pickens told the New York Times.

Only the Shadow knows what lurks in the minds of lobbyists, but the circumstantial evidence – Pickens’s huge investments in companies that would profit directly from Congress ramping up demand for natural gas vehicles, motor fuel, and infrastructure — is rather overwhelming. For some juicy details, see the commentary I posted on this site last year when the Boonedoggle Bill looked like it might actually go somewhere in the House.

None of this is to denigrate the potential of natural gas as a transportation fuel. Over the past few years, natural gas prices have fallen as petroleum prices have increased. Responding to this price disparity, GM and Chrysler plan to produce thousands of bi-fuel picks that can run on either natural gas or gasoline,  Rob Bradley points out today at MasterResource.Org. [click to continue…]

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