Marlo Lewis

On Tuesday (Feb. 10), USDA Secretary Tom Vilsack urged EPA to increase the quantity of ethanol blended into gasoline from the current amount–10% ethanol per gallon–to some higher percentage, Reuters reports.

Will EPA heed Vilsack’s request or heed the clear implication of www.fueleconomy.gov, a Web site EPA administers jointly with the Department of Energy?

The EPA/DOE Web site reveals that filling up with ethanol is a big fat money-loser. To see for yourself, click on “Flex-Fuel Vehicles,” then click on “Fuel Economy Information for Flex-Fuel Vehicles,” and then click on “Go.”

EPA and DOE compare the average annual cost of using regular gasoline and E-85 (motor fuel blended with 85% ethanol) for 90 different flex-fuel models. In every case, regardless of make or model, fueling the vehicle with E-85 costs more than gasoline—lots more.

Consider a few examples:

Another neat thing about this site is that it compares the annual carbon footprint of using E-85 versus regular gasoline for each vehicle. In every case, ethanol has a lower carbon footprint (emits fewer annual tons of CO₂). This is controversial in light of research (see here, here, and here) indicating that ethanol is a net contributor to greenhouse gas emissions when you take into account emissions from fertilizer used to grow corn and the carbon released from forests and soils as corn cultivation expands into previously unfarmed areas.

Nonetheless, even if one eschews a lifecycle analysis and considers only the direct emissions released by burning equal volumes of gasoline and ethanol, the cost per ton of CO₂ avoided by using E-85 is ridiculously expensive.

Consider the Nisan Titan 4WD. According EPA and DOE, using regular gasoline, the Titan emits 13.1 tons of CO₂ per year; using E-85, it emits 11.1 tons of CO₂ per year. So fueling the Titan with E-85 instead of gasoline reduces the vehicle’s annual CO₂ emissions by 2 tons. However, the E-85 costs $2,259 more, which means the per-ton cost of reducing CO₂ by using E-85 instead of gasoline is $1,129.50. That’s a dozen times more costly than the “social cost of carbon” (how much damage each ton of CO₂ allegedly does) as estimated by Richard Tol, perhaps the world’s leading climate economist, in a major literature review.

For additional perspective, the Energy Information Administration estimated that emission permits under the Lieberman-Warner Climate Security Act (S. 2191) would cost $16.88 per ton in 2012, $29.88 in 2020, and $61.01 in 2030. So the per-ton cost of reducing CO₂ emissions by switching your Nisan Titan from gasoline to E-85 is between 18 and 66 times more costly than emission permits under Lieberman-Warner, a bill the U.S. Senate did not see fit to pass.

The EPA/DOE Web site demolishes claims that ethanol reduces pain at the pump or provides a cost-effective antidote to global warming. Yet the agencies established the Web site partly to promote E-85 and flex-fuel vehicles, and neither agency advises consumers not to use ethanol–quite the reverse.

So EPA will probably side with Vilsack against the clear implication of its own analysis that ethanol is a consumer ripoff.

In this post, I comment on Renewable Fuels Association President Bob Dinneen’s opening statement, “America’s Energy Future Is at a Crossroads,” at this week’s “Cellulosic Ethanol Summit” in Washington, D.C. Dinneen’s remarks are indented; my comments follow.

“Ethanol, and America’s energy future, is at a crossroads.  Either we will continue on a path toward greater energy diversity and security by expanding the current Renewable Fuel Standard to motivate investment in new cellulosic ethanol technologies, or we will succumb to the nattering nabobs of negativity who are seizing upon every unfounded fear to thwart the worldwide movement toward biofuels, leaving us evermore dependent upon petroleum and its environmental and economic consequences.

Comment: Energy “diversity” is not an end in itself. We could, for example, diversify America’s energy portfolio by mandating greater use of horse-drawn carriages, sail boats, and water wheels. Claims that oil dependence threatens American security are wildly exaggerated, as Jerry Taylor and Peter Van Doren explain here. The worldwide “movement” toward biofuels is a creature of political subsidy and mandate–not market-driven. Dinneen’s policies would leave farmers “ever more dependent” on government largesse.

“Some here might think the choice is obvious.  It is not.  Well-funded opponents are engaged in a coordinated effort to protect the status quo.

Comment: Government meddling in energy markets is the status (statist) quo, and the well-funded ethanol lobby seeks to protect it.

“Some might think this is just about food vs. fuel, and the wildly exaggerated claims that grain-derived ethanol is driving up consumer food prices.  It is not. 

Comment: Dinneen speaks as if food v. fuel issue were a made-up issue. Many experts not known for their fealty to oil companies view the potential adverse impacts of biofuel policies on global food security as a matter of serious concern. Such experts include the International Trade & Agriculture Policy Council , the OECD’s Round Table on Sustainable Development, the UN’s World Food Program, agricultural economist C. Ford Runge , environmental guru Lester Brown, and columnist George Monbiot. The rising cost of food, due partly to U.S. and EU biofuel policies, is making it harder to feed the world’s hungry people. The risks to global food security will increase as more and more grain is diverted from food to auto fuel.

Even in the USA, the potential of biofuel policies to fleece consumers is nothing to trivialize. Corn today sells for $3.57 a bushel compared to roughly $2.00 a bushel in 2004-2005, in the pre-mandate era. Other factors, such as rising petroleum prices and surging demand in China, contribute to today’s high corn prices. Nonetheless, ethanol policy is probably the biggest factor.

Corn, after all, is a feedstock for hog, poultry, beef, and dairy farmers. Corn sweeteners and syrups are widely used in food preparation and processing. Rising corn prices also put upward pressure on wheat and soybean prices, because all three grains compete for land and customers. Food prices are rising faster than the overall inflation rate. This is no accident, comrade Dinneen!

“There are groups amassing to slow the drive toward cellulose as well, full of misinformation and distortions about land use, deforestation, water use and infrastructure costs of cellulosic ethanol.

Comment: Again Dinneen trivializes legitimate concerns. A new study by the National Research Council cautions that “greater cultivation of crops to produce ethanol could harm water quality and leave some regions of the country with water shortages,” reports the New York Times. Is NRC also just a mouthpiece of Big Oil, like Lester Brown and George Monbiot?

Cellulosic ethanol may one day be cheaper than gasoline. Currently, however, the capital costs for a cellulosic ethanol plant are three to five times greater than those of a corn ethanol plant. And even with today’s ethanol glut and declining ethanol prices, and oil selling for more than $80 a barrel, regular gasoline is still cheaper than corn ethanol when the latter’s lower energy content is taken into account. Even today, corn ethanol could not compete without the 51-cent tax credit refiners receive for every gallon of ethanol they blend into the motor fuel supply.

“The insidious campaign being waged today has very little to do with the feedstock for ethanol, and a great deal to do with the loss of petroleum market share that will occur if we are successful.  To our opponents, there is no good ethanol or bad ethanol; there is only ethanol, and it’s all bad.  Within the ethanol industry, we must not draw meaningless distinctions between feedstocks either; we must propagate the message that all ethanol is good; it’s all better than petroleum.

Comment: This is commodity fetishism. Neither ethanol nor oil nor any other commodity is good or bad in itself. Commodities are good and bad relative to consumer preference, and markets evaluate commodities at the margin, not as a whole. 

“We have seen this kind of coordinated offensive of mistruths before.  Indeed, many of the same groups fighting biofuels today are among those who just a few years ago sought to discredit scientists focusing the world’s attention on the growing crisis of global climate change.  Today, the Nobel Prize is awarded for awakening the world to the reality of global warming, and companies take out full page ads extolling their efforts to improve their ‘carbon footprint.’

Comment: If Al Gore frightens people into believing sea levels will rise 20 feet in our lifetimes because cars run on petroleum, that will build support for a bigger ethanol mandate. So heaven forfend that anyone–for example, a British High Court judge, obviously another flunky of Big Oil–question Al Gore’s doomsday scenario.

“All ethanol, indeed all biofuels, are in this fight together.

Comment: Rah, rah, sis boom bah!

“We all need to respond to the hysterical claims about ethanol.  We need to enlighten those that believe you can have food security in this country without energy security.  We need to remind people that rising petroleum costs have a far greater impact on consumer prices, including consumer food prices, than a modest and much-needed increase in the prices farmers get for their products. 

Comment: Energy prices affect food costs. But government manipulation of the demand for grain affects food prices more directly. Besides, the deliberate merging of the food and auto fuel markets can make both food and energy prices more volatile. A bump in petroleum prices will inflate grocery bills, even as a drought-induced shortage of corn will increase consumers’ pain at the pump. 

“And we need to educate people about the technological evolution occurring in the ethanol industry today, where more efficient energy resources, water recovery systems, process technologies and new feedstocks are leading toward a far more sustainable energy future for all of us.

Comment: Educate away! And, while you’re at it, please tell us when cellulosic ethanol will be able to compete with gasoline without government handouts or mandates.  

“Are there legitimate questions that need to be discussed about the efficacy of biofuels?  Of course.  If there weren’t, there would be no need for conferences like this.  But we can’t allow the momentum toward a more sustainable energy future to be slowed or derailed while we count the angels on the head of a pin to dissect every conceivable shortcoming that the marketplace has yet to resolve.  We ought to recognize that renewable fuels are going to be inherently better than fossil fuels and encourage investments in these technologies as soon as possible so that markets can start making them more efficient.

Comment: “We ought to recognize that renewable fuels are going to be inherently better…” How do we “recognize” something that hasn’t happened yet? Also, markets do not determine what is “inherently” better but what is better relative to consumer preferences under ever-changing market conditions. Again, Dinneen preaches commodity fetishism.

“We did not move from the horse and buggy to the turbo charged E-85 Saab Biocar without first going through the Edsel.  But it’s a good thing we didn’t stop Henry Ford from mass-producing the ethanol-fueled Model T until automobile technology was perfected.

Comment: Huh? The Edsel was a bridge to the E-85 Saab Biocar? Why not a bridge to my gas-guzzling Ford Expedition? The Edsel was an object lesson in the fact that experts can fool themselves about what consumers want. Dinneen is so sure “we” want ethanol that he believes Congress should force us to buy it. But wait a minute, if ethanol is the great bargain Dinneen claims it is, then no mandate is necessary.

As to the first Model Ts running on ethanol, Dinneen misses the obvious. Ethanol-fueled cars are the auto industry’s failed past. Why suppose they are the industry’s bright future? 

“It’s a fact that the carbon footprint of ethanol is good today (grain-derived ethanol provides a 21% reduction in GHG emissions with current technology and existing feedstocks) and will only get better with second generation technologies and new cellulosic feedstocks.

Comment: This 21% figure probably assumes that the electricity to run the ethanol plant comes from natural gas, nuclear, or wind, and that the ethanol plant is located near the point of sale. Under different assumptions–the plant is powered by coal and the ethanol must be trucked from Iowa to California–ethanol’s carbon footprint is about the same as gasoline’s and maybe bigger.

More importantly, as climate policy, ethanol mandates are woefully inefficient. According to the OECD Round Table on Sustainable Development, biofuels might displace 13% of petroleum by 2050. That would reduce energy-related CO2 emissions 3% below baseline projections. The cost of obtaining these reductions is very high—”well over $500 per ton of CO2 equivalent for corn-based ethanol in the United States, for example, with other researched countries not performing much better.” Five hundred dollars per ton is about 54 times as expensive as what Yale University Professor William Nordhaus, the doyen of climate economics, considers an “optimal” carbon-reduction policy. It’s also about 10 times higher than carbon permits would cost under Lieberman-McCain Climate Stewardship Act, in 2030.

“Conversely, the carbon footprint of oil is bad today, and getting progressively worse the further we have to go in our quest for oil reserves, the deeper we have to drill and, certainly, with each gallon of petroleum derived from tar sands we must utilize to meet the ever increasing demand for motor fuels.

Comment: Yes, but that’s life until someone invents a motor fuel that outperforms petroleum at a better price. That hasn’t happened so far and there’s no evidence it will happen soon.

Consider the European experience. Due to Europe’s high motor fuel taxes, gasoline in several EU countries costs more than $7 a gallon. Gasoline taxes are implicit carbon taxes. Europe taxes gasoline at rates of $200 to $300 per ton of carbon dioxide, and has for many years. Yet where in Europe is the miracle fuel to replace petroleum? Where are all the zero emission vehicles? Europe is not one mile closer than we are to achieving a “beyond petroleum” transport system. On the contrary, EU transport sector CO2 emissions in 2004 were almost 26 percent higher than in 1990.

“Oil companies pretend to be comfortable when ethanol is just a blend component in gasoline.  But given today’s economics, with oil surging past $85/barrel and ethanol priced significantly below gasoline, it remains a mystery why consumers in many parts of the country are unable to find ethanol blended fuels.

Comment: Bob, if you really think oil companies are colluding to keep E-85 off the market, why not come right out and say so? Maybe it’s because Federal Trade Commission investigations repeatedly fail to back up allegations of even subtle forms of market manipulation.

The paucity of E-85 dispensaries is actually no “mystery” at all. In testimony before Congress, Sonja Hubbard, representing the National Association of Convenience Stores and the Society of Independent Gasoline Marketers, observed that converting a service station to sell E-85 and installing an E-85 dispenser “can cost upwards of $17,000.” That’s a hefty chunk of change for a small business. Thus, the slow pace of E-85 conversions “is not due to animosity towards an alternative fuel and it is not due to limitations imposed by our suppliers. Rather, it is because consumer demand for the product is insufficient to justify the cost of the investment.” Hubbard continued: “Trust me, my fellow NACS and SIGMA members and I will make E-85 pumps available when the market calls for it.”

“Angst in the oil patch has been raised to new heights as Congress contemplates a 36 billion gallon Renewable Fuel Standard that provides a certain market for 21 gallons of cellulosic ethanol and moves ethanol from a blend component into a significant alternative to gasoline.

Comment: There should be angst everywhere when Congress tries to pick winners and losers in the marketplace, and decides to hold consumer preferences hostage to a Soviet-style quota system, which is what, in essence, a “renewable fuel standard” is. 

“But the angst begs the question, ‘If not biofuels, what?’  ‘If not now, when?’  These are the questions Congress must answer.  And we must demand an energy policy that promotes a more sustainable energy future.  We must have an accelerated and expanded RFS that motivates investment in cellulosic ethanol while providing a strong foundation for existing production to continue to grow.  We need this now.”

Comment: A “sustainable” energy system does not require ever-greater subsidies and mandates to sustain. Commentators already describe the ethanol boom as bubble created by political meddling. Moreover, a “sustainable” energy system does not threaten to crowd food and wildlife off the landscape. Economist Richard Rahn succinctly explains why ethanolism is ecologically unsustainable:

“If all the U.S. cropland (371 million acres) were planted in corn to produce ethanol, it would provide 111 billion equivalent gallons of gasoline, but Americans currently consume more than 140 billion gallons of gasoline. So, if Americans imported all of their food (or starved to death), they still would only attain 80 percent of their gasoline needs if it had to come from domestically produced ethanol.”

>Today’s New York Times, noting that crude oil recently hit $83.32 a barrel on Sept. 20 and stayed above $80 a barrel for the next two weeks, provides some eye-popping numbers on how the high cost of crude is affecting transport industries:

Airlines worldwide expect to spent $132 billion for jet fuel this year, up from $40 billion in 2002. The industry estimates that the share of operating costs devoted to fuel has doubled in six years. Similarly, the American trucking industry expects to spend $107 billion on diesel fuel this year, up from $45 billion in 2002. This means that fuel eats up nearly twice as much of the industry’s annual revenue…

Fortunately, a boom in business has protected trucking’s bottom line. “Had this happened 10 years ago, the industry would have been decimated,” the Times quotes Bob Costello, chief economist for the American Trucking Association, as saying.

An obvious question that leaps to mind: How much higher can fuel prices go without ‘decimating’ the trucking and airline industries–or without triggering a recession?

This question is all the more pertinent given the enthusiasm on Capitol Hill for mandatory global warming policies. For example, John Dingell, Chairman of the House Energy and Commerce Committee, recently advocated (a) a $50 tax on the carbon content of fuels, (b) a $.50 hike in federal motor fuel taxes, and (c) a cap-and-trade program adequate to reduce U.S. emissions 60 to 80 percent by 2050.

A $50 tax on the carbon content of fuels translates into a $.50 cents per gallon gasoline tax. So Dingell is effectively asking for a $1.00 per gallon hike in gasoline taxes. A cap-and-trade program, especially one tough enough to reduce emissions by 60 to 80 percent, would put an additional heavy constraint on petroleum supply, further inflating fuel costs.

So it is a real question whether the airline and trucking industries could remain profitable under the kinds of global warming policies Dingell and others are proposing–and whether the U.S. economy could continue to grow.

Although higher fuel costs would hurt consumers and the economy, emissions might still go up: economic pain for no environmental gain. Consider the European experience.

Because of high motor fuel taxes, Europeans in some countries pay $7.00 a gallon or more for gasoline. But where in Europe are all the zero-emission vehicles? Where is the miracle fuel to replace petroleum? Europe is not one mile closer than we are to achieving a “beyond petroleum” transport system. Indeed, EU transport sector emissions grew by almost 26 percent from 1990 to 2004.

Dingell is more up front than most pols about the costs of Kyotoism. But hiding the costs of climate policy has become a fine art on the Hill. The question a straight talker like Dingell should be raising is: How much higher than European level gasoline prices does Congress think Americans should have to pay to reduce emissions?

Last week (September 28), House Energy and Commerce Committee Chairman John Dingell (D-MI) caused quite a stir by proposing global warming legislation that would directly and openly increase the cost of gasoline and home ownership.

As Dingell explained in a statement on his Web site, the proposed legislation would:

• Establish a $50 per ton tax on the carbon content of fuels, including coal, petroleum, and natural gas;
• Increase federal motor fuel taxes on gas, jet fuel, and kerosene by $.50/gallon; and
• Phase out mortgage interest tax deductions on homes larger than 3,000 square feet.

Some climate skeptics speculated that Dingell, who butted heads with Speaker Nancy Pelosi, Rep. Henry Waxman, and other global warming crusaders earlier this year, was actually trying to pour cold water on climate policies of the Al Gore variety. Gore is a leading proponent of cap-and-trade regulation, the centerpiece of the Kyoto climate treaty he negotiated.

For politicians eager to avoid blame for the burdens they impose on the public, cap-and-trade offers significant advantages. Most Americans have no familiarity with cap-and-trade, so it does not arouse their fear or anger. More importantly, because cap-and-trade programs are regulatory, their costs are indirect or hidden, unlike gasoline taxes, which come clearly labeled at the pump.

So some skeptics hoped that Dingell was issuing a wake up call to a public already upset about high gas prices and worried about the collapsing sub-prime mortgage market.

Unfortunately, this is wishful thinking. Dingell offered his proposed legislation as one element of a package that also includes “an economy-wide cap-and-trade program.” Economists generally view carbon taxes and cap-and-trade as competing alternatives, not as complementary. Indeed, from a climate skeptic’s viewpoint, a carbon tax has redeeming social value only if it replaces all climate-related regulation—not just cap-and-trade but also renewable portfolio standards, bio fuel mandates, and fuel economy standards.

Instead, Dingell offers carbon taxes as an add-on. The carbon tax/mortgage elimination bill is just one step towards reducing “greenhouse gas emissions 60 to 80 percent by 2050.”

Even as a civics lesson, the bill is of limited value. If Dingell’s real aim were to expose the costs of Kyotoism, he should have called for a $5.00 per gallon increase in gasoline taxes, a $500 per ton carbon tax, and outright elimination of home mortgage deductions. Such burdens are much closer to what it would take reduce emissions by 60 to 80 percent.

That Dingell (sadly) has no interest in being a spoiler is evident from the white paper he issued yesterday, the first in a series on cap-and-trade legislation. In both the white paper and an accompanying memorandum, Dingell reiterates that his goal is to reduce emissions 60 to 80 percent by 2050. He says that although carbon taxes and technology programs are “valuable tools, they do not fall under the province of the Committee and will therefore not be the focus of these papers.” In the policy mix Dingell envisions, carbon taxes are at most a side show, not the main event. The White Paper could not be clearer on this point:

Based on the hearings earlier this year, the Committee and Subcommittee Chairmen [i.e. Dingell and Rick Boucher of Virginia] have reached the following conclusions: The United States should reduce its greenhouse gas emissions by between 60 and 80 percent by 2050 to contribute to global efforts to address climate change. To do so, the United States should adopt an economy-wide, mandatory greenhouse gas reduction program. The central component of this program should be a cap-and-trade program … The Subcommittee and full Committee will draft legislation to establish such a program.

DC outpaces other nations in "pollution," Washington Post reports

By "pollution," the Post means carbon dioxide (CO2)–plant food, the first link of the planetary food chain. But let that pass. The article affords many good yuks. Aside from the UN and the EU Environment Agency, where do we find the most self-righteous blather about the alleged "planetary emergency of global warming"? In Washington, D.C., of course. But, the Post reports, the D.C.-metropolitan area's CO2 emissions exceed those of several countries.

Specifically, because of all those people driving all those cars and consuming all that electricity from coal-fired power plants, D.C. produced 65.6 million metric tons of CO2 in 2005–"more than in all of Hungary, Finland, Sweden, Denmark or Switzerland, each of which has more people."

The area's governments talk green and even try to be green. Arlington, Fairfax and Montgomery counties have joined a "cool counties" program that calls for such changes as more "green" buildings and more hybrid cars in county fleets. The District has
mandated energy-saving features in some new buildings. A new Maryland law aims to cut auto emissions, and the state has joined a regional pact to reduce emissions from power plants. Virginia recently announced an energy plan that includes a goal to cut emissions by 30 percent by 2025.

However, a report by the Washington Metropolitan Area Council of Governments shows that CO2 emissions are "actually going the other way: up. At the current pace, it forecasts, emissions will increase 35 percent by 2030."

A modest proposal leaps to mind, inspired by California utility public service ads telling people to turn off their air conditioners during hot summer days to "conserve" power. This curious notion of energy "efficiency" is a good way to get heat stroke. But, hey, states are supposed to be "laboratories of democracy," and California is a world leader in the fight against global warming, right? So if cutting the juice is good enough for Arnold, then it should be good enough for George, Nancy, and Harry.

Imagine the benefits of turning off air conditioners in federal, congressional, and local government buildings during July and August. First, coal-fired power plants would emit less CO2. Second, fewer federal workers and congressional staff would commute, again reducing emissions. Over the long-run, millions of government workers and their families would move out of the D.C. area, real estate values would plummet, and the local economy would contract. This all adds up to real, certifiable, permanent emission reductions!

From a libertarian perspective, the good thing about the plan is that it will put government on an energy diet. Lacking today's abundant supplies of affordable energy, future Congresses and EPAs won't be able to enact as many laws and regulations. At last, a "win-win" climate policy!