Should industrial wind facilities have to pay a $100,000 fine – as oil and gas companies do – if they kill an endangered species? Many environmental activists think so. The Fish and Wildlife Service (FWS) does not.

In a reversal of its official opinion, the FWS recently announced “it will not penalize the operator of a Southern California wind operator if its turbines kill or injure one California condor,” reports environmental journalist Chris Clarke in ReWire.

With fewer than 250 birds in the wild, the condor is one of the world’s most critically endangered animals, and industrial wind is encroaching on the bird’s range in the Tehachapi Mountains. From the article:

FWS biologist Ray Bransfield told ReWire that FWS has completed its Biological Opinion (BiOp) on condors for Google and Citicorp’s Alta East project, which would be built and operated by wind developer Terra-Gen. Occupying 2,592 acres, mostly on public lands, near the intersection of state routes 14 and 58 in Kern County, Alta East would generate a maximum of 318 megawatts of electrical power with 106 wind turbines, each with 190-foot-long blades.

FWS’s BiOp for Alta East includes an “incidental take statement” that in effect allows one “lethal take” of a California condor. “Incidental take” of a protected species is a term of art covering any kind of injury, harassment or disturbance, or even habitat damage that a project causes inadvertently. “Lethal take” is when the species in question dies.

The Bureau of Land Management (BLM) has yet to approve the project. If it does, and a single condor is killed during the 30-year operating life of the facility, the FWS would have to undertake a “formal review” of the project’s impact on condors. Recent history suggests this safeguard is unlikely to be worth much, Clarke argues:

Endangered species advocates were hoping for a “jeopardy” finding when solar developer BrightSource started finding hundreds more federally threatened desert tortoises on the site of its Ivanpah Solar Electric Generating System than were forecast in that project’s BiOp. The original BiOp and take permit allowed BrightSource to kill, harm, harass, or disturb no more than 40 tortoises. Once it was clear there were a lot more tortoises than that onsite, BLM estimated as many as 2,862 tortoises (including eggs) could be harmed by the project. Despite the 70-fold increase in potential “takes,” FWS merely required a few changes to the project’s tortoise relocation plan and issued a revised BiOp that allowed construction to proceed.

The Alta East project may “take” many more than one condor in 30 years. Condors, notes Clarke, “fly slowly, their 9-foot wingspans making them somewhat slow to maneuver. They tend to soar while watching the ground, searching for activity of other scavengers. This habit makes them vulnerable to injury from blade tips approaching from above, often at speeds exceeding 150 miles per hour.”

In addition, condors are ”intensely social animals.” Where one goes to feed on carrion, others quickly assemble in “huge flocks,” as Clarke shows in photos taken just minutes apart. 

In short, “It may turn out to be hard to kill only one California condor by accident.”

Terra-Gen has agreed to install equipment that would detect transmitter signals from condors flying in the vicinity of the project, and to curtail operations accordingly. But not all condors have transmitters, the devices sometimes fall off, and the batteries often fail. The greater the number of condors at risk, the more incentive wind operators will have to look the other way:

Wind turbine operators are in business to sell power. If they’re obliged to cut their output drastically every time a condor flies by, and if condors start flying by more than a few days a year, that cuts into profits, and into investors’ income, and into the creditworthiness of the operator. The temptation to err on the side of threat to condors will grow with the local condor population.

Would the FWS really shirk its duty to protect the condor on behalf of wind developers? This is already happening, according to a Washington Post article, ”Obama administration allows wind farms to kill eagles, birds, despite federal laws,” cited by Clarke. An excerpt:

Wind farms in this corner of Wyoming have killed more than four dozen golden eagles since 2009, one of the deadliest places in the country of its kind.

But so far, the companies operating industrial-sized turbines here and elsewhere that are killing eagles and other protected birds have yet to be fined or prosecuted — even though every death is a criminal violation.

The Obama administration has charged oil companies for drowning birds in their waste pits, and power companies for electrocuting birds on power lines.

But the administration has never fined or prosecuted a wind-energy company, even those that flout the law repeatedly.

“What it boils down to is this: If you electrocute an eagle, that is bad, but if you chop it to pieces, that is OK,” said Tim Eicher, a former U.S. Fish and Wildlife Service enforcement agent based in Cody.

Gina McCarthy — President Obama’s nominee to succeed Lisa Jackson as EPA Administrator — is often described as “straight shooter” and “honest broker.” Is that reputation deserved?

Last week, Sen. David Vitter (R-La.) released a 123 page document containing McCarthy’s responses to hundreds of questions on a wide range of issues. Part 1 of this series examined McCarthy’s responses to Vitter’s questions about the agency’s regulation of greenhouse gases from stationary sources. The key points were:

1. McCarthy and the Air Office over which she presides gave Congress and the electric power sector false assurances that the EPA would not require utilities planning to build new coal-fired power plants to “fuel switch” and build natural gas combined cycle (NGCC) power plants instead.
2. Such misinformation undercut the credibility of critics who warned that the EPA, if left to its own devices, would use greenhouse gas regulation to prohibit the construction of new coal electric generation.
3. The EPA’s dissembling on fuel switching may have swayed votes against measures sponsored by Sen. Lisa Murkowski (R-Alaska) in 2010 and Sen. James Inhofe (R-Okla.) in 2011 to reclaim Congress’s authority to determine climate policy.

Agencies are not supposed to provide false or misleading information to influence how Members of Congress vote. Banning new coal generation — the inexorable effect of the EPA’s ‘Carbon Pollution’ Rule – is a policy Congress would reject if proposed as legislation.

Part 1 concluded that confirming McCarthy as Administrator would reward the EPA’s duplicitous pursuit of an agenda Congress has not authorized. Breaking news of the EPA’s grossly unequal treatment of groups seeking information under the Freedom of Information Act (FOIA) — based on whether the groups support or oppose a bigger, more intrusive EPA — leaves no doubt that this out-of-control agency deserves a kick in the butt, not a pat on the back.

Even the Society of Environmental Journalists – hardly a hotbed of libertarians, conservative Republicans, or fossil-fuel industry lobbyists — recently complained that the Obama administration “has been anything but transparent in its dealings with reporters seeking information, interviews and clarification” on environmental, health, and public lands issues, and that, ”The EPA is one of the most closed, opaque agencies to the press.”

Today’s post examines McCarthy’s responses to Vitter’s questions about the administration’s motor vehicle mandates. As in Part 1, I begin with an overview of the issues and political back story. For more detailed analyses, see the House Government Oversight and Reform Committee report, A Dismissal of Safety, Choice, and Cost: The Obama Administration’s New Auto Regulations, and my article, EPA Regulation of Fuel Economy: Congressional Intent or Climate Coup?

Background

McCarthy, testifying under oath before the House Government Overight and Reform Committee in October 2011, denied that motor vehicle greenhouse gas emission standards are “related to” fuel economy standards. Yet anyone with her expertise has to know that greenhouse gas motor vehicle standards implicitly and substantially regulate fuel economy.

Why does this matter? The Energy Policy and Conservation Act (EPCA) expressly preempts state laws or regulations ”related to” fuel economy standards. Yet in July 2009, the EPA granted a waiver authorizing California to implement the State’s motor vehicle greenhouse gas emissions statute, AB 1493. McCarthy could not give truthful testimony without casting doubt on the legality of the waiver, AB 1493, and the administration’s motor vehicle greenhouse gas/fuel economy program.

Perhaps as important, the waiver gives the administration power to threaten and intimidate the auto industry — an asset of immense value in global warming politics. The falsehood that motor vehicle greenhouse gas emission standards are not related to fuel economy standards is, therefore, an unshakeable tenet of Team Obama’s company line.

EPCA delegates the power to prescribe fuel economy standards solely to the National Highway Traffic Safety Administration (NHTSA). The waiver did more than authorize the California Air Resources Board (CARB) to poach NHTSA’s statutory authority. It also authorized other states to opt into the AB 1493 program. Consequently, the waiver ginned up the scary prospect of a market-balkanizing, state-by-state, fuel-economy patchwork.

This is somewhat paradoxical, because only two sets of standards are permissible under the waiver: federal and California. However, each automaker would have to reshuffle the mix of vehicles sold in each “California” state to attain the same requisite fleet-average MPG or grams CO2/mile. If all 50 states opted into the AB 1493 program, each auto maker would have to manage 50 separate fleets. A more chaotic fuel-economy regime — and one more repugnant to the letter and spirit of EPCA — would be hard to imagine.

There was, alas, method to CARB and the EPA’s madness. The waiver positioned the White House to demand political fealty from the auto industry in return for protection from the “patchwork.” In May 2009, negotiations led by then-White House environment czar Carol Browner culminated in what President Obama dubbed the “historic agreement.” California and other states agreed to deem compliance with the EPA’s greenhouse gas emission standards as compliance with their own – but only if automakers pledged to support a “national” motor vehicle program jointly administered by EPA, NHTSA and CARB.

Circumstantial evidence suggests that access to bailout money was also tied to auto makers’ support for the “national” program, making the “historic agreement” an offer the auto industry could not refuse. We may never know for sure, because, defying the Presidential Records Act, Browner conducted the negotiations under a vow of silence. “We put nothing in writing, ever,” CARB Chairman Mary Nichols told the New York Times.

The political payoff for the EPA came in June 2010. The auto industry lobbied against Sen. Murkowski’s resolution (S.J.Res.26) to overturn the EPA’s Endangerment Rule, the prerequisite for all the agency’s global warming regulations. The resolution fell four votes short (47-53), allowing the greenhouse gas regulatory cascade to proceed unchecked. The Endangerment Rule triggered the Tailpipe Rule, which in turn triggered Clean Air Act permitting requirements for major stationary greenhouse gas emitters. The Endangerment Rule also underpins the EPA’s proposed ‘Carbon Pollution’ Rule for fossil-fuel power plants and potentially a host of future greenhouse gas emission standards for petroleum refineries, other industrial source categories, marine vessels, aircraft, non-road engines, and fuels. Ultimately, the Endangerment Rule may compel the EPA to establish national ambient air quality standards (NAAQS) for greenhouse gases.

Congress has not approved any of those specific policies, and none would pass if proposed as legislation and put to a vote. Politically if not substantively, the waiver was a key step in launching this far-reaching agenda, and the waiver’s perceived legitimacy depends on the false pretense that greenhouse gas emission standards are not related to fuel economy standards.

Let’s now examine McCarthy’s responses to Vitter’s questions on auto regulations. Vitter’s questions are in bold type. McCarthy’s responses are indented. My comments are in blue. To make it easier for readers to check facts and sources, I occasionally insert citations and hyperlinks into the text.

Automobile Mandate:

The basic fuel economy statute, the Energy Policy Conservation Act (EPCA), expressly preempts state laws or regulations “related to” fuel economy standards. This is a very broad statement of preemption. It prohibits states not only from adopting fuel economy standards, but also from adopting laws or regulations “related to” fuel economy standards. Do you agree?

Response: EPA can only deny a waiver of the express preemption provision in CAA section 209(a) based on one of the criteria listed in section 209(b).  EPA’s waiver decisions under section 209(b) are based solely on an evaluation of those criteria, and evaluation of whether California emission standards are preempted under EPCA is not among those specified criteria. As a result, in making waiver decisions EPA takes no position regarding whether or not California’s GHG standards are preempted under EPCA.

Comment: Nothing in the Clean Air Act authorizes the EPA to ignore the intent of Congress as embodied in other statutes. McCarthy argues as if the Clean Air Act must expressly prohibit the EPA from flouting the letter and spirit of EPCA or else the EPA is free to connive with CARB to restructure the statutory program Congress created.

Even if one dons statutory blinkers and considers only the criteria contained in section 209(b), the EPA should still have denied California’s request for a waiver, as Bush EPA Administrator Stephen Johnson did in February 2008. Section 209(b)(1)(B) states that “No waiver shall be granted” if the State does not “need” the waiver to meet “compelling and extraordinary conditions.” The waiver provision addresses the historic reality that California’s geography,  meteorology, and automobile culture create “extraordinary” conditions with respect to photochemical smog. In contrast, greenhouse gas concentrations are essentially uniform throughout the globe, and are not affected by California-specific circumstances. In addition, climate change risks are not evidently more “compelling” in California than in other states. As my colleague Sam Kazman quipped, “They call it global warming, not California warming.” 

Moreover, unlike other motor vehicle emission standards California has adopted, which measurably improve air quality in the State, the AB 1493 standards will make no discernible difference to climate change risk in California. The State cannot ”need” purely symbolic emission standards.

Given the strength of Johnson’s argument, why haven’t courts overturned the AB 1493 waiver? To challenge the waiver, petitioners must have standing. In April 2011, the D.C. Circuit Court of Appeals held that the National Automobile Dealers Association and the U.S. Chamber of Commerce do not have standing. Since auto makers are directly subject to the AB 1493 standards, they would clearly have standing to sue, at least during the early phase of the “national” program. However, auto companies forfeited their legal right to challenge the waiver as part of the “historic agreement.”

For the sake of argument, let’s assume that greenhouse gas motor vehicle standards, like those based on California’s motor vehicle emissions law, AB 1493, are “related to” fuel economy standards. I know you don’t think they are, but for now, let’s assume there is a relationship to fuel economy standards. If there was, would it be lawful for California to implement AB 1493? Would it be proper for the EPA to grant California a waiver to implement it?

Response: EPA can only deny a waiver based on one of the criteria listed in section 209(b) of the Clean Air Act. EPA’s waiver decisions under section 209(b) are based solely on an evaluation of those criteria, and evaluation of whether California emission standards are preempted under EPCA is not among those specified criteria. As a result, in making waiver decisions EPA takes no position regarding whether or not California’s GHG standards are preempted under EPCA.

Comment: McCarthy evades the question. Logically, her response implies that even if the Supreme Court ruled that EPCA preempts California’s greenhouse gas motor vehicle standards, the EPA would still have granted the waiver, since (according to McCarthy) the EPA may consider only criteria specified in 209(b) and nothing else. 

Key agency documents and even AB 1493 itself imply that motor vehicle greenhouse gas emission standards and fuel economy standards are closely related. EPA and NHTSA acknowledge in their May 2010 Tailpipe Rule [75 FR 25324, 25424, 25327] that no commercially available technologies exist to capture or filter out carbon dioxide (CO2) emissions from motor vehicles. Consequently, the only way to decrease CO2 per mile is to reduce fuel consumption per mile — that is, increase fuel economy. Carbon dioxide constitutes 94.9% of vehicular greenhouse gas emissions, and “there is a single pool of technologies … that reduce fuel consumption and thereby CO2 emissions as well.” What this analysis tells me is that greenhouse gas motor vehicle emission standards inescapably and primarily regulate fuel economy. Do you agree?

Response: The two are closely aligned but they are different. EPA must follow the language of section 202(a) of the Clean Air Act; the Supreme Court rejected the argument that EPA does not have authority to regulate CO2 from vehicles because it would impact fuel economy. The Supreme Court concluded that, “the two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.”

Comment: Another evasive response. The fact that the two types of standards are “different” is irrelevant. Two brothers are different people; they are nonetheless related. The Court’s statement — “there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency” — is also irrelevant. The Court was referring to two federal agencies — the EPA and NHTSA. The Court did not affirm that state-level regulations “related to” fuel economy are consistent with EPCA.   

The framework document for the Obama administration’s model year 2017-2025 fuel economy program, the September 2010 Interim Joint Technical Assessment Report published by the EPA, NHTSA, and the CARB, considers four fuel economy standards, ranging from 47 mpg to 62 mpg. Each is the simple reciprocal of an associated CO2 emission reduction scenario. The 54.5 mpg standard for model year 2025, approved by the White House in August 2012, is a negotiated compromise between the 4% per year (51 mpg) and 5% per year (56 mpg) CO2 reduction scenarios. If fuel economy standards derive mathematically from CO2 emission reduction scenarios, and CO2 accounts for 94.9% of all greenhouse gas emissions from motor vehicles, are not the two types of standards related?

Response: The two are closely aligned but they are different. EPA must follow the language of section 202(a) of the Clean Air Act; the Supreme Court in Massachusetts v. EPA, 549 U.S. 497 (2007), rejected the argument that EPA does not have authority to regulate CO2 from vehicles because it would impact fuel economy. The Court concluded that, “the two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.”

Comment: A third evasive response. No matter what substantive information Vitter provides, McCarthy repeats the same boilerplate. See previous comment for a rebuttal.

Nearly all of CARB’s recommended technologies for reducing greenhouse gas emissions (Table 5.2-3 in CARB’s 2004 Staff Report on options for implementing AB 1493) were previously recommended in a 2002 National Research Council study on fuel economy (Tables 3-1, 3-2). CARB proposes a few additional options, but each is a fuel-saving technology, not an emissions-control technology. These facts tell me that greenhouse gas emission standards inescapably and primarily regulate fuel economy. What conclusion do you draw?

Response: The two are closely aligned but they are different. EPA must follow the language of section 202(a) of the Clean Air Act. The Supreme Court in Massachusetts v. EPA, 549 U.S. 497 (2007), rejected the argument that EPA does not have authority to regulate CO2 from vehicles because it would impact fuel economy. The Court concluded that, “the two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.”

Comment: McCarthy sounds like a broken record. She is clearly unwilling to engage the issue on the merits. 

In AB 1493 itself, CARB’s greenhouse gas standards are to be “cost-effective,” defined as “Economical to an owner or operator of a vehicle, taking into account the full life-cycle costs of the vehicle.” CARB interprets this to mean that the reduction in “operating expenses” over a vehicle’s average life must exceed the expected increase in vehicle cost (Staff Report, p. 148). Virtually all such “operating expenses” are expenditures for fuel. CARB’s implementation of AB 1493 cannot be “cost effective” unless CARB substantially boosts fuel economy. Do you agree?

This question would be best addressed by CARB since it is directed at the state standard.

Comment: No, this question is best addressed to top EPA officials, who presumably formed an opinion about the content and purpose of AB 1493 before authorizing CARB to implement it. Again, an evasive response.

How does the “national” program created in the wake of this backroom deal comport with congressional intent? Under the statutory scheme Congress created, one agency – NHTSA – regulates fuel economy under one statute – EPCA as amended by the Energy Independence and Security Act (EISA) – through one set of rules – corporate average fuel economy. Today, three agencies – NHTSA, the EPA, and CARB – make fuel economy policy under three statutes – EPCA, the Clean Air Act, and AB 1493 – through three sets of regulations. Where does EPCA as amended authorize this triplification of fuel economy regulation?

Response: In Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court rejected the argument that EPA does not have authority to regulate CO2 from vehicles because it would impact fuel economy and concluded that, “the two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.” The National Program approach has garnered widespread support from a broad range of stakeholders including the automobile industry, for this joint, harmonized effort.

Comment: More irrelevancies. As noted above, in Mass. v. EPA, the Court did not rule on the appropriateness of CARB adopting greenhouse gas emission standards or implicitly regulating fuel economy.

The fact that the auto industry supports the “National Program” only proves that regulated industries are vulnerable to intimidation and bankrupt industries can be bribed with corporate welfare. Because no notes were taken, we may never know who said what in the negotiations producing the “historic agreement.” But the available evidence suggests the White House made the auto industry an offer it could not refuse. A docudrama re-enacting Browner’s sales pitch to the auto execs might go something like this:

Are yous guys gonna come along quietly, or do I have to let the California Air Resources Board muss ya up? Shame, too, if you waz to go broke. Look, everybody needs prodection. Play ball wit us and nobody gets hoit, and yous can walk outta here knowin’ your companies will get doze bailout checks.

Conclusion

McCarthy’s responses to Vitter’s questions are not those of a “straight shooter.” She serves up evasion after evasion, irrelevancy after irrelevancy. Almost the only ‘reason’ she provides is an argument from authority, invoking the Supreme Court’s opinion in Mass. v. EPA to justify an EPA action – approval of the California waiver – that the Court did not address.

McCarthy’s evasions are of a piece with the agency’s well-known transparency problems, which at bottom are separation of powers problems. Congress’s ability to hold the EPA accountable is impaired when the agency stonewalls FOIA requests, bases regulations on secret science, conducts official business through private channels, and negotiates regulations with friendly litigants behind closed doors. Oversight is also impaired when EPA officials prevaricate under oath. As House Government Oversight and Reform Chairman Darrell Issa put it in a letter to McCarthy following her testimony at the October 2011 hearing:

Your statements under oath misled the Subcommittee in understanding the relationship between fuel economy standards and greenhouse gas regulations. The difference between regulating greenhouse gases and regulating fuel economy is a distinction without a difference. . . . By obstinately insisting that greenhouse gas regulation and fuel economy regulation are separate and unrelated endeavors . . . you impede the Committee’s important oversight work.

Why did she ‘mislead’ and ‘impede’? To avoid having to admit that the EPA turned the EPCA preemption into a practical nullity and, in cahoots with CARB, restructured the fuel economy program Congress created. Such changes are of a legislative nature and, thus, should be beyond an administrative agency’s pay grade to effect.

Referring to the agency’s greenhouse gas regulations, D.C. Circuit Appeals Court Judge Janice Rogers Brown recently observed that the EPA acts as if its job is to ”steamroll through legislative gridlock” and “upend the Senate’s rejection of the Kyoto Protocol.”

Senate Environment and Public Works Committee Chairman Barbara Boxer (D-Calif.) lauds McCarthy as “tremendously qualified” for the job of EPA administrator. If the issue were simply one of professional experience, knowledge of the issues, and managerial capability, Boxer would be correct.

The central issue, though, is the EPA’s egregious record of dissembling, obfuscation, and overreach during McCarthy’s four years of service as a senior agency official. To be qualified to run a rogue agency, the nominee must above all be a reformer. As her responses to Vitter’s questions on fuel switching and fuel economy reveal, Gina McCarthy is an apologist for the status quo. 

 (*This column has been edited for clarity, May 22, 2013.)

Executive branch overreach involving deliberate attempts to silence critics of the administration has become a pressing issue. Several revelations have come to light this week threatening to further cloud the Obama Administration’s claim of being “the most transparent administration in history.”  With the IRS facing allegations of deliberately targeting conservative groups, and the Department of Justice facing intense scrutiny for secretly monitoring the Associate Press, the executive branch is finding itself under siege from an onslaught of scandals. Now, something new can be added to the pile. According to CEI Senior Fellow Chris Horner, EPA has, in a sign of political bias, denied FOIA Fee Request Waivers requested by conservative groups.

Horner has discovered a clear pattern of bias against conservatives at EPA. While left-wing organizations almost always receive Fee Request waivers, conservative groups have had no such fortune.

According to a CEI press release:

In a review of letters granting or denying fee waivers granted at the “initial determination” stage from January 2012 to this Spring, Horner found green groups, such as the National Resources Defense Council, Sierra Club, Public Employees for Environmental Responsibility and EarthJustice, had their fees waived in 75 out of 82 cases. Meanwhile, EPA effectively or expressly denied Horner’s request for fee waivers in 14 of 15 FOIA requests over this same time.

The administration’s actions are, perhaps, best described in a quote from Horner in the Washington Examiner. “This is as clear an example of disparate treatment as the IRS’ hurdles selectively imposed upon groups with names ominously reflecting an interest in, say, a less intrusive or biased federal government.”

Below, I’ve posted EPA’s response to the FOIA. (N.B., there were some formatting issues, which rendered pages 2 and 3 inverted.)

EPA Responsive Records FY 2013 by Competitive Enterprise Institute

EPA Responsive Records FY 2012 by Competitive Enterprise Institute

Harrison Schmitt and William Happer wrote an excellent op-ed last week in the Wall Street Journal titled, “In Defense of Carbon Dioxide.” In the op-ed, Schmitt and Happer build a solid case for the benefits, as opposed to costs, occurring from an increase in the much maligned carbon dioxide.  Schmitt, who is an Adjunct Professor of Engineering at University of Wisconsin-Madison, has a distinguished reputation as an Apollo 17 astronaut and was formerly a US Senator from New Mexico. Happer is a Professor of Physics at Princeton University and was also the former director of the office of energy research at the Deparment of Energy.

According to Schmitt and Happer, rising levels of carbon dioxide in the atmosphere have not led to the dramatic temperature increases some models have anticipated. In fact, the increase in carbon dioxide has been beneficial. Schmitt and Happer explain:

The current levels of carbon dioxide in the earth’s atmosphere, approaching 400 parts per million, are low by the standards of geological and plant evolutionary history. Levels were 3,000 ppm, or more, until the Paleogene period (beginning about 65 million years ago). For most plants, and for the animals and humans that use them, more carbon dioxide, far from being a “pollutant” in need of reduction, would be a benefit. This is already widely recognized by operators of commercial greenhouses, who artificially increase the carbon dioxide levels to 1,000 ppm or more to improve the growth and quality of their plants.

Despite the strong argument both authors have made, several climate change alarmists have excoriated Schmitt and Happer.  In attempt to discredit the op-ed, these alarmists have resorted to using hackneyed arguments and insults to reaffirm their opposition to what they see as a flawed and misleading op-ed.  Gavin Schmidt called the op-ed, “idiotic”, and Phil Plait of Bad Astronomy, in a reference to the discredited “Hockey Stick Graph” claims the op-ed ignores the graph’s depiction of rising temperatures.

Contrary to the claims of these detractors, Schmitt and Happer’s op-ed is well-supported. According to numerous peer-reviewed studies, increases in carbon dioxide will lead to a “greening of the planet” as plants absorb the carbon dioxide allowing them to flourish well-beyond their current state.

Therefore, as Schmitt and Happer so ably demonstrate, it is imprudent for policymakers to continue to classify CO2 under the category of harmful “pollutants”.  By implementing such policies, we are being steered towards a disastrous outcome for our economic future.

Gina McCarthy — President Obama’s pick to succeed Lisa Jackson as EPA Administrator — is often described as a “straight shooter” and “honest broker.” As my colleague Anthony Ward and I explain in Forbes, McCarthy has a history of misleading Congress about the EPA’s greenhouse gas regulatory agenda.

Specifically, McCarthy and the Air Office over which she presides gave Congress and the electric power sector false assurances that the EPA’s greenhouse gas regulations would not require utilities planning to build new coal-fired power plants to “fuel switch” to natural gas. McCarthy also denied under oath that greenhouse gas motor vehicle standards are “related to” fuel economy standards, even though anyone with her expertise must know that the former implicitly and substantially regulate fuel economy.

McCarthy and the Air Office’s misleading statements about fuel switching discredited critics who claimed the EPA was waging a war on coal and would, if left to its own devices, ban new coal generation. The fiction that greenhouse gas emission standards are unrelated to fuel economy standards gave the EPA legal cover to gin up a regulatory nightmare for auto makers — the prospect of a market-balkanizing, state-by-state, fuel-economy ”patchwork“ – just so the White House, in hush-hush negotiations, could demand auto industry support for the administration’s motor vehicle mandates as the price for averting the dreaded patchwork. This is a complicated tale, which I will discuss in Part 2 of this series.

The bottom line is that if the EPA had not dissembled on fuel switching and not obfuscated on fuel economy, more Senators might have voted for legislative measures, sponsored by Sen. Lisa Murkowski (R-Alaska) in 2010 and Sen. James Inhofe (R-Okla.) in 2011, to rein in the agency. In addition to their well-publicized transparency concerns about the EPA under the leadership of Lisa Jackson and Gina McCarthy, Senators should also have separation of powers concerns.

Earlier this week, Sen. David Vitter (R-La.), Ranking Member of the Senate Environment & Public Works Committee, released a 123 page document containing McCarthy’s responses to hundreds of questions on a wide range of issues. In today’s post, I comment on McCarthy’s responses to Sen. Vitter’s questions about fuel switching. In Part 2 of this series, I will comment on McCarthy’s responses regarding the administration’s motor vehicle program.

The fuel switching issue is somewhat arcane, so it may be helpful if I provide a quick overview before commenting on McCarthy’s answers.

In April 2010, at an event hosted by the Johns Hopkins School of Advanced International Studies, McCarthy stated that best available control technology (BACT) standards for major greenhouse gas emitters would require only efficiency upgrades, not fuel switching from coal to gas. “We haven’t done it [fuel switching] in the past, and there’s been good reason why we haven’t done it in the past,” she reportedly said.

The Air Office’s permitting guidance for greenhouse gases, both as proposed in November 2010 and as adopted in March 2011, similarly states that the “initial list of control options for a BACT analysis does not need to include ‘clean fuel’ options that would fundamentally redefine the source.” In other words, coal power plants would not be lumped together with natural gas combined cycle (NGCC) power plants in the same industrial source category subject to the same emission standards. Accordingly, an applicant would not be required to “switch to a primary fuel type other than the type of fuel that an applicant proposes to use for its primary combustion process.”

Lest there be any confusion on this point, a Q&A document published along with the March 2011 guidance asks whether “fuel switching (coal to natural gas) should be selected as BACT for a power plant?” The document answers: “No.” It states that BACT for carbon dioxide (CO2) should “consider the most energy efficient design,” but “does not necessarily require a different type of fuel from the one proposed.”

In March 2012, however, the EPA proposed a ‘Carbon Pollution’ Rule that does exactly what McCarthy and the Air Office said the EPA would not do. The rule lumps coal power plants and NGCC plants into a single newly-minted industrial source category — “fossil fuel electric generating units.” Moreover, the rule requires fuel switching, proposing a new source performance standard (NSPS) — 1,000 lbs CO2/MWh — that nearly all new NGCC plants already meet (77 FR 22396) and exactly zero commercial coal power plants can meet.

What makes this volta face all the more unexpected is that BACT standards, which apply to individual facilities on a case-by-case basis, are generally more stringent than NSPS, which set minimum emission control standards for categories of industrial sources. In regulatory parlance, NSPS provide the ”floor” for BACT determinations. If the EPA would not use BACT to require fuel switching, then it would seem unreasonable – even paranoid – to suspect the EPA of planning to use NSPS for that purpose.

The timeline of these actions is critical. In June 2010, the Senate voted on Sen. Murkowski’s resolution (S.J.Res.26) to overturn the EPA’s Endangerment Rule, the prerequisite for all EPA global warming regulations. The resolution fell short by four votes (47-53). In April 2011, the Senate voted on Sen. Inhofe’s legislation to overturn all EPA global warming regulations except those auto companies had already made investments to comply with. The bill failed on a 50-50 tie vote. Had McCarthy and the EPA been candid about their anti-coal agenda in 2010 and 2011, more Senators might have voted for those measures.

In any case, agencies are not supposed to provide false or misleading information to influence how Members of Congress vote.

Let’s now see how McCarthy addresses these issues. Vitter’s questions are in bold type, McCarthy’s responses are indented, my comments are in blue.

BACT standards apply to individual sources on a case-by-case basis. They generally are more stringent – and by law may not be less stringent – than Clean Air Act new source performance standards (NSPS), which the EPA establishes for categories of industrial sources. In other words, NSPS are the “floor” or minimum emission control standards for BACT determinations. Is that correct?

Response: Yes. The Clean Air Act specifies that BACT for a source cannot be less stringent than an applicable NSPS. Thus, when EPA completes an NSPS for a source category, BACT determinations that follow for applicable sources would need to consider the levels of the pollutant standards and the supporting rationale of the NSPS.

Comment: The EPA’s ‘Carbon Pollution’ Rule proposes NSPS for CO2 from “fossil fuel electric generating units.” The standard is 1,000 lbs CO2/MWh. The EPA estimates that most NGCC power plants already meet that standard, whereas the most efficient commercial coal power plants emit 1,800 lbs CO2/MWh (77 FR 22417).  

If BACT does not require fuel-switching, we should have no reason to expect that NSPS would require fuel switching or “redefine the source” to impose identical CO2 control requirements on coal boilers and on gas turbines. Is that correct?

Response: EPA’s GHG Permitting Guidance (March 2011) says: “… a permitting authority retains the discretion to conduct a broader BACT analysis and to consider changes in the primary fuel in Step 1 of the analysis.” Thus, EPA never ruled out the possibility that a permitting agency could require that an applicant consider natural gas, or other cleaner fuels, when proposing a coal-fired EGU.

Comment: McCarthy omits the first word of the quoted sentence: “Ultimately.” The unexpurgated sentence reads: “Ultimately, a permitting authority retains the discretion to conduct a broader BACT analysis and to consider changes in the primary fuel in Step 1 of the analysis” (emphasis added). ”Ultimately” suggests something that might happen several years down the road, not the agency’s next move, and then only as a matter of “discretion” in individual cases, not as the industry-wide default position. The guidance document’s weasel words, which occur in only one sentence out of a 96-page text, do not obviate the fact that McCarthy and the EPA misled Congress and industry about the scope of the agency’s regulatory ambition.

[McCarthy continues:] However, it is important to note that under the proposed carbon pollution standard for new power plants, companies would not be required to build natural gas combined cycle units; they would be required to meet a standard of 1000 lbs/MWh, which can be met either through the use of natural gas or by burning coal along with carbon capture and storage [CCS].

Comment: This is a distinction without a difference. No commercial coal plants with carbon capture and storage exist, and none is being built without substantial taxpayer support. The levelized cost of new coal plants already exceeds that of new NGCC plants, and “today’s CCS technologies would add around 80% to the cost of electricity for a new pulverized coal (PC) plant, and around 35% to the cost of electricity for a new advanced gasification-based (IGCC) plant,” according to the EPA (77 FR 22415). Since building an NGCC plant is far cheaper than building a coal plant with CCS, the proposed 1,000 lbs CO2/MWh standard is a de-facto requirement to fuel switch from coal to gas. Offering an alternative no one will choose because it is prohibitively costly does not make fuel switching optional. 

[McCarthy concludes:] The agency is still actively considering a wide range of comments on this issue, and any final decision will reflect careful consideration of the issue.

Comment: In other words, the agency is still trying to figure out how to tweak the NSPS in light of detailed legal criticism so that the rule still puts the kibosh on new coal generation without being tossed out in court.

In their guidance establishing what could be considered Best Available Control Technology (BACT) for regulating GHGs in the permitting process, EPA stated that fuel-switching from coal to natural gas would not and could not be considered BACT: Since NSPS are traditionally interpreted to set the BACT “floor” for permitting purposes, how can a NSPS that eliminates the ability to construct new coal units without the implementation of commercially infeasible carbon capture and storage (CCS) be consistent with EPA’s previous guidance?

Response: As explained in responses to related questions, the statement that “EPA stated that fuel-switching from coal to natural gas would not and could not be considered BACT” is not entirely correct. While EPA did not propose that CCS represented BSER [best system of emission reduction], EPA stated in the preamble of the proposed NSPS rule that “CCS is technologically feasible for implementation at new coal-fired power plants and its core components (CO2 capture, compression, transportation and storage) have already been implemented at commercial scale.” [77 FR 22414].

Comment: This response does not address the criticism that even if one sentence of the guidance document anticipates that permitting agencies may “ultimately” exercise the “discretion” to require fuel switching in individual cases, the EPA gave no hint that next year it would require all new fossil fuel power plants to be either NGCC or non-economical coal with CCS. Note, too, that “implemented at commercial scale” is not the same as commercially viable, i.e., sustainable without taxpayer subsidies.

Would a straight shooter concoct anything as weirdly convoluted as this rule? The Clean Air Act defines “performance standard” as a “standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which . . . the Administrator determines has been adequately demonstrated.” The EPA picked 1,000 lbs CO2/MWh as the standard because that is a typical emissions rate of new NGCC power plants. But NGCC is a type of power plant, not a system of emission reduction. Gas turbines have been “adequately demonstrated” only as power sources – not as emission reduction systems for coal boilers. To my knowledge, the EPA has never before selected a performance standard such that one type of facility can comply only by being something other than what it is.

Why propose something so contorted? The EPA does not anticipate any quantifiable climate or health benefits from the NSPS (77 FR 22430). The rule’s only discernible purpose is to ban construction of new coal generation. The greenhouse gas permitting guidance document concealed that purpose.

The Air Office’s PSD and Title V Permitting Guidance for Greenhouse Gases, both as proposed in November 2010 and as adopted in March 2011, similarly states that the “initial list of control options for a BACT analysis does not need to include ‘clean fuel’ options that would fundamentally redefine the source.” In other words, an applicant would not be required to “switch to a primary fuel type other than the type of fuel that an applicant proposes to use for its primary combustion process.” In addition, a Q&A document published along with March 2011 guidance asks whether “fuel switching  (coal to natural gas) should be selected as BACT for a power plant?” The document answers: “No.” It goes on to state that BACT for CO2 should “consider the most energy efficient design,” but “does not necessarily require a different type of fuel from the one proposed.” These documents suggest that the EPA will not require fuel switching in BACT determinations. Was that a reasonable conclusion for Congress and electric utilities to draw at the time?

Response: That is a reasonable interpretation, and EPA continues to believe that its BACT guidance is reasonable for the specific purposes for which the guidance is intended.

Comment: Bingo! If the conclusion that the EPA would not require fuel switching is a reasonable interpretation of the BACT guidance, then Congress and electric utilities had no reason to expect the agency to require fuel switching only one year later, much less do so via a form of regulation — NSPS — that is generally less stringent than BACT. In hindsight, the BACT guidance was the setup for a bait-and-fuel-switch.

Some Senators wonder how they can trust Gina McCarthy to be a “straight shooter” as EPA administrator given the agency’s FOIA failures, reliance on secret data in rulemakings, and use of private email accounts to conduct official business. These issues are significant but so is the agency’s trickery on greenhouse gas regulation of stationary sources.

Note also that the proposed 1,000 lb CO2/MWh performance standard is substantially similar to the NSPS proposed in section 116 the Waxman-Markey cap-and-trade bill, which would require a 50% reduction in CO2 emissions from new coal plants permitted before Jan. 2020. The Waxman-Markey legislation narrowly passed in the House but companion legislation died in the Senate. The ‘Carbon Pollution’ Rule sure looks like an attempt to end-run the legislative process and enact a policy Congress has rejected.

Looking at this from a wider angle, Senators might ponder what would have happened if Reps. Waxman and Markey, instead of introducing a cap-and-trade bill, had introduced legislation authorizing the EPA to do exactly what it is doing now — regulate greenhouse gases through the Clean Air Act as it sees fit. Such a bill almost certainly would have been dead on arrival. Under the leadership of Lisa Jackson and Gina McCarthy, the EPA has morphed into a Super Legislature, ‘enacting’ climate and fuel economy policies Congress has not approved and would reject if introduced as legislation and put to a vote. The Senate cannot confirm McCarthy as EPA Administrator without rewarding the agency’s regulatory overreach.

Nor can it do so without encouraging the agency to fool and trick Congress, as it did during the Senate debates on the the Murkowski resolution and Inhofe legislation, when statements by McCarthy and the Air Office seemingly disavowed any ambition to “bankrupt” investors in new coal power plants. Whatever their party affiliation or views on climate change, Senators should dislike being hoodwinked.

(*This column has been edited lightly for clarity, May 22, 2013.)

Is the Clean Air Act so badly flawed that it will cripple environmental enforcement and economic development alike unless the EPA and its state counterparts defy clear statutory provisions or, alternatively, spend $21 billion annually to employ an additional 320,000 bureaucrats?

That is a central issue in a recent lawsuit by Southeastern Legal Foundation (SLF), the Competitive Enterprise Institute (CEI), a host of lawmakers and several companies, who are petitioning the Supreme Court to review an appellate court decision upholding the EPA’s global warming regulations.

I discuss some of the legal issues today in a column on Forbes.com. My conclusion: The Court’s reading of the Clean Air Act in Massachusetts v. EPA (2007) and the EPA’s reading of the Act in regulating greenhouse gas emissions from “major” stationary sources cannot both be right — and both may be wrong!

Unless the Court is prepared to take ownership of the bizarre notion that the the Clean Air Act was wired from the start to self-destruct four decades later, it should either overturn the EPA’s regulation of stationary sources, revise its decision in Mass. v. EPA, or both.

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.

One option long advocated by the biofuel industry is for Congress to “incentivize” sales of E85 (motor fuel blended with up to 85% ethanol). Every gallon of ethanol sold as E85 represents up to 8.5 gallons of ethanol the refiner does not have to sell as E10. In theory, a robust market for E85 would enable refiners to meet the rest of their quota obligation within the E10 blend wall.

However, the chief obstacle to market penetration of E85 is not, as the ethanol lobby contends, the absence of political support such as flex-fuel vehicle mandates and tax breaks to install E85-capable storage tanks and blender pumps. The main barrier is simply that E85, due to its inferior energy density and poor fuel economy, is a money loser for consumers.

FuelEconomy.Gov, a Web site jointly administered by the EPA and the Department of Energy, makes this painfully clear. At today’s prices, the typical owner of a flex-fuel vehicle would spend up to $750 a year more to drive with E85 instead of regular gasoline.

The ethanol lobby’s other solution is for the EPA to approve the sale of E15 by conventional retail outlets. Approving E15 would allow refiners to increase by 50% the quantity of ethanol blended in each gallon of motor fuel sold. In October 2011, the EPA authorized the sale of E15 for newer automobiles (model years 2001 and later). But so far only a handful of retail outlets offer the fuel. As Platts explains, “Liability issues related to misfueling, the cost of outfitting a retail station to carry the fuel, and concerns raised by some auto manufacturers who won’t honor warranties if E15 is used, have dampened the market for the fuel.”

So what is the EPA’s clever new idea? Double down on E15 — literally. The EPA’s recently proposed Tier 3 Vehicle Emission and Fuel Standards Rule contains what New York Times reporter Matthew Wald calls an “audacious suggestion.” A major objective of the rule is to reduce the sulfur content of gasoline, and ethanol contains no sulfur. Under the proposed rule, automakers could “request” the EPA to certify vehicles “optimized” to run on high-octane fuels such as E30. The agency envisions a triple play, in which E30 lowers sulfur emissions, improves fuel economy, and pushes ethanol sales beyond the E10 blend wall (p. 28):

This could help manufacturers that wish to raise compression ratios to improve vehicle efficiency, as a step toward complying with the 2017 and later light-duty greenhouse gas and CAFE standards (2017 LD GHG). This in turn could help provide a market incentive to increase ethanol use beyond E10 by overcoming the disincentive of lower fuel economy associated with increasing ethanol concentrations in fuel, and enhance the environmental performance of ethanol as a transportation fuel by using it to enable more fuel efficient engines.

Ethanol contains less energy than gasoline by volume but, according to the EPA, a vehicle “optimized” to run on E30 could get better mileage than today’s vehicles. Wald explains:

Using high-octane premium-grade gas in an engine that does not require it offers no benefit. But in engines designed to squeeze the fuel-air mixture to very high pressures before igniting it with the spark plug, high-octane fuel burns predictably and can produce more horsepower. . . .Ethanol contains only about two-thirds as much energy as gasoline, gallon for gallon. But if it is burned in engines designed for high cylinder pressures, it will produce competitive horsepower.

Are E30-optimized vehicles commercially viable? The proposed Tier 3 rule provides no data on either the consumer cost of such vehicles or the fuel economy gains. Even if the lifetime fuel savings outweigh the increase in vehicle cost, that is not usually the decisive factor for most consumers, otherwise hybrid sales would be larger than 4% of the vehicle market.

One thing is clear. E30 would face an even bigger infrastructure challenge than E15 does. A March 2012 API study found that “very few” service stations would be able to sell E15 with existing equipment: “Equipment modifications could be as little as new hanging hardware (i.e., hose, nozzle, etc.) or as much as an entirely new fuel dispensing system.” More extensive modifications, such as new dispensers and a new storage tank, would likely be required to sell E30.

That’s a major expense for most service stations, which typically are small businesses with razor thin profit margins on the fuel they sell. According to the National Association of Convenience Stores (NACS):

The cost of a new fuel dispenser is approximately $20,000. An average store has four dispensers, so the cost could be as much as $80,000 to upgrade the dispensers alone. If underground equipment is also replaced, permitting and other related costs would increase expenses significantly.

In April 2012, NACS estimated that the nation’s 120,000 convenience stores would have to spend $22 billion on retrofits if they had to sell blends in the range of E30 and higher.

What would it take to mobilize that much capital? Consumer demand for E30-optimized vehicles is unlikely to surge to the point where the industry on its own would make the requisite investments. Given the debt crisis, Congress is unlikely to pony up billions in tax breaks to subsidize construction of a national E30 infrastructure.

Yet the EPA seems determined to shatter the E10 blend wall. The EPA’s “audacious suggestion” is thus most likely a beachhead for more aggressive moves down the line. Don’t be surprised if future Ethanol Promotion Agency rules effectively mandate that new vehicles be designed to run on E30.

The Senate Environment and Public Works Committee has scheduled a vote on the nomination of Gina McCarthy to be Administrator of the Environmental Protection Agency for the morning of Thursday, 9th May. All the Democrats on the committee will vote for McCarthy. Since they hold a ten to eight majority over Republicans, it is certain that the committee will send the nomination to the Senate floor for a confirmation vote.

What is less certain is whether Senator David Vitter (R-La), ranking Republican on the committee, will have the committee’s seven other Republicans with him in voting against McCarthy. If he does, then the next question is whether Vitter will lead an effort to block a floor vote.

It takes 60 votes to invoke cloture to end debate and move to a vote. So Vitter needs to round up 41 votes to block McCarthy’s confirmation. There are 45 Republicans in the Senate. If Vitter leads the effort against McCarthy, it is likely that he will have two or three Democrats with him. But there are also a number of Republicans who might defect. Several of them don’t like McCarthy, but believe that deference should be given to the President’s nominees unless they are manifestly unqualified or corrupt.

The argument for blocking McCarthy’s confirmation is simply that it is one of the very few shots that Senators will have during the 113th Congress to push back the EPA’s ongoing regulatory onslaught against affordable energy. McCarthy, as Assistant Administrator for Air and Radiation for the past four years, has been in charge of writing and promulgating the several Clean Air Act regulations that are designed to close coal-fired power plants. In my view, those Senators who oppose the EPA’s agenda should not be voting to promote the point person for implementing that agenda. She also misled both the Congress and the public about the design and impact of two of the most expensive regulations—new fuel economy targets and the Carbon Pollution Standard. My colleagues Marlo Lewis and Anthony Ward explain her duplicity here.

[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.”

This inflated cost of compliance has garnered the attention of Congress.   In a letter to the EPA, Senator Ron Wyden (D-Oregon), Chairman of the Energy and Natural Resources Committee, inquired about this volatility.  He wrote, “given that ethanol is an increasingly important factor in the cost and supply of motor fuel in the US, it is critical that the committee have a better understanding of the causes and effects of RIN market volatility and developments.”  The basic answer to Wyden’s inquiry is that the RFS is structurally flawed, and current RINs prices are an internal warning sign.

The conventional biofuels component of the RFS effectively mandates the blending of corn-based ethanol. For 2013, the Environmental Protection Agency (EPA), which administers the mandate, has proposed that 13.8 billion gallons of corn-based ethanol be blended into the U.S. gasoline supply, as prescribed by the RFS. By 2015, the RFS mandates that corn-based ethanol blending must rise another 1.2 billion gallons to a total of 15 billion gallons.

This is problematic as the majority of motor fuel marketed in the U.S. is effectively limited to 10 percent ethanol.  While the EPA has approved e-15 blends for certain automobiles, there are a number of practical hurdles till in place.  These include efforts to prevent mis-fueling, state level regulatory compliance, auto warranties that are voided by using fuels with more than 10 percent gasoline, the cost of installing infrastructure to handle higher blends, and the liability that goes with all these issues.

Blending 13.8 billion gallons of conventional ethanol in 2013 exceeds the 10 percent effective cap on ethanol in place under the Clean Air Act; so would blending 15 billion gallons in 2015.  That was a significant matter overlooked during the approval of RFS in 2007.  Effectively under the RFS, the fuel supply will require more corn-based ethanol than is legally allowed under the Clean Air Act, and practically allowed by the nation’s fuel infrastructure.

As the infeasibility of blending enough ethanol to meet the RFS has become more apparent in recent months, refiners’ demand for ethanol RIN credits has skyrocketed, leading to the substantial price hike.  That has been exacerbated by last year’s drought which reduced corn production and in turn ethanol production.  Less ethanol production means fewer RINs generated, and thus places an even bigger squeeze on the fuel market next year as the mandated amount of biofuels rises again.

As for the advanced biofuels component of the RFS, a major obstacle to compliance is the absence of cellulosic biofuel, one of the very fuels the EPA presumes to regulate through the policy.  Indeed, virtually zero cellulosic ethanol was produced in 2012, despite the EISA original mandate that 500 million gallons be used. In other words, Congress mandated the use of a fuel that did not exist, and still does not practically exist even six years after the passage of the law.

The EISA mandate for cellulosic ethanol this year is one billion gallons; EPA projects that 14 million gallons – or 1.4 percent of the original mandate – will be produced this year.  Even though EPA has waived the full requirement for cellulosic ethanol, they have not lowered the overall advanced category in which cellulosic is included.  Thus, the RFS creates even more demand for other advanced fuels such as biodiesel and imported Brazilian sugar ethanol, propping up their RIN values.

Under the RFS, oil refiners, fuel blenders and importers bear the regulatory burden of meeting the mandates. That burden can be summed-up as a requirement to sell a fuel that is not available in the marketplace, and a fuel with more corn-based ethanol than the system can bear.  Moreover, with RFS mandates scheduled to rise from 16.5 billion gallons of combined ethanol and biodiesel to 33 billion gallons over the next eight years, the cost to consumers could be expected to double by 2021 if the situation is not addressed.

Back in 2007, the RFS was touted as a nearly a utopian policy — it would help America achieve energy independence at virtually no cost, according to biofuel advocates.  Yet, our biofuels policy has inevitably driven us toward a series of costly unintended consequences.  Congress should reform our biofuels policy and eliminate this hidden tax on consumers before it before it grows significantly worse.

Bill Lapp is President of Advanced Economics Solutions, a commodity market risk management advisory firm in Omaha, Nebraska.  Dave Juday is the principal of The Juday Group a commodity market and policy analytical firm in Washington, D.C. 

In a recent interview with CBC Radio, global warming alarmist and former NASA Climate Science director, James Hansen, compared conservatives to “Neanderthals”.

Hansen’s remarks were prompted in response to comments made by Joe Oliver who is a conservative politician and the Canadian Minister of Natural Resources.  Speaking at the Center for Strategic Studies last week, Oliver heaped opprobrium on the scientist. In his speech he declared, “”It does not advance the debate when people make exaggerated comments that are not rooted in the facts. And [Hansen] should know that.”

Instead of addressing these concerns, Hansen responded with insults.

Such vitriol from Hansen speaks volumes about the character, or absence of character, of some global warming alarmists.  Instead of discussing the issues themselves, this “distinguished” scientist resorts to stereotyping an entire group of people as the equivalents of slow-witted, unsophisticated cave men.