Yesterday The Hill‘s Energy Blog reported on a brief filed by the EPA in the U.S. Court of Appeals for the District of Columbia:
The documents filed Monday with the U.S. Court of Appeals for the District of Columbia reveal the reasoning behind EPA’s move to shoot down the American Petroleum Institute’s (API) challenge of the renewable fuel standard (RFS). EPA determined that enough advanced biofuels — generally understood to be made from non-food products — existed to meet that portion of the RFS for 2012.
“EPA reasonably considered the production capacity likely to be developed throughout the year, while API would have EPA rely narrowly and solely on proven past cellulosic biofuel production,” EPA said in its brief. “EPA reasoned that lowering the advanced biofuel volume in these circumstances would be inconsistent with EISA’s [the Energy Independence and Security Act of 2007] energy security and greenhouse gas reduction goals, and decided to leave the statutory advanced biofuel volume unchanged.”
The (main) question here is what the 2012 cellulosic biofuel requirements should be set at. The EPA is arguing that they took a reasonable look at capacity production and put out what they thought could be developed, while the American Petroleum Institute is only looking at historic cellulosic biofuel production. So who is being reasonable? [click to continue…]
In his 2006 State of the Union message, President G.W. Bush famously (and falsely) declared that America is “addicted to oil.” As a solution, Bush proposed to “fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switch grass.” He set a “goal” to ”make this new kind of ethanol [a.k.a. cellulosic] practical and competitive within six years.”
Congress heeded the call, and in late 2007 passed the Energy Independence and Security Act. EISA mandated the sale of 36 gallons of biofuel by 2022, with 21 billion gallons to come from ”advanced” (lower-carbon) biofuels, of which 16 billion gallons must be cellulosic.
Well, it’s now six years later, and cellulosic ethanol is still a taxpayer-subsidized science project. EISA (p. 32) required refiners to sell 100 million gallons of cellulosic ethanol in 2010, 250 million gallons in 2011, and 500 million gallons in 2012. Reality repeatedly forced the EPA to dumb down the mandated quantities (to 6.5 million gallons in 2010, 6.0 million in 2011, and 8.65 million in 2012). Even those symbolic targets proved to be too ambitious, because, as a commercial commodity, cellulosic biofuel still does not exist.
Nonetheless, the EPA fines refiners millions of dollars for failure to sell this non-existent fuel. Arizona Rep. Jeff Flake has a commonsense solution, H.R. 6047, the Phantom Fuel Reform Act. [click to continue…]
Last week the EPA dismissed a petition by the American Petroleum Institute seeking relief from the cellulosic ethanol mandate, which requires that oil refiners blend 8.65 million gallons of ethanol into the fuel supply by the end of 2012:
“In all cases, the objections raised in the petition either were or could have been raised during the comment period on the proposed rule, or are not of central relevance to the outcome of the rule because they do not provide substantial support for the argument that the Renewable Fuel Standard program should be revised as suggested by petitioners,” EPA told API, American Fuel & Petrochemical Manufacturers, Western States Petroleum Association, and Coffeyville (Kan.) Resources Refining & Marketing on May 22.
“EPA’s mandate is out of touch with reality and forces refiners to pay a penalty for not using imaginary biofuels,” Bob Greco, API’s downstream and industry operations director, said on May 25. “EPA’s unrealistic mandate is effectively an added tax on making gasoline.”
Greco said the Clean Air Act requires EPA to determine the mandated volume of cellulosic biofuels each year at “the projected volume available.” However, in 2011 EPA required refineries to use 6.6 million gal of cellulosic biofuels even though, according to EPA’s own records, none were commercially available, Greco said.
EPA has denied API’s 2011 petition to reconsider the mandate and continues to require these nonexistent biofuels this year, he indicated. Greco called the action “regulatory absurdity and bad public policy.”
As regular readers of this blog will know, the whole problem with the EPA’s non-flexible mandate is that there is no commercially available cellulosic ethanol, thus making it impossible to meet the mandate. The EPA’s justification for this policy is that they need to maintain an incentive for companies to begin producing cellulosic ethanol, despite many past failures. The oil refiners are also required to purchase these cellulosic ethanol waivers, effectively giving the government money instead of purchasing the non-existent fuel. [click to continue…]
“Ethanol ventures backed by billionaire entrepreneur Vinod Khosla — including Range Fuels, which built a failed factory in Georgia — were given the green light for an estimated $600 million in federal and state subsidies,” reports The Atlanta Journal- Constitution,
Yet,” the AJC article continues, ”none of the dozen or so companies financed or controlled by Khosla over the last decade has produced commercially viable [cellulosic] ethanol. Some failed or, hamstrung by unproven technology and insufficient capital, remain behind schedule.”
The cost to taxpayers? “To date, the companies have tapped about $250 million of the $600 million. Even though they are now unlikely to ever receive the full amounts, tens of millions have been lost.”
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A topic CEI has written about frequently gets covered in The New York Times, the bizarre requirement by the EPA that refiners spend up to $7 million on ghost “credits” from the EPA in lieu of purchasing cellulosic ethanol, which doesn’t exist:
When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law.
But there was none to be had. Outside a handful of laboratories and workshops, the ingredient, cellulosic biofuel, does not exist.
In 2012, the oil companies expect to pay even higher penalties for failing to blend in the fuel, which is made from wood chips or the inedible parts of plants like corncobs. Refiners were required to blend 6.6 million gallons into gasoline and diesel in 2011 and face a quota of 8.65 million gallons this year.
That’s a good summary. Let’s look at one specific paragraph, where the coverage borders on editorializing in support of an agency under attack by the right:
Penalizing the fuel suppliers demonstrates what happens when the federal government really, really wants something that technology is not ready to provide. In fact, while it may seem harsh that the Environmental Protection Agency is penalizing them for failing to do the impossible, the agency is being lenient by the standards of the law, the 2007 Energy Independence and Security Act.
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Just a few days after our previous post outlining the ethanol industry’s brave, unprecedented, legendary, and 100% voluntary decision to give up the ethanol tax credit, we see that there are still other subsidies that they are interested in keeping:
But the head of the Renewable Fuels Association—Bob Dinneen—says the industry will work to ensure that tax credits for cellulosic ethanol will continue past the end of 2012.
“We think that the production tax credit and the depreciation that is now allowed for cellulose needs to continue,” Dinneen says.
Extension of the cellulosic tax credits will send an important signal to the marketplace and encourage investment in the next generation of ethanol technology, Dinneen says.
And to those who consider it just another federal subsidy for ethanol…
“They need only look at the tax incentive for grain-based ethanol that has just expired–that demonstrates you don’t need a tax incentive forever,” Dinneen says.
“You need to encourage investment—convince the marketplace that there is going to be consistent government support that will allow the industry to get on its feet.”
Cellulosic ethanol has not yet been produced commercially, but according to the U.S. Department of Energy web site, several commercial cellulosic plants are under construction.
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Yesterday the EPA finalized the 2012 mandate for blending biofuels into our nation’s transportation fuel supply:
The U.S. Environmental Protection Agency (EPA) today finalized the 2012 percentage standards for four fuel categories that are part of the agency’s Renewable Fuel Standard program (RFS2). EPA continues to support greater use of renewable fuels within the transportation sector every year through the RFS2 program, which encourages innovation, strengthens American energy security, and decreases greenhouse gas pollution.
The Energy Independence and Security Act of 2007 (EISA) established the RFS2 program and the annual renewable fuel volume targets, which steadily increase to an overall level of 36 billion gallons in 2022. To achieve these volumes, EPA calculates a percentage-based standard for the following year. Based on the standard, each refiner and importer determines the minimum volume of renewable fuel that it must ensure is used in its transportation fuel.
The final 2012 overall volumes and standards are:
Biomass-based diesel (1.0 billion gallons; 0.91 percent)
Advanced biofuels (2.0 billion gallons; 1.21 percent)
Cellulosic biofuels (8.65 million gallons; 0.006 percent)
Total renewable fuels (15.2 billion gallons; 9.23 percent)
In a nod to how hard it is to predict the future, the EPA has lowered the cellulosic biofuel mandate from 500 billion gallons to a less ambitious 8.65 million gallons, which is 1.7% of the original planned requirement. Of course, they have done the same in previous years and as of October no qualifying cellulosic ethanol had been sold to refiners. Naturally, refiners are not pleased that in 2012 they will possibly be spending up to $8 million in credits depending upon actual production levels of cellulosic ethanol:
[click to continue…]
The Wall Street Journal ran an editorial commenting on the cellulosic ethanol mandate, which CEI has written extensively about in the past. They write:
Most important, the Nancy Pelosi Congress passed and Mr. Bush signed a law imposing mandates on oil companies to blend cellulosic fuel into conventional gasoline. This guaranteed producers a market. In 2010 the mandate was 100 million barrels, rising to 250 million in 2011 and 500 million in 2012. By the end of this decade the requirements leap to 10.5 billion gallons a year.
When these mandates were established, no companies produced commercially viable cellulosic fuel. But the dream was: If you mandate and subsidize it, someone will build it.
Guess what? Nobody has. Despite the taxpayer enticements, this year cellulosic fuel production won’t be 250 million or even 25 million gallons. Last year the Environmental Protection Agency, which has the authority to revise the mandates, quietly reduced the 2011 requirement by 243.4 million gallons to a mere 6.6 million. Some critics suggest that even much of that 6.6 million isn’t true cellulosic fuel. [click to continue…]
The Washington Times today has an editorial chiding the U.S. Environmental Protection Agency for its decision to proceed with approval and support for higher blends of ethanol (E15) to be sold nationally. There are still a number of complications that seem likely to get in the way of (i.e., the lack of price competitiveness) of widespread use of E15, but recent decisions by the EPA are unfortunately steering the country down that path. However, the editorial makes one comment that doesn’t seem quite right:
This issue highlights the danger of allowing liberal zealots to set public policy. They are so obsessed with micromanaging the lives of others and fulfilling their environmental fantasies that they give no thought whatsoever to the real-world consequences of their schemes.
As a fuel, ethanol is highly corrosive. The E15 gasoline blend reduces gas mileage by 6 percent compared to real gasoline. That adds up to about $150 a year for the average vehicle owner. This expense and the mechanical danger serve absolutely no purpose beyond filling the pockets of wealthy farming giants. Congress needs to repeal the ethanol mandate to protect American pocketbooks – and the car warranties of millions of motorists.
Assuming they are using ‘liberal’ in the liberal versus conservative sense, ethanol has (both historically and to this day) been supported by both liberals and conservatives alike. Indeed, true market-oriented politicians oppose interventions in our energy markets. However, those politicians are few and far between as politicians from both sides rarely have issue with sacrificing their alleged principles in order to support local constituencies or interest groups. [click to continue…]
A recently released report on the future of the biofuel industry, by the National Research Council concludes that the cellulosic ethanol targets are unlikely to be met and casts doubt on the utility of the renewable fuel standard. The report can be downloaded (after a free registration) here, though the report itself exceeds 400 pages, so its not easy reading. Allow me to include a long quote from the conclusion:
A key barrier to achieving RFS2 is the high cost of producing biofuels compared to petroleum-based fuels and the large capital investments required to put billions of gallons of production capacity in place. As of 2010, biofuel production was contingent on subsidies, tax credits, the import tariff, loan guarantees, RFS2, and similar policies. These policies that provide financial support for biofuels will expire long before 2022 and cannot provide the support necessary for achieving the RFS2 mandate. Uncertainties in policies can affect investors’ confidence and discourage investment. In addition, if the cellulosic biofuels produced are mostly ethanol, investments in distribution infrastructure and flex-fuel vehicles would have to be made for such large quantities of ethanol to be consumed in the United States. Given the current blend limit of up to 15-percent ethanol in gasoline, a maximum of 19 billion gallons of ethanol can be consumed unless the number of flex-fuel vehicles increases substantially. However, consumers’ willingness to purchase flex-fuel vehicles and use E85 instead of lower blends of ethanol in their vehicles will likely depend on the price of ethanol and their attitude toward biofuels. Producing drop-in biofuels could improve the ability to integrate the mandated volumes of biofuels into U.S. transportation, but would not improve the cost-competitiveness of biofuels with petroleum based fuels.
This covers much of what CEI has concluded: cellulosic ethanol is too expensive to be widely produced, it is likely to remain so in the future, and blends exceeding 15% are tricky given the lack of cost competitiveness. This is why the Renewable Fuel Standard should not exist. Previous CEI work on cellulosic ethanol can be read here.
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