Graph courtesy of Roger Pielke Jr.
The EPA announced yesterday that it would open a 30 day commenting period as it weighs requests from multiple state governors to use provisions in the Clean Air Act to temporarily suspend the corn ethanol mandate under the Renewable Fuel Standard:
The EPA asked on Monday for public comment on the need for an ethanol waiver. The 30-day comment period will begin once the notice is published in the Federal Register.
“This notice is in keeping with EPA’s commitment to an open and transparent process to evaluate requests the agency receives under the Clean Air Act, and does not indicate any predisposition to a specific decision,” agency spokeswoman Alisha Johnson said in a statement.
By law the agency has until November 13 to make a decision on the waivers, meaning EPA could act on the requests after national elections on November 6.
Aimed at reducing U.S. reliance on foreign oil, the Renewable Fuels Standard, or RFS, would require 13.2 billion gallons of ethanol to be made from corn this year. [click to continue…]
From the Sunday talk show circuit, summary courtesy of Politico:
High energy costs, not the drought gripping more than half the country, may take a bite out of Americans’ grocery bills, Agriculture Secretary Tom Vilsack said Sunday.
With 26 states in drought conditions, CNN’s Candy Crowley repeatedly pressed Vilsack on “State of the Union: over a connection to jumps in the prices of some food items, but Vilsack resisted the connection.
“If [people] are using this drought to inappropriately raise prices, shame on them,” Vilsack said.
Typically, when it is discovered that in the future there will be much less of a certain commodity than previously expected, the price rises. While some energy prices have risen, they haven’t changed enough to warrant such a dramatic rise in the price of corn. The primary cause is lowered yields resulting from drought:
U.S. feed grain supplies for 2012/13 are projected sharply lower this month with lower production for corn on lower yields. Extremely hot weather and drought result in a 20- bushel-per-acre decline in the projected corn yield to 146 bushels per acre reducing projected production to 13.0 billion bushels, compared with 14.8 billion bushels last month. The June Acreage report increased planted acreage relative to March intentions but harvested acreage was reduced 249,000 acres. Corn supplies for 2012/13 are projected1.8 billion bushels lower. Forecast 2012/13 prices are increased for corn, sorghum, and barley and oats. With tighter supplies and higher price prospects, domestic corn use is projected down 755 million bushels as feed and residual and ethanol use prospects are lowered. [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…]
The expiration of the Volumetric Ethanol Excise Tax Credit (VEETC) at the end of 2011 has led to a number of ethanol plants shutting down, and others operating in the red:
After predicting they would survive the end of a major federal subsidy without problems, it looks like officials at the nation’s ethanol producers may have been too optimistic.
Since the subsidy ended Dec. 31, ethanol profit margins have declined sharply, even slipping into negative territory. Experts see no quick turnaround in sight.
Now that the subsidy has disappeared, the ethanol downturn is being felt nationwide, including in Minnesota. The state’s $2 billion-plus industry ranks fourth in the nation in capacity and production.
At the Al-Corn Clean Fuel ethanol plant in southeast Minnesota, CEO Randall Doyal sees how the loss of the subsidy has hurt this business. He said his profit margin — the difference between the cost of making the corn-based fuel and what he can sell it for — has disappeared.
“Since the first of the year it’s been even-to-slightly negative,” Doyal said.
It’s not exactly satisfying to see economic activity being shuttered during a time of high unemployment, as undoubtedly hard-working individuals at these plants are temporarily out of work. But those who support aligning our energy economy more closely with market principles are in a minority, so we don’t necessarily get to choose when and where some of these decisions (that can be painful in the short run) are made. [click to continue…]
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:
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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…]
Dave Juday, a commodity analyst writing in The Weekly Standard, has a long essay covering the largely negative consequences of our nation’s ethanol policy. He covers many of the familiar arguments, such as rising food costs and the ongoing nonexistence of cellulosic ethanol, but also many topics less often covered by the media, such as the clever ability of corporations to take advantage of these subsidies in ways that were not intended:
For a time, the $1 tax credit provided a huge incentive to import soy oil from South America, blend it with a small amount of petroleum diesel to claim the U.S. tax credit—the blending often occurred while the tanker ship was still in port—and then re-export the blended fuel to Europe to further capture EU subsidies. That little scheme was known as “splash and dash,” and it was a $300 million subsidy to promote domestic biofuel use that did not in fact subsidize biodiesel use in the United States.
Consider the absurdity of splash and dash at its height: According to the Department of Energy, in 2008 the United States produced 678 million gallons of biodiesel and exported 677 million gallons. We imported 315 million gallons, and domestic U.S. consumption was 316 million gallons. That particular stratagem ended in 2009, but exports haven’t. Despite not meeting the mandated minimum for domestic biodiesel use last year, more than a third of the biodiesel produced in this country was exported in 2010. [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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A blog post at the National Corn Grower’s Association, which has since been taken down, was titled: “If the Government Could Mandate Unicorns…” A cached version is here.
When a two year-old throws a temper tantrum because he cannot have a pet unicorn, it can seem confusing, annoying or possibly endearing. No matter which gut reaction a parent has, they universally understand the need to explain the concept of “nonexistent.” When the Environmental Protection Agency continually demands the impossible, why are they treated any differently?
The issue is simple. The updated version of the Renewable Fuel Standard mandates usage of 250 million gallons of cellulosic ethanol this year and 500 million gallons by 2012. As of June 2011, zero gallons of qualifying cellulosic ethanol were produced. The target is, under current conditions, an impossible demand.
It is a demand based on promises. Much as parents may tell stories about unicorns and fairies, some players in the ethanol and environmental industries pushed a product which they were not prepared to deliver. In both scenarios, optimism created a beautiful vision of a world that does not exist. Once the story was sold, neither party could meet the unrealistic expectation that they had created. [click to continue…]
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