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.

Recall in 2008 Texas Governor Rick Perry submitted a similar request to the EPA which the EPA denied by arguing that waiver requests must show that the mandate was “severely damaging” a region’s economy rather than just contributing to economic damage.

As noted, the EPA will not need to act on this until after the election. It’s possible at that point they would consider in some way reducing the blend level of corn ethanol, though it seems very unlikely as the Obama Administration — like the administrations before him — has repeatedly placed the interests of ethanol producers over the interests of consumers.  The popularity of ethanol has shifted slightly in recent years, though its hard to imagine it’s shifted enough such that the EPA would be willing to enrage the ethanol industry, and send a “chilling signal” to investors in order to alleviate the demand for corn created by the Renewable Fuel Standard. Perhaps things will change if the drought continues or intensifies.

More likely, if anything, as Roger Pielke Jr. points out the outcome will involve some sort of change to the Renewable Identification Number system allowing refiners increased flexibility to push blending obligations to future years when (presumably) drought conditions have alleviated. He also produced a nice graph (above) displaying modeled reductions in corn prices in response to theoretical changes to the RFS. The same study, oddly enough, has been touted by ethanol supporters to suggest that changes to the RFS would not have significant impacts. However, the study found corn price reductions in the range from 7.5-25%, depending on the severity of modifications to the RFS. I wouldn’t classify any of those as insignificant.

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.

And the inevitable price increase:

One argument in support of policies that encourage the use of biofuels is that the price of oil is subject to wild swings, decreasing “economic security” etc. as prices are not guaranteed to follow a predictable path. Unfortunately, corn ethanol is also subject to wild volatility resulting from variations in rainfall.

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.

How much progress have we made on cellulosic ethanol? Robert Rapier points out that the companies promising the “first commercial cellulosic plant” are about a century too late:

But believe it or not, commercialization also took place in the U.S. in 1910. The Standard Alcohol Company built a cellulosic ethanol plant in Georgetown, South Carolina to process waste wood from a lumber mill (PDA 1910). Standard Alcohol later built a second plant in Fullteron, Louisiana. Each plant produced 5,000 to 7,000 gallons of ethanol per day from wood waste, and both were in production for several years (Sherrard 1945).

To put that in perspective, Iogen claimed in 2004 that they were producing the world’s first cellulose ethanol fuel from their 1,500 gallon per day plant. (While 1,500 gal/day is their announced capacity, if you look at their production statistics they have never sustained more than 500 gallons per day over the course of a year; 2008 production averaged 150 gal/day).

Many companies are in a mad rush to be the “first” to commercialize cellulosic ethanol. The next time you hear someone say that they will be the first, ask them if they plan to invent the telephone next.

When reading about the potentials of cellulosic ethanol, I find very few optimists who are not financially tied to the industry and the government support that the industry relies on. The timing of government’s attempt to create both supply and demand for a new product was unfortunate, as the mandate began to ramp up significantly during the recession. However, we only have about 10 years until the Renewable Fuel Standard ceases increasing, and we have yet to produce any cellulosic ethanol at all. If you allow for some successes in the next 2-3 years, these will still be a drop in the bucket compared to the amount the government had “mandated” be produced. At the same time, the mandate continues to direct capital towards projects that aren’t competing on the merits of the technology, but are competing for guaranteed returns promised by our government.

It seems that there is little chance that cellulosic ethanol will have a significant effect on our nation’s fuel supply absent unforeseen breakthroughs in their effectiveness. It will still take massive amounts of land to produce the inputs necessary to create cellulosic ethanol, and these inputs must be cheap enough such that they make it into the market place. Check out the rest of Robert Rapier’s post for a back of the envelope calculation on land use with cellulosic ethanol production:

But then Jerry Taylor, who is the co-founder of MFA Oil Biomass provided a follow-up answer: “It takes 1,000 acres even at 12 tons an acre that we produce to produce 1 million gallons of cellulosic ethanol based on the known conversion rates today.”

Taking his biomass yield assumptions of 12 tons an acre at face value (I doubt you can consistently get 12 dry tons per acre at large scale; commercial hay production is only around half that), we can do an interesting calculation. One million gallons of cellulosic ethanol has the same energy content as half a million gallons of crude oil. (Ethanol contains 2/3rds the energy of gasoline, but a barrel of crude also produces diesel, jet fuel, and fuel oil). U.S. oil production is presently 6.1 million barrels per day. That is 256 million gallons per day, 10.7 million gallons per hour, or 1 million gallons every 5.6 minutes.

Therefore, taking his yield assumptions at face value, 1,000 acres of land planted in Miscanthus giganteus over the course of a year could produce the energy equivalent of under 3 minutes of U.S. oil production. Of course U.S. oil production does not come close to meeting our needs, so to put it in terms of total U.S. oil demand of 18.7 million bpd, 1,000 acres of Miscanthus would cover 55 seconds of U.S. oil consumption. Since that doesn’t take into account the petroleum that will be required to produce the cellulosic ethanol (e.g., running trucks and tractors), the net number would be even lower.

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.

Aside from Minnesota, ethanol production in Iowa is struggling as well, operating at  a margin of -11 cents per gallon:

Figures from Iowa State University Extension confirmed that Iowa’s ethanol plants operated in the red during January, to the tune of 11 cents per gallon.

That comes after operating margins of 19 cents per gallon in December, 69 cents in November, 42 cents in October and 34 cents in September.

The first quarter is typically a tough period for ethanol as gasoline demand falls, but ethanol producers had feared a more severe downturn than usual this year due to continued high prices for corn and the loss of the 45-cents per gallon federal tax credit on Jan. 1.

As you can see from the huge swing in profit margins, the expiration of the tax credit certainly hurt the industry. Furthermore, demand for ethanol is currently low as refiners — forward looking economic actors — purchased significant quantities of ethanol prior to the expiration of the tax credit to take advantage of the tax credit before it expired.

In the long run, the industry is still supported by the Renewable Fuel Standard which keeps a floor on demand. Some plants have closed in the short run, though its likely that most will eventually open in the future when demand recovers.

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:

Although the EPA set the requirement well below Congress’s goal, its decision still irked refiners. Companies will have to buy credits from the EPA if they can’t find enough cellulosic ethanol to purchase—even though the fuel may not be available. “The [EPA's] cellulosic number is still conjecture-based fantasy,” said Stephen Brown, vice president for government affairs for refiner Tesoro Corp.

The credits cost about $1.20 per gallon, according to Charles Drevna, president of the National Petrochemicals and Refiners Association. “Once again, refiners are being ordered to use a substance that is not being produced in commercial quantities—cellulosic ethanol—and are being required to pay millions of dollars for failing to use this nonexistent substance. This makes no sense,” he said.

Brooke Coleman, executive director of the Advanced Ethanol Council, which represents advanced-biofuel companies, said Congress built flexibility into the mandate because “there was always a chance” the industry wouldn’t meet the schedule.

“It shouldn’t surprise anyone with the state of the economy, the state of the financial world, the state of the banks…that there are delays in implementation of new technologies,” Mr. Coleman said. He argued that financing for more cellulosic-biofuel capacity would come as long as the renewable-fuels standard remains in place.

There was always a “chance” they’d miss the mark by 99%! And despite the flexibility to lower the “mandate” the EPA does not seem to have the same flexibility (or perhaps, desire) in waiving the requirement that refiners spend millions of dollars to purchase fake cellulosic ethanol credits.

An interesting aspect of 2012 will be the extent to which the lifting of the tariff on ethanol imports will effect the “advanced biofuels” market. 2012 marks the end of the decades long tariff on ethanol imports, opening up the United States to increased imports from Brazil. Brazil is currently importing corn-ethanol from the United States, as well as exporting small amounts of ethanol to the United States.

Though imports to the United States might not increase dramatically in 2012 as Brazil does not appear capable of increasing production in the short term, given current policies Brazilian exports to the United States are likely to increase substantially in the years to come.

For more of CEI’s writing on ethanol, go here.

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.

The WSJ notes that 6.6 million gallons have been produced this year, though I do not think that this is correct. As far as I can tell, from EPA’s own data, no qualifying cellulosic ethanol has been produced through the end of October, 2011. They do note that some do not believe that the 6.6 million gallons is true cellulosic fuel.

They also cover the bizarre tax that the EPA has forced refiners to pay: $1 per gallon of cellulosic ethanol requirement in the form of a waiver or renewable fuel credit:

It gets worse. Because there was no cellulosic fuel available, oil companies have had to purchase “waiver credits”—for failing to comply with a mandate to buy a product that doesn’t exist. In 2010 and this year, the EPA has forced oil companies to pay about $10 million for these credits. Since these costs are eventually passed on to consumers, the biofuels mandate is an invisible tax paid at the gas pump.

Read the whole editorial here.

In related ethanol news, a recent cellulosic ethanol project, Range Fuels, declared bankruptcy after failing to produce cellulosic ethanol:

The plant was closed after a technical defect limited it to run at half rates and it produced cellulosic methanol, a fuel the Environmental Protection Agency doesn’t consider eligible for use to meet federal biofuel targets.

Range Fuels had also received millions of dollars in government loans (or loan guarantees) from the Department of Energy and the Department of Agriculture. The Range Fuels bankruptcy did not receive nearly as much traction as Solyndra, perhaps because Republicans are often as bad on ethanol as Democrats have been in the past. Hopefully, events like this will shift attitudes away from supporting projects like this.

Finally, in yet another fiasco caused by the ethanol mandates, over $9 million was spent by industrial refiners on the purchases of fake renewable identification numbers (RINs). Essentially, someone set up a fraudulent company and sold these RINs (which refiners are required to purchase in order to show EPA that they are meeting the mandate), which are supposed to be tied to individual gallons of ethanol. However, this individual didn’t actually produce any of the ethanol, and refiners are now being held liable for huge fines. As I understand it, the RIN market is often separate from the actual market for the fuel, which allowed for scams like this to take place.

Keep your eye out on a subsequent letter to the editor from some ethanol proponent who promises that a decade from now it will save the U.S. from its addiction to oil.

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.

This shouldn’t surprise anyone, but it is frustrating nonetheless. These companies would appear to have collected over $300 million in U.S. tax credits (and these tax credits are often defined a “refundable tax credits” which mean the IRS can actually write you a check if the tax credits exceed corporate tax liability, which they often do) at the expense of the U.S. taxpayer while not making any actual progress on the (still misguided) attempt at shutting the U.S. economy off from foreign sources of energy.

The author also covers the complex world of RINs — renewable identification numbers — that are bought and traded with each gallon of renewable fuel:

On top of all the complexity of the tax credits, tariffs, and the import quotas, the federal mandate by feedstock category creates an intricate compliance system. Energy companies who comply with blending regulations to meet the mandate are issued a “renewable identification number,” known as a RIN. These are 38-character numeric codes to trace the transfer of biofuels. Even the National Biodiesel Board itself confesses that “a RIN may look, at first glance, like a wicked advanced algebra problem,” but “in reality, it is the basic currency for .  .  . credits, trading, and use by obligated parties and renewable fuel exporters to demonstrate compliance, as well as track the volumes of renewable fuels.”

There is a sophisticated secondary market for RINs among “obligated parties”​—​i.e., energy companies who must blend biofuels into petroleum-based fuels to meet the standards. Companies who earn RINs may sell them to companies who don’t. It is a miniature cap and trade regime.

Energy companies who cannot procure advanced biofuels on the market because supplies are not available are forced to buy RINs. Given the production situation​—​overproduction of corn ethanol combined with severe underproduction of advanced bio-fuels—it came as no surprise to industry observers when a Maryland biodiesel producer was indicted for fraudulently selling counterfeit RINs.

Yet, to effectively maintain the overall biofuels mandate imposed in 2007, the Obama EPA recently proposed to increase the 2013 biodiesel mandate above the statutory level of 1 billion gallons to 1.28 billion gallons. There can only be one outcome: U.S. diesel users will pay more for fuel in order to offset the cost of imported sugar ethanol from Brazil and the lack of viable commercial cellulosic production technology.

With every government regulation comes an army of lawyers and a large complex program that those affected have to comply with. The author didn’t include another recent RIN scam put on by our own government, which is the EPA requiring that fuel producers continue to purchase cellulosic ethanol RINs despite the lack of cellulosic ethanol on the market, to the tune of roughly $6 million in 2011.

Read the entire essay here. The ethanol tax credit and corresponding tariff on ethanol imports is scheduled to expire at the end of the year and it seems very unlikely that either will be renewed. However, as one subsidy dies a new one might take its place. The ethanol industry is now promoting an ‘open fuel standard’ (among other ideas) which would give consumers the choice require that gasoline stations sell larger blends of ethanol (e15 and higher) while also mandating that automobile manufacturer’s begin building out their vehicle fleet to be flex fuel compatible, or able to run on higher blends of ethanol. I criticized that idea here.

The largest subsidy for the ethanol industry is still the renewable fuel standard. It seems very unlikely that ending this fuel standard would be politically feasible, though it might be possible to change the legislation such that current blend levels are frozen in place while not requiring that they continue to increase until 2022.

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.

If you look at current support for ethanol policies, you see a mish-mash of politicians from the Midwest, the Obama Administration, and the generally liberal environmentalists. However, to their credit the environmentalists have mostly abandoned support for corn ethanol while still unfortunately holding out hopes for cellulosic ethanol. Their are numerous conservative politicians who still actively support ethanol: Senator Grassley (R-IA), Mitch Daniels, Republican Presidential comic relief Newt Gingrich, former Republican Presidential candidate and Minnesota Governor Tim Pawlenty, and many more conservative and liberal politicians. President George Bush was a big ethanol supporter.

Ethanol is a costly boondoggle, but it is a bipartisan boondoggle, and turning this issue into yet another who to blame liberal versus conservative fight harms the bipartisan progress that has been made in limiting the use of government to expand ethanol. My colleague Marlo Lewis wrote about conservative support for ethanol earlier this year.

If you want to learn more about the historical bipartisan support for corn ethanol, I would recommend Ken Glozer’s book titled ‘Corn Ethanol: Who Pays? Who Benefits?’

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.

Naturally, the Renewable Fuels Association had an immediate press release condemning the study:

The results of a new National Academies of Sciences (NAS) study, entitled “Renewable Fuel Standard: Potential Economic and Environmental Effects of U.S. Biofuel Policy”, should be interpreted with extreme caution, the Renewable Fuels Association (RFA) warned today. Specifically, the NAS study released this morning and the executive summary reviewed by the RFA largely assesses ethanol and other biofuels in a vacuum and fails to appropriately compare the costs and benefits of renewable fuels to the impacts of the marginal petroleum sources they are displacing.

If the RFA disapproves, its probably a good study.

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.

This does not mean there is not hope; the real world provides many wonders.  In reality, corn-based ethanol has provided a sustainable, concrete biofuels option for decades.  Due to the magic that is modern technology, production practices continually improve and create an even more efficient, eco-friendly product.  In the here and now, farmers and the ethanol industry are prepared to meet the demand.

Incredibly strong language from the NCGA. The angle here is prying for corn ethanol to begin replacing cellulosic ethanol’s unattainable mandate, which would add 500 million gallons in 2012 and 1 billion gallons in 2013 (4 and 7.5% of 2010 production, respectively).

Now, the rest of the world thought they were playing for the same team in their quest to free us of the alleged evils of importing energy from foreign countries, and that even the corn guys were aware that corn ethanol was a “stepping stone” to more “sustainable” fuels. Apparently not, as the Corn Grower’s Association, accidentally, admitted that economically viable cellulosic ethanol is a fairy tale, at least in the short term.