Tom Vilsack

Post image for Another Study Debunks RFA/Vilsack Claim Ethanol Reduced Gas Prices by $1.09/Gal

A new study by the Energy Research Policy Foundation, Inc. (EPRINC) further debunks the popular talking point of USDA Secretary Tom Vilsack and the Renewable Fuel Association (RFA) that ethanol reduced gasoline prices by $0.89/gal in 2010 and $1.09/gal in 2011.

As noted previously on this site (here and here), Vilsack and the RFA tout a study by Iowa State University’s Center for Agricultural Research and Development (CARD), which concluded that if ethanol production had remained at year 2000 levels, the U.S. motor fuel supply would have been billions of gallons smaller and, thus, significantly pricier in 2010 and 2011. Subsequent studies by FarmEcon, LLC and MIT/UC Davis spotlighted CARD’s unrealistic assumption that the refining industry would not have increased gasoline production to meet consumer demand in the absence of policies mandating and subsidizing the blending and sale of increasing quantities of ethanol as motor fuel.

The EPRINC study (Ethanol’s Lost Promise: An Assessment of the Economic Consequences of the Renewable Fuel Mandate) shows, in addition, that if ethanol output had remained constant at the year 2000 level, refiners could have made up for the shortfall without importing or even refining “a single additional barrel of crude oil.” The Renewable Fuel Standard (RFS) has increased ethanol production by about 400,000 barrels per day (bbl/d) since 2000. A “remarkably small operational adjustment” in refineries’ product mix – a 1.8% increase in gasoline production — could have covered an ethanol shortfall of 400,000 bbl/d in 2011.

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Post image for When Drought Strikes, Should U.S. Policy Endanger Hungry People?

The question answers itself. Of course not. But that is the effect of the Renewable Fuel Standard (RFS), more commonly known as the ethanol mandate.

Under the RFS (Energy Independence and Security Act, p. 31), refiners must sell specified amounts of biofuel each year. The “volumetric targets” increase from 4.0 billion gallons in 2006 to 36 billion gallons in 2022. The amount of corn ethanol qualifying as “renewable” maxes out at 15 billion gallons in 2015. Already, ethanol production consumes about 40% of the annual U.S. corn crop.

By 2022, 21 billion gallons are to be “advanced” (low-carbon) biofuels, of which 16 billion gallons are to be made from plant cellulose. But with cellulosic ethanol proving to be a complete dud, corn growners and ethanol producers are lobbying to redefine corn ethanol as ”advanced.” If they succeed, mandatory sales of corn ethanol could significantly exceed 15 billion gallons annually.

In any event, the RFS sets aside a large and increasing quantity of the U.S. corn crop each year for ethanol production regardless of market demand for competing uses — and heedless of the potential impacts on food prices and world hunger. No matter how much of the U.S. corn crop is ruined by drought, no matter how high corn prices get, no matter how many people in developing countries are imperiled, the RFS requires that billions of bushels of corn be used to fuel cars rather than feed livestock and people. This is crazy. [click to continue…]

Post image for MIT Study Debunks RFA/Vilsack Claims on Ethanol, Gas Prices

Back in May, I discussed a study conducted for the Renewable Fuel Association (RFA) by Iowa State University’s Center for Rural and Agricultural Development (CARD). The study claims that from January 2000 to December 2011, “the growth in ethanol production reduced wholesale gasoline prices by $0.29 per gallon on average across all regions,” and reduced average gasoline prices by a whopping $0.89 per gallon in 2010 and $1.09 per gallon in 2011. Ethanol boosters like the RFA and USDA Secretary Tom Vilsack tout this study as proof that federal biofuel policies benefit consumers and should be expanded.

The CARD researchers, Xiaodong Du and Dermot Hayes, attempt to determine the consumer benefit of ethanol by inferring what motor fuel prices would have been over the past decade had there been no increase in ethanol production. Ethanol now constitutes roughly 10% of the motor fuel used by U.S. passenger vehicles. Du and Hayes conclude that without ethanol, U.S. motor fuel supply would be significantly smaller and pain at the pump significantly greater.

This procedure, I argued, is ridiculous. First, it assumes that refiners are like deer caught in the headlights and do not respond to incentives. Even if motor fuel prices increase by up to $1.09/gal nationwide over a 10-year period, we’re supposed to believe refiners would not increase output and take advantage of this opportunity to sell more of their product at higher prices. But that’s exactly what refiners would do. In the process, supply would come back into balance with demand, pushing fuel prices down.

Second, the CARD study ignores the opportunity costs of ethanol policy. Capital is a finite resource. Dollars that refiners are mandated or bribed to invest in ethanol production are dollars they cannot invest in gasoline production. The CARD study implausibly assumes that all the refining capacity diverted by federal policy into ethanol production would have been left idle in a free market and not used to produce gasoline instead.

Admittedly, the CARD study is full of math I don’t understand. But two experts in the field – MIT energy economics professor Christopher Knittel and UC Davis agricultural economics professor Aaron Smith – have just produced a technical critique of the CARD study. Titled “Ethanol Production and Gasoline Prices: A Spurious Correlation,” the researchers make several telling points, some of which are funnier than the standard fare found in the ‘dismal science.’   [click to continue…]

At today’s press conference announcing new Obama administration biofuel initiatives (see here, here, and here), Ag Secretary Tom Vilsack mentioned that USDA has a memorandum of understanding with the Federal Aviation Administration to develop bio-based alternatives to jet fuel. Vilsack’s press release describes the MOU as follows:

The Secretary also announced jointly with the Federal Aviation Administration (FAA) a five year agreement to develop aviation fuel from forest and crop residues and other “green” feedstocks in order to decrease dependence on foreign oil and stabilize aviation fuel costs. Under the partnership, the agencies will bring together their experience in research, policy analysis and air transportation sector dynamics to assess the availability of different kinds of feedstocks that could be processed by bio-refineries to produce jet fuels.

About when will these “non-food” renewable jet fuels become competitive with conventional petroleum-based fuels? Secy. Vilsack did not venture to say. My guess is – quite a long time. Maybe even longer than it takes to make competitive auto fuel out of switch grass, corn stover, and wood waste.

One of my posts from a few months ago, on CEI’s OpenMarket.Org, goes straight to the point, so I recycle it below for your edification and amusement.

Bio-Jet Fuel — The Real $600 Toilet Seat?

The custom-designed $600 toilet seat for P-3C Orion antisubmarine aircraft — often depicted as the epitome of government waste — is an urban legend.

The “seat” was actually a plastic molding that fitted over the entire seat, tank, and toilet assembly, for which the contractor charged the Navy $100 apiece.

However, in the subsidy-driven world of biofuels, government can flush lots of your tax dollars down the gurgler.

DOD’s Quadrenniel Defense Review Report (QDR) crows that in 2009, the Navy “tested an F/A-18  engine on camelina-based biofuel” (pp. 87-88). Camelina is a non-edible plant in the mustard family.

On Earth Day 2010, an F/A-18 taking off from the Warfare Center in Patuxent River, Maryland, became the first aircraft to ”demonstrate the performance of a 50-50 blend of camelina-based biojet fuel and traditional petroleum-based jet fuel at supersonic speeds,” enthuses Renewable Energy World.Com.

At the event, Secretary of the Navy Ray Mabus said: “It’s important to emphasize, especially on Earth Day, the Navy’s commitment to reducing dependence on foreign oil as well as safeguarding our environment. Our Navy, alongside industry, the other services and federal agency partners, will continue to be an early adopter of alternative energy sources.”

Renewable Energy World also reports that the Navy ordered 200,000 gallons of camelina-based jet fuel for 2009-2010 and has an option to purchase another 200,000 gallons during 2010-2012. Sounds impressive, but let’s put those numbers in perspective. In just three months in peacetime, the flight crew of a single vessel — the USS NASSAU, a multi-purpose amphibious assault ship – flew more than 2,800 hours and burned over 1 million gallons of jet fuel.

Neither Renewable Energy World nor the QDR mentions how much camelina-based jet fuel costs. Hold on to your (toilet) seat! According to today’s ClimateWire [June 28, 2010; subscription required] the price is $65.00 per gallon. That’s about 30 times more expensive than commercial jet fuel.

Those who wonder why government can’t just mandate a transition to a “beyond petroleum” future should contemplate those numbers.

Yesterday on this site I explained why a “Do Nothing Congress on Ethanol Would Do a Lot of Good.” I also mentioned that today, a coalition of free market groups would be publishing an open letter advising Congress to let the clock run out on tax favoritism and trade protection for corn ethanol.

The groups issuing the joint letter are the Competitive Enterprise Institute (CEI), Freedom Action, the American Conservative Union, Freedom Works, National Center for Public Policy Research, and National Taxpayers Union.

CEI’s press release appears below. It includes commentary by yours truly on Obama Agriculture Secretary Tom Vilsack’s announcement of new biofuel initiatives at a press conference this morning, a link to the coalition letter, and a link to video excerpts of a speech in 2006 by then Gov. Tom Vilsack. The video illustrates the famous French adage, plus ca change, plus c’est la meme chose (loosely translated, ”The more things change, the more special-interest politics stays the same”).
 

CEI’s press release follows:

 

Contact:
Nicole Ciandella, 202.331.2773
 
Tax-Subsidized Ethanol Boondoggle Set to Expire
Coalition Urges Congress to End Tax Breaks Tariff Protection for Ethanol

 

Special tax credits and tariff protection for ethanol are set to expire at the year’s end. To counter the corn ethanol lobby, which urges Congress to reauthorize these special-interest giveaways plus enact new mandates and subsidies, a coalition of free-market groups advises Congress to “do nothing” and let the clock run out on the tax credit and tariff.

The domestic ethanol industry currently enjoys a 45¢ per gallon “Volumetric Ethanol Tax Credit” (VEETC), which costs taxpayers $5-6 billion annually, and a 54¢ per gallon protective tariff, which prevents lower-cost Brazilian ethanol from competing in U.S. markets.

“Congress has a rare opportunity to avoid $25-30 billion in new deficit spending, ease consumers’ pain at the pump, and scale back political manipulation of energy markets by literally doing nothing,” the coalition told Congress in a letter today.

The groups issuing the joint letter are the Competitive Enterprise Institute, Freedom Action, American Conservative Union, Freedom Works, National Taxpayers Union, and National Center for Public Policy Research.

The coalition released its letter today because Agriculture Secretary Tom Vilsack held a press conference this morning announcing new Obama Administration biofuel initiatives.

Vilsack said the VEETC should be extended on a “short-term, fiscally responsible” basis, but would not define what that means. Similarly, he said the tariff should “eventually” expire, but would not propose a timetable for phasing it out.

“In 2006, when Secy. Vilsack was Governor of Iowa, he said the exact same things – that the tariff and tax credit eventually had to end,” said Marlo Lewis, Senior Fellow at the Competitive Enterprise Institute. “Gov. Vilsack didn’t say then when the phase out should start – and Secy. Vilsack is still not saying.” A video excerpt of Gov. Vilsack’s 2006 remarks on ethanol is available on Youtube.

“For fiscal, humanitarian, and environmental reasons, the ethanol tariff and tax credit must go,” said Lewis.

Read the full coalition letter here.

Congress has a rare opportunity to shave $25-30 billion from the national debt, ease consumers’ pain at the pump, and scale back political manipulation of energy markets by literally doing nothing.

At the stroke of midnight on December 31 of this year, statutory authority for the 45¢ per gallon Volumetric Ethanol Excise Tax Credit (VEETC) and the 54¢ per gallon tariff on imported ethanol will expire.

For economic, humanitarian, and environmental reasons, Congress should sit back and let the grim policy reaper sweep these special-interest giveaways into history’s dustbin, as I explain this week on National Journal’s Energy Blog.

Tomorrow, at the National Press Club, Agriculture Secretary Tom Vilsack will discuss the Obama Administration’s “strategy” to grow the biofuel industry.

I’ve seen no inside info on what Vilsack will say. However, the corn ethanol lobby is pushing for “reforms” that would not only reauthorize the tariff and tax credit but also mandate the production and sale of ethanol-fueled vehicles and provide new subsidies to build a gigantic ethanol pipeline network and install 200,000 ethanol fuel pumps at service stations.

Just in case Vilsack decides to join this bandwagon, and on general principles, the Competitive Enterprise Institute, Freedom Action, and other free-market groups will send an open letter tomorow urging Congress to embrace the unheard of option of doing nothing, thereby benefiting taxpayers, consumers, and the environment.

I plan to attend the Vilsack press conference. Will he come out swinging for renewal of the tariff and tax credit? Will he propose new mandates and subsidies? Or will he keep things vague? Stay tuned.