New Report Casts Doubt on Ethanol Policy

by Brian McGraw on October 5, 2011

in Blog, Features

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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.


R. L. Hails Sr. P. E. October 6, 2011 at 10:19 am

I hear the sound of a rice bowl cracking.

It is a well understood, long standing judgment that all alternate energy technologies are far too expensive for societal bulk supply. Thus, it is in the public interest, to develop any technology which has a real technical chance of working at reasonable costs. This lessens America’s dependence on unstable foreign sources. However, at some point of development, when the cost issue is brought into focus, and the news is bad, a decision to kill further investment must be faced. The ending of subsidies, and mandated usage must occur if one segment of the competitive industry is not to be unfairly favored. Government must remove its thumb from the scales of commerce.

The counter argument is externality costs, societal costs not recognized in the sale between the parties. However, externality costs are in the eye of the beholder, and range from zero to infinity, depending on your religion or politics. Example: the Pope, or a brothel owner would price certain activities differently. Who is to decide in a free society, the Renewable Fuels Association, or the American Petroleum Institute ? My solution is to squeeze both on technical and cost issues. People who care one way, or the other, must stop spending taxpayer’s money and use their own to develop better technologies, and science. George Soros and T. Boone Pickens must fund their own R&D.

If cellulosic ethanol or wind energy is too expensive to compete, let them die. I will not pay for it. The alternative is slavery.

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