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Post image for Biofuels Policy Itself is Warning That It’s Near Breaking Point

[Below is a guest post by Bill Lapp & Dave Juday]

Millions of American motorists across all income levels could be impacted this year by an indirect fuel tax that could amount to as much as $11.5 billion, all due to failures of the Renewable Fuel Standard (RFS) — the nation’s flawed biofuels mandate.

Under the RFS, which was expanded under the 2007 Energy Independence and Security Act (EISA), two broad categories of biofuels — conventional biofuel from corn, and so-called advanced biofuel from sources including Brazilian sugar ethanol and biodiesel made from vegetable oil and rendered animal fats — were to be steadily phased into the gasoline supply over 15 years.   Now, just five years into the schedule, the program is nearing its breaking point.  The barometer indicating the pressure under which the biofuels mandate operates is an arcane mini-cap-and-trade system for biofuel compliance credits known as renewable identification numbers (RINs).

Basically, the system works like this.  Each gallon of biofuel is assigned a 38-digit code known as a RIN, which effectively act as a serial number that tracks that gallon of biofuel through the supply chain, from production to the retail fuel market. RINs are detached from the biofuel once it is purchased or blended by a refiner, and eventually are turned into the US Environmental Protection Agency (EPA) by refiners to demonstrate their compliance with the RFS.   Alternatively, refiners with excess RINs can sell them on a secondary market to other refiners who are short of their compliance obligations.

Consider, conventional ethanol RINs that sold at about four cents per gallon in December — and at about one cent a year ago — rose to a high of $1.06 in March.  Currently they are about 70 cents.  Likewise, advanced ethanol and biodiesel RINs are also now trading at 75 cents and 80 cents respectively.

With a 10 percent blend of biofuels mandated by the RFS and an average cost of RINs at more than 70 cents, the implicit cost could reach more than 7 cents per gallon for every retail gallon of gasoline and diesel fuel purchased. Across the whole fuel supply, this could equate to an annual hidden tax on motorists of more than $11.5 billion. And that could grow.  As Goldman Sachs has warned, “we believe that the risk to RIN prices is skewed to the upside over the near term.”

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In a recent interview with CBC Radio, global warming alarmist and former NASA Climate Science director, James Hansen, compared conservatives to “Neanderthals”.

Hansen’s remarks were prompted in response to comments made by Joe Oliver who is a conservative politician and the Canadian Minister of Natural Resources.  Speaking at the Center for Strategic Studies last week, Oliver heaped opprobrium on the scientist. In his speech he declared, “”It does not advance the debate when people make exaggerated comments that are not rooted in the facts. And [Hansen] should know that.”

Instead of addressing these concerns, Hansen responded with insults.

Such vitriol from Hansen speaks volumes about the character, or absence of character, of some global warming alarmists.  Instead of discussing the issues themselves, this “distinguished” scientist resorts to stereotyping an entire group of people as the equivalents of slow-witted, unsophisticated cave men.

Post image for Why Is Congress Lethargic about Energy?

This week National Journal’s Energy Experts Blog poses the question: “What’s holding back energy & climate policy.” So far 14 wonks have posted comments including yours truly. What I propose to do here is ‘revise and extend my remarks’ to provide a clearer, more complete explanation of Capitol Hill’s energy lethargy.

To summarize my conclusions in advance, there is no momentum building for the kind of comprehensive energy legislation Congress enacted in 2005 and 2007, or the major energy bills the House passed in 2011, because:

  • We are not in a presidential election year so Republicans have less to gain from passing pro-energy legislation just to frame issues and clarify policy differences for the electorate;
  • Divided government makes it virtually impossible either for congressional Republicans to halt and reverse the Obama administration’s regulatory war on fossil fuels or for Hill Democrats to pass cap-and-trade, carbon taxes, or a national clean energy standard;
  • Democrats paid a political price for cap-and-trade and won’t champion carbon taxes without Republicans agreeing to commit political suicide by granting them bipartisan cover;
  • The national security and climate change rationales for anti-fossil fuel policies were always weak but have become increasingly implausible thanks to North America’s resurgence as an oil and gas producing province, Climategate, and developments in climate science;
  • Multiple policy failures in Europe and the U.S. have eroded public and policymaker support for ‘green’ energy schemes;
  • It has become increasingly evident that the Kyoto crusade was a foredoomed attempt to put policy carts before technology horses; and,
  • The EPA is ‘enacting’ climate policy via administrative fiat, so environmental campaigners no longer need legislation to advance their agenda.

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Post image for Earth Day: The Greener Side of Growth

It may not be a popular fact, but a fact it is: the environment is getting cleaner, and it has since about the mid-20th century. The question is, what caused this improvement? How can we keep it going? Over at Topix.com, my colleague Geoffrey McLatchey and I argue that the best answer for both questions is wealth creation:

Economic growth and environmental quality are not opposing values. They go hand-in-hand. Something happens to a country when its per capita GDP reaches about $5,000 (U.S. per capita GDP is about $48,000). At that point, families are certainly not rich. But they don’t have to worry as much about where their next meal will come from. They can afford to begin to take care of other needs, such as building sewage systems and other pollution-reducing infrastructure. Instead of using wood for heating and cooking, people can turn to more efficient fossil fuels, which means less deforestation. Farmers can afford to adopt modern techniques that produce more food with less land, leaving more left over for wildlife.

That’s the good news. The even better news is that greater progress is on the horizon. The number of people living in absolute poverty halved between 1990 and 2010, and the number continues to dwindle. Remarkably, this is happening even as global population increases. As more countries pass the $5,000-per capita benchmark, ecosystems around the world will benefit.

Read the whole thing here. Even if people do concede to the data and admit that the world’s environmental situation isn’t doom-and-gloom, they often give credit to the EPA. A glance at my recent EPA report card will hopefully disabuse people of that notion. Innovation, not regulation, is what will keep the environment healthy. That’s the lesson people should take from Earth Day.

Post image for President Obama’s Budget Proposes to Make Wind and Solar Subsidies Permanent

President Barack Obama submitted his proposed Fiscal Year 2014 budget to Congress on 10th April, 66 days after the legal deadline.  The law does not subject the President to any penalties for missing the 4th February deadline, but no previous President has submitted his proposed budget more than a few days late.  The budget proposes to increase federal spending by nearly five percent over the current fiscal year.

Subsidies for renewable energy and energy efficiency total $23 billion over ten years.  Astonishingly, the President proposes to make wind, solar, and geothermal subsidies permanent.  According to a White House fact sheet: “To provide a strong, consistent incentive to encourage investments in renewable energy technologies and to help meet our goal to double generation from wind, solar, and geothermal sources by 2020, the Budget would make permanent the tax credit for the production of renewable electricity.  The Budget makes the Production Tax Credit refundable so new, growing firms can benefit and provide renewable electricity generation.”

For decades, the leaders in the wind and solar industries have told Congress that they just need a few more years of subsidies before they become competitive with energy produced from conventional sources.  Last December, during the debate over whether to extend the wind subsidy for another year, the American Wind Energy Association came forward with a plan to phase out the subsidy over six years. The Obama Administration has concluded that wind and solar will never become competitive with coal and natural gas.

Post image for Electric Vehicles: Worst Business Model Ever?

Fisker Automotive, an electric car manufacturer that received $211 million in stimulus subsidies, last week filed for bankruptcy. A Fisker electric car cost $103,000, but the company spent $660,000 for each one it sold, according to Bloomberg. Chrysler CEO Sergei Marchionne told the Detroit Free Press that losing $557,000 on every case it sold would be “masochism to the extreme.” He then said that his company is only losing $10,000 on every battery powered Fiat 500 it sells. Presumably, Chrysler makes it up on volume.

Senator David Vitter (R-La.), ranking Republican on the Environment and Public Works Committee, sent a letter on 16th April to Gina McCarthy, Assistant Administrator for Air and Radiation at the Environmental Protection Agency, that re-iterates five requests for information that the agency has withheld from the committee or commitments to increase transparency in the future. The letter, which was signed by all eight Republican members of the committee, in effect sets down a marker for McCarthy’s confirmation as EPA Administrator by the Senate.  If McCarthy fails to satisfy the five requests, then the Republicans on the committee will have good reason to vote against her confirmation.

Committee Chairman Barbara Boxer (D-Calif.) said this week that the committee could vote as early next week on McCarthy’s nomination.  That now seems unlikely.  It’s more likely that the committee will vote soon after the Senate returns from a week-long recess on 6th May.

The letter states, “…[W]hile you acknowledged serious problems with EPA’s transparency record, acknowledgement does not equal action.  We want to hold you to your word and ensure that EPA will be fully transparent on the science, economics, and negotiations related to EPA decisions and rulemaking.  For too long, EPA has failed to deliver on the promises of transparency espoused by President Barack Obama, former Administrator Lisa Jackson, and by you.”

The first request is that McCarthy commits the EPA to issue new guidance requiring that all official business be conducted through official e-mail accounts.  The second is that McCarthy turn over to the committee unredacted private e-mails that were used to conduct official business.  These two requests arise out of the “Richard Windsor” scandal.

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Post image for Reps. Upton and Waxman Issue 2nd White Paper on Renewable Fuel Standard

Reps. Fred Upton (R-Mich.) and Henry Waxman (D-Calif.) yesterday issued their second white paper in a series intended as a first step to reviewing the Renewable Fuel Standard (RFS). The first white paper, released March 20, 2013, addresses Blend Wall/Fuel Compatibility Issues. The second white paper, released April 18, 2013, addresses Agricultural Sector Issues. Both white papers are clearly written, carefully documented, and provide excellent overviews of their respective topics.

The second white paper poses nine questions for public comment, and requests that responses be sent to rfs@mail.house.gov by April 29.

Two of the questions deal with the EPA’s denial in 2012 of petitions from ten governors who, seeking to reduce corn prices and alleviate harm to their states’ livestock industries, asked the agency to waive (suspend) RFS blending requirements. I comment on those questions, which are enumerated in the white paper as follows:

3. Was EPA correct to deny the 2012 waiver request? Are there any lessons that can be drawn from the waiver denial?
4. Does the Clean Air Act provide EPA sufficient flexibility to adequately address any effects that the RFS may have on corn price spikes?

My comments develop the following points:

  • The EPA should have granted the waiver but the agency’s strained reading of the Clean Air Act virtually guarantees that petitions will be denied regardless of the RFS’s contribution to severe economic harm.
  • Congress should revise the statute to preclude the EPA’s deck-stacking interpretation and clarify that the threshold issue is whether, in the context of actual market conditions, the RFS makes a non-negligible contribution to severe harm. [click to continue…]
Post image for Can Wind ‘Compete’ without Subsidy?

The House Science, Space, and Technology Committee this week held a hearing on the efficiency and effectiveness of federal wind energy incentives.

The first witness, Frank Rusco, director of energy and natural resources for the Government Accountability Office, summarized his March 2013 GAO report on federal financial support for wind energy. Rusco testified that nine agencies administer 82 programs providing $4 billion in financial support to the wind industry in 2011 in the form of grants, loans, loan guarantees, and tax expenditures (targeted tax breaks). Some wind projects received support from seven initiatives, Rusco found.

Rob Gramlich, Interim CEO of the American Wind Energy Association (AWEA), disputed those numbers, arguing that of the 82 initiatives only two are wind-specific, dozens are defunct, and fewer than 1% of wind projects built in recent years took both a tax credit and a Department of Energy loan.

Gramlich, however, did not dispute Rusco’s finding that 99% of federal support went for deployment of wind energy rather than R&D (pp. 17-18), nor his assessment that “it is unclear whether the incremental support some initiatives provided was always necessary for wind projects to be built” (p. 43).

Citing Rusco’s testimony in his opening statement, Oversight Subcommittee Chairman Paul Broun (R-Ga.) suggested that instead of subsidizing firms that would install wind turbines anyway, Congress should fund R&D to make wind energy more competitive.

A fair point but one that indicates a more fundamental problem. When government subsidizes activities that would happen anyway, the money goes to free riders. The subsidy is a clear case of government waste. When government subsidizes activities that would otherwise be unprofitable to undertake, the money may simply prop up investments that consume more wealth than they create. If so, the subsidy is a waste of economic resources.

As three MIT scholars wrote in their assessment of President Carter’s energy programs:

The experience of the 1970s and 1980s taught us that if a technology is commercially viable, then government support is not needed and if a technology is not commercially viable, no amount of government support will make it so.

Too bad the Constitution does not mandate a recitation of those words prior to every congressional debate on energy policy!

My main reason for writing this post, however, is twofold. First, if Matt Damon or anyone else in Hollywood ever wants to make a reality-based movie about a conflict between community activists and greedy energy developers, he should look no further than the testimony of Audra Parker, CEO of the Alliance to Protect Nantucket Sound. Second, anyone seeking a clear overview of the economics of wind energy, should read the testimony of Cal State Fullerton professor Robert Michaels, who testified on behalf of the Institute for Energy Research.

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Post image for EU’s Empty Climate Policy Reflects the Impossibility of a Global Climate Treaty (which is great for humankind)

I’ve long argued that the European Union’s climate policy is full of sound and fury, but signifies nothing. During the last 20 years, EU officials have been quick to blather about their supposed leadership on climate, based on a putative “success” reducing greenhouse gas emissions. But this has always been a mirage. In fact, EU emissions reductions since its adoption of the Kyoto Protocol have been largely derivative of unintended consequences stemming from three events that have nothing to do with climate mitigation policy. They are: (1) the shutdown of Soviet-bloc heavy industry; (2) the United Kingdom’s “dash to gas”; and (3) the Great Recession.

Meanwhile, EU’s actual climate policies have been ongoing failures. Take the EU’s goal of improving energy efficiency 9% by 2016 and 20% by 2020. Ex-EU bureaucrat whistleblowers recently told EUractiv that EU member states have relied on “tricks and abuses” to create the appearance that they are on track to achieve the targets. In January, the European Court of Auditors published a scathing audit of how EU member states spent almost $6.6 billion in subsidies to achieve the energy efficiency targets. From the press release:

“None of the projects we looked at had a needs assessment or even an analysis of the energy savings potential in relation to investments”, said Harald Wögerbauer, the ECA member responsible for the report, “The Member States were essentially using this money to refurbish public buildings while energy efficiency was, at best, a secondary concern.”

In order to better control the earth’s thermostat, the EU also has implemented a Soviet-style, green energy production quota of 20% by 2020. While member states have spent billions of dollars of taxpayer subsidies in order to support the EU’s green energy goals, the EU Commission in late March warned that, “There are reasons for concern about future progress; the transposition of the directive [the green energy production quota] has been slower than wished, also due to the current economic crisis in Europe.” In layman’s terms, this means that a lot of European countries spent a lot of money on expensive, green energy during the boom-time 2000s. But the boom has since gone bust, and these countries are now reducing unsustainable green energy subsidies. Because the green energy industry cannot compete without ever-more generous taxpayer give-aways, EU bureaucrats are justifiably concerned that their green energy production quota won’t be met.

But the EU’s biggest joke of a climate policy—by far—has been the Emissions Trading Scheme, a cap-and-trade. It’s actually failed twice. During its first phase, the over allocation of carbon rationing coupons led to windfall profits for utilities, but no actual emissions reductions, as the carbon price plummeted. This week, during its phase three, the Emissions Trading Scheme collapsed again, and this time, it appears to be down for good. According to an article from yesterday’s EUractiv,

The EU’s flagship scheme for cutting carbon emissions suffered one of the most serious setbacks in its chequered history on Tuesday (16 April), when MEPs voted against a proposal to shore up the price of carbon in the Emissions Trading System (ETS).

The proposed reform – known as “backloading” – aimed to reverse the plummeting price of carbon that has resulted from a surplus of permits in the ETS market. If successful, the reform would have resulted in the postponement of a series of auctions of carbon permits.

But MEPs in Strasbourg voted 334 against the reform, with 315 in favour, leading green campaigners to condemn the defeat as a “monumental failure” to mend the carbon trading market, which is Europe’s flagship climate policy and the biggest in the world. “They have lost all credibility on climate leadership,” said Doug Parr, Greenpeace UK’s chief scientist.

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