Biofuels: Reality vs. Federal Mandates

One of the most absurd aspects of the federal government’s energy policy is the Renewable Fuel Standard’s mandate for cellulosic ethanol volume. As we have explained on these pages, ethanol mandates drive up the price of food for no reason. We also wrote, “EPA is incredibly forcing refiners to pay a fine for not hitting cellulosic ethanol targets that even the EIA projects will be impossible, and even though in 2011 there was no evidence that any cellulosic ethanol was available commercially to make it possible for the refiners to comply with the regulation.”

Well, it’s two years later, how have things changed? The EPA based its cellulosic ethanol mandate for 2013 on two particular plants, one of them being  a Kior plant based in Columbus, Mississippi. Yet unfortunately for refiners—who will face penalties for not obeying the mandate—Kior missed its second-quarter production forecast by a whopping 75 percent. Here are the Bloomberg story’s details of the sordid affair:

Kior Inc. (KIOR), a producer of transportation fuels from biomass such as wood waste and non-food crops, fell…as production at its first commercial plant was 75 percent below its forecast.

…

The company shipped more than 75,000 gallons (284,000 liters) of fuel from its Columbus, Mississippi, plant in the second quarter…Kior said in May the facility would produce 300,000 gallons to 500,000 gallons. Revenue in the quarter was $239,000, about 12 percent of the $1.93 million average of five analysts’ estimates…

The Columbus plant opened in October, the first commercial site making cellulosic fuel in the U.S. [Bold added.]

At the same time the EPA is mandating refiners to use more cellulosic ethanol than physically exists, it is also mandating that they blend more total ethanol (including corn-based) than is feasible, because of the slower than expected increase in total gasoline usage. (This had led refiners to hit the so-called “blend wall,” driving the price on renewable credits to record highs.)

It’s one thing for the government to levy costly and inefficient mandates on industry, but it comes out of a Kafka novel to mandate renewables standards that are literally impossible to achieve. The fact that EPA is so wildly off in its forecasts—so that it unintentionally asked industry to do the impossible—casts doubts upon the whole enterprise of renewables mandates.