Renewable Fuel Mandates

A few years ago, ethanol was hailed as a way to reduce greenhouse gas emissions and reduce our use of imported oil. These beliefs led to bipartisan support for ethanol mandates and subsidies. In 2005, President Bush signed a renewable fuel mandate in the Energy Policy Act of 2005 and then increased the mandate in 2007 in the Energy Independence and Security Act. The mandate requires the production of 20.5 billion gallons of renewable fuel in 2015 increasing to 36 billion gallons in 2022. The mandate also required 16 billion gallons of cellulosic biofuel to be produced by 2022.[1] But ethanol policy is not without its flaws. The ethanol mandate increases the cost of food and it does not necessarily reduce greenhouse gas emissions. Even worse, 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.

Biofuel Turns Food into Fuel and Increases the Price of Food, Harming the World’s Poor

The creation of ethanol turns corn, a vital food stock, into motor fuel. This increases the price of a staple food and disproportionately affects the poor around the world. Because of this detrimental effect on the poor, Jean Ziegler, the former United Nations special rapporteur on the right to food, described ethanol as a “crime against humanity.”[2]

Biofuel Production May Increase Greenhouse Gas Emissions

While one justification for the renewable fuel mandate was to decrease carbon dioxide emissions, some scientific research suggests that some corn-based ethanol production and other forms of ethanol production may actually increase carbon dioxide emissions rather than reduce them. According to a study published in Science by the Nature Conservancy and the University of Minnesota, many biofuels emit more greenhouse gases than gasoline. According to the researchers, these biofuels may produce “17 to 420 times more carbon dioxide than the fossil fuels they replace.”[3] Other research has come to similar conclusions. The Energy and Resources Group of the University of California, Berkeley found that “if indirect emissions [resulting from the production of ethanol] are applied to the ethanol that is already in California’s gasoline, the carbon intensity of California’s gasoline increases by 3% to 33%.”[4] Not only does ethanol production appear to produce more greenhouse gas emissions than petroleum production, but ethanol production and combustion may lead to worse air quality than petroleum production.[5]

But even if biofuel production reduces greenhouse gas emissions, producing ethanol is, nevertheless, a very expensive way to achieve this goal. According to the Congressional Budget Office (CBO), the production of corn ethanol costs $750 per metric ton of carbon dioxide emissions avoided.[6] If the goal is to reduce carbon emissions, there are far cheaper alternatives available to policymakers.

Cellulosic Ethanol Production is Minimal to Non-Existent, Even With a Mandate to Produce 500 Million Gallons a Year

In 2010, more than 13 billion gallons of corn-based ethanol were sold in the United States—about 8 percent of the total motor fuel sold.[7] While corn-based ethanol has grown rapidly, cost-effective cellulosic ethanol remains a dream. In 2010, E&E News reported that, instead of producing 100 million gallons as mandated by Congress, “not a drop” of cellulosic ethanol was “commercially blended with gasoline.”[8] In late 2011, the EIA was still unsure as to whether any cellulosic ethanol had been sold commercially despite Congress’ mandate to produce 500 million gallons in 2011.[9]

Besides a federal mandate to produce billions of gallons of ethanol a year, ethanol has received other favorable treatment designed to increase domestic ethanol production. From 1980 through 2011, U.S. ethanol producers were protected by a 54-cent per gallon tariff on imported ethanol. In recent years, ethanol blenders were eligible for a 45-cent tax subsidy for every gallon of corn ethanol blended with gasoline. At the end of 2011, both the ethanol tariff and the blenders’ tax credit expired.[10]

These programs have been costly. The CBO reports that it cost taxpayers $1.78 per gallon for ethanol made from corn and $3.00 for cellulosic ethanol.[11]

Taxing Refiners for Not Including a Product That Isn’t Sold Commercially

When Congress created the cellulosic ethanol mandate, they assigned EPA the task of determining a new mandate each year, if cellulosic producers do not produce the mandated level. Although the agency provides a much lower mandate than what Congress hoped for, EPA’s mandate is far higher than the amount available from pilot plants and higher than the amount suggested by the Energy Information Administration (EIA). The penalties for not blending the prescribed EPA amount are eventually paid by consumers at the pump.

Refiners were required to pay about $6.8 million in penalties for not blending enough cellulosic ethanol into gasoline in 2011. Even though cellulosic producers did not sell a single gallon of cellulosic ethanol commercially in 2010 and it is not clear if they sold any cellulosic ethanol in 2011, EPA has mandated that refiners blend even more cellulosic ethanol in 2012. EPA now requires refiners to blend 8.65 million gallons of cellulosic ethanol or pay EPA millions of dollars in fines. The current system rewards EPA for picking an unrealistic number so that EPA can increase the fines it receives. It also means that consumers will be paying higher gasoline prices.

The Clean Air Act requires the EIA to provide EPA each October with an estimate of the amount of transportation fuel, biomass-based diesel and cellulosic biofuel projected to be available in the following calendar year. EIA’s estimate for 2012 for cellulosic biofuel production is 6.9 million gallons, 20 percent lower than the EPA requirement established for 2012.[iii]  To see that even EIA’s lower estimate is high, for 2011, EIA predicted cellulosic biofuel production to be 3.94 million gallons, but “actual sales, if any, are expected to fall well below the estimate” according to the agency.

As the chart shows, various government regulatory bodies have put refiners into a Kafka-esque world in which they are fined by the EPA for failing to hit targets that the EIA projects are impossible, using projections that are themselves absurd when compared with reality. With such regulations as these, it’s a wonder that pump prices aren’t even higher.