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The Ethanol Mandate Needs to Go

Posted By Nicolas Loris On August 17, 2011 @ 12:06 pm In Energy | Comments Disabled

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In the name of reducing greenhouse gas emissions and reducing America’s dependence on foreign oil, the 2007 Energy Independence and Security Act (EISA) [2] mandates that we need to consume 36 billion gallons of ethanol by 2022. EISA also contains a mandate within the mandate for advanced biofuels, with the applicable volume of cellulosic ethanol set at 250 million gallons this year, 500 million gallons in 2012, and ultimately hitting 16 billion gallons in 2022.

The problem is, when you look at the monthly production of cellulosic biofuel on the Environmental Protection Agency’s (EPA) website [3], you’ll see nothing but goose eggs. Zero production. While the costs of producing cellulosic ethanol have come down, you still have to build the plant, which adds an additional $150 million to the tab [4].

The fact that cellulosic ethanol production is nowhere near providing industrial-scale quantities of fuel demonstrates our government’s inability to project what is commercially viable and beneficial for consumers. And it is coming at a cost. Greg Scott, executive vice president and general counsel of the National Petrochemical & Refiners Association, testified last month saying the EPA’s miscalculation [5] would cause his members problems:

If we miss the mark, EPA will fine us. The same cannot be said either for EPA itself or for the various biofuels promoters presenting testimony today. If EPA is wrong, or if a biodiesel trade group representative or cellulosic ethanol company spokesperson is wrong in his or her rosy predictions for future production, it is our member companies that will experience the economic and regulatory pain.

Most of the ethanol production in the United States comes from corn-based ethanol, which has plenty of its own problems. A new article by David Biello in Scientific American [6] nicely details the economic, environmental, and logistical obstacles corn-based ethanol has to overcome to replace oil as a transportation fuel. Cost has always been a roadblock, even before the ethanol mandate was enacted in 2005 and expanded in 2007.

[B]etween 1980 and 2000 the U.S. government has devoted some $19 billion in tax breaks alone to the ethanol-from-corn effort, according to the U.S. Government Accountability Office, and ethanol subsidies per liter of the biofuel have often been larger than the total cost of a liter of gas the biofuel replaced. A significant portion of the profits made by agribusiness giants like Poet or Archer Daniels Midland—which, along with oil company Valero, are responsible for the bulk of ethanol produced in the U.S.—can be attributed to this government largesse with taxpayer dollars. But even setting subsidies aside—after all, every energy source in use in the U.S. today continues to receive federal tax benefits, among other incentives—there’s the simple economic cost of building all those corn mills, stainless steel fermentation tanks and other infrastructure needed to churn out ethanol on the tremendous scale of transportation fuels.

Then there’s the fact that corn ethanol actually produces a greater harm to the environment [7] just from being created—“CO2-emitting fossil fuels are used to make fertilizer, operate farm equipment, power ethanol distilleries, and transport the ethanol to market.” On top of the emissions from production, there are other environmental concerns. To grow corn, farmers must plow more land, and more land plowed not only means less area for trees but can also [7] “release carbon previously locked up in soils and trees.” And it would take a lot of land for ethanol to replace gasoline, even if we switched to more sugarcane-based ethanol, which the EPA considers an advanced biofuel because it has greater energy efficiency. From Biello [8]:

Even sugarcane—the most energy-efficient crop for ethanol because of its rapid growth rate and the fact it produces sugar that is ready to be fermented by yeast, unlike starch from corn that requires an additional step—needs some two meters of rainfall a year, which precludes growing it on much of the world’s existing arable land. And to replace all of today’s gasoline demand with ethanol made from sugarcane would require planting more than 320 million hectares across the tropics—more than half all the land devoted to agriculture presently and multiples of the roughly 20 million hectares of sugarcane planted today.

Let’s not forget we slap a 54 cent-per-gallon tariff on cheaper sugarcane-based ethanol we could be importing from Brazil. While the tax credits for corn-based ethanol and tariff on imported ethanol are egregiously bad policies, the production mandate is the worst of them all. It’s what National Journal’s Amy Harder calls [9] corn’s “sacred cow.” Valero spokesman Bill Day told Harder that [9] “Without the [renewable-fuels standard], ethanol really wouldn’t be a viable business.”

If that’s the case, then the government should not artificially create a market for it and waste resources by shifting labor and capital to ethanol production. As my colleague David Kreutzer recently wrote [10], the profit motive of capturing some of the oil market should be incentive enough:

[A]ccording to the Energy Information Administration, the world market for petroleum will be about $3.5 trillion in 2020. If a lower-cost biofuel garnered just 5 percent of the world market, it would still be worth $175 billion per year. That should be enough motivation for inventors to pursue truly promising—and cost-effective—technologies.

It’s time for the government to admit its mistake and remove the ethanol mandate.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/08/17/the-ethanol-mandate-needs-to-go/

URLs in this post:

[1] Image: http://blog.heritage.org/wp-content/uploads/ethanol-plant-turner-south-dakota.jpg

[2] Energy Independence and Security Act (EISA): http://energy.senate.gov/public/_files/getdoc1.pdf

[3] on the Environmental Protection Agency’s (EPA) website: http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfsdata.htm

[4] which adds an additional $150 million to the tab: http://www.reuters.com/article/2011/07/25/us-usa-ethanol-cellulosic-idUSTRE76O5J920110725

[5] testified last month saying the EPA’s miscalculation: http://www.npra.org/cmsRelatedFiles/oral_statement_on_hearing_2012_RFS_nprm_final_-7_12_11.pdf

[6] Scientific American: http://www.scientificamerican.com/article.cfm?id=ethanol-domestic-fuel-supply-or-environmental-boondoggle

[7] a greater harm to the environment: http://cei.org/op-eds-articles/ethanol%E2%80%99s-policy-privileges-heading-history%E2%80%99s-dustbin

[8] Biello: http://www.scientificamerican.com/article.cfm?id=ethanol-domestic-fuel-supply-or-environmental-boondoggle&page=3

[9] calls: http://www.nationaljournal.com/energy/mandate-emerges-as-corn-s-new-sacred-cow-20110810

[10] recently wrote: http://www.heritage.org/research/reports/2011/07/biofuels-impact-of-using-alternative-fuels-for-the-us-military

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