Feds Throw More Tax Dollars at Biofuels to Cover Up Mandate Mistake

Reuters reports on the latest tomfoolery from Uncle Sam regarding biofuels:

The U.S. government on Monday announced $181 million in loan guarantees to build commercial-size refineries making advanced biofuels or to retrofit existing biorefineries to produce the cleaner-burning renewable fuels.

Since 2008, the Agriculture Department has provided $684 million through the Biorefinery Assistance Program to support projects in eight states. Applications for the latest round of funding are due by Jan. 30.

Although loan guarantees are different from an explicit cash grant, they still put the taxpayers on the hook for projects that private investors won’t touch. Let’s not forget the infamous bankruptcies that occurred under the Department of Energy’s loan guarantee program and other subsidies for “alternative” energy. Indeed, a recent Inspector General report finds that, after obligating $929 million for biorefineries, DOE “had not yet achieved its biorefinery production and development goals.”

The Reuters article goes on to suggest a clue as to why the USDA keeps pumping in so much to support biofuels:

USDA announced the funding at a time the federal mandate for biofuels is under challenge in Congress and in the bureaucracy. The Environmental Protection Agency has said it is considering whether to scale back the mandate, now dominated by corn-based ethanol.

Part of the problem here is that EPA has set cellulosic biofuel refinery targets that are physically impossible to meet, and then fines refiners for failing to do the impossible. A favored producer of cellulosic, KiOR, has badly missed production targets and is facing a class action suit  from investors for misleading them about its capacity growth.

Rather than admit its horrendous track record in picking winners and losers in the energy markets, the federal government is doubling down. It first uses the stick of unrealistic and arbitrary mandates to expand biofuels, then uses the carrot of loan guarantees and other subsidies. The hapless American citizens get hit with a one-two punch of higher energy prices (from the mandates) and less money (from the tax-financed subsidies). Only when it comes to government does an initial failure invite more of the same.

IER Senior Economist Robert P. Murphy authored this post.

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