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SURVEY: Americans Reject Costly EPA Proposal

July 29, 2014 by Leave a Comment

WASHINGTON – A new survey released today by the American Energy Alliance found that the majority of American voters oppose EPA’s recently proposed power plant regulations when confronted with the real world impacts of the rule. The survey was conducted among registered voters in Arkansas, Colorado, Iowa, Montana, and North Carolina.

“At a time when Americans are struggling with cost of living and still asking the question ‘where are the jobs’, there is concern about the proposed EPA regulation and the economic impact it will have,” said David Winston, President of the Winston Group, which conducted the survey.

Highlights from the survey:

  • The majority of voters in all five states believe that improving the economy and creating jobs should be the top priority of the Obama administration.
  • Before receiving any information about the regulations, no less than 57 percent of voters in any state supported the regulations. But after listening to key facts about their impact (both positive and negative), no more than 44 percent in any state supported it.

“When faced with the harsh economic reality of the EPA’s new rule, the majority of Americans reject this unprecedented attack on American energy security,” said AEA President Thomas Pyle.

“From the start, the Obama administration has not been forthright with the American public about the exorbitant costs of this rule. Unfortunately, this has become the norm for the ‘most transparent administration in history’: regulating from the shadows and deliberately hiding the consequences of their actions from the American people. And the myriad consequences of the EPA’s new rule are all too real. From lost jobs to rising electricity bills, the EPA’s most recent effort to undermine affordable energy hurts low income families the most.”

“The American people, especially those who live from paycheck to paycheck, cannot afford higher energy costs. Unfortunately for Americans, President Obama seems intent on delivering on his promise to make electricity prices ‘necessarily skyrocket.'”

The survey was conducted for the American Energy Alliance by the Winston Group among 500 registered voters in each of the following states: Arkansas, Colorado, Iowa, and North Carolina, and 503 registered voters in Montana for a total of 2,503 registered voters. The margin of error is +/- 4.4 per state.

To view the results, click here

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ICYMI: Lessons from Australia’s Carbon Tax Debacle

July 28, 2014 by Leave a Comment

WASHINGTON — American Energy Alliance Vice President of Policy Daniel Simmons penned an op-ed for Roll Call titled “Lessons Congress Can Learn from Australia’s Carbon Tax Debacle.” The text of the op-ed follows:



“Lessons Congress Can Learn From Australia’s Carbon Tax Debacle”
By Daniel Simmons

For the past few years, Australia has been lauded by environmentalists as an example other countries should emulate. The adulation began in 2012, when the country enacted its “carbon tax” — a $21.50 charge (in U.S. dollars), increasing annually, on each ton of carbon dioxide emitted by the country’s power plants. Australia’s list of admirers extended all the way to the White House, where President Barack Obama described the country’s actions as “good for the world.”

Yet Australia is now the first country to eliminate its carbon tax. In so doing, it struck a blow in favor of sound public policy — and American legislators should pay attention.

Last September, the Institute for Energy Research released a comprehensive study on the effects of Australia’s carbon tax. The tax was a disaster. In its first year of existence, the tax increased household electricity prices by 15 percent — the highest quarterly increase in the country’s history. Businesses fared no better — their electricity prices jumped 14.5 percent in a single year.

It doesn’t take an economist to see how this stifled the country’s economic growth. Rising electricity costs mean higher prices for almost all goods and services. They also mean fewer future job opportunities for businesses trying to stay in the black. Australia’s unemployment rolls rose by an astounding 10 percent over the course of a year — the equivalent of the United States adding 950,000 people to the unemployment line by next July.

Meanwhile, there was no environmental benefit to speak of. According to the Australian government’s own data, carbon emissions actually increased after the tax was enacted. Even if the carbon tax were still in operation, the country’s emissions levels weren’t expected to fall below current levels until 2045.

No wonder Australians turned against the tax. They’d have to endure three decades of fewer jobs and higher prices on every day goods just to achieve negligible environmental gains.

But this isn’t just a lesson for Australia. For years, American environmentalists have clamored for a similar carbon tax. They have been joined by a dozen U.S. senators, who several years ago sent a letter to Senate Majority Leader Harry Reid demanding Congress levy “a price on greenhouse gas emissions” — a carbon tax by another name.

Among the letter’s signatories are several Democratic senators facing re-election this year, including New Hampshire’s Jeanne Shaheen, Alaska’s Mark Begich and North Carolina’s Kay Hagan.

Yet the effects would be little different in America than they were in Australia. The Heritage Foundation, using data provided by the Energy Information Administration, recently estimated the effects that a slightly more aggressive carbon tax would have (the EIA data assumed a $25/ton tax, compared to Australia’s $21.50/ton rate).

Heritage found that America could be looking at an economic disaster.

In its first four years, the tax could cut a family of four’s income by nearly $2,000 a year. It could raise the same family’s electricity bills by more than $500 per year and increase gas prices by 50 cents per gallon. Finally, it could eliminate more than a million jobs in the first few years.

Yet Americans’ economic despair would ultimately be for naught. Using assumptions from the data from the United Nations Intergovernmental Panel on Climate Change’s assessment report, a recent analysis found America could eliminate all of its carbon emissions and still only lower global temperatures by 0.137 Celsius by 2100 — a statistically insignificant amount.

Put another way: A carbon tax is all economic pain and no environmental gain. Surely we can agree that sapping the economy and stifling innovation won’t make it any easier for us to promote a healthy environment.

Australians learned that the hard way.

It only took them two years of higher prices, fewer jobs, and no environmental benefits before they abandoned their carbon tax. America’s environmentalists and the legislators who listen to them should take note. There’s no need for history to repeat itself in a different hemisphere.

Click here to see the original post. 

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Politics not Policy Guiding the RFS

July 25, 2014 by 1 Comment

The Environmental Protection Agency (EPA) is required by law to set the amount of biofuel they will require to be blended with gasoline for the following year. They are tasked with doing this before December to give businesses some idea of what their mandates will be for the upcoming year. But we are more than half way through 2014 and EPA still has not set the amount of biofuel required for this year. It appears that political interest is again trumping public interest at the Environmental Protection Agency (EPA).

Continually pushing the target back is creating uncertainty for refiners and producers of biofuels for no discernable legitimate purpose, but makes political sense for the Obama Administration in an election year. When the government attempts to legislate and regulate a market it created, the needs of both consumers and producers are subverted to the needs of the politicians and the ever-changing political climate.

Regulatory Process for RFS

Refiners need to know the 2014 targets to produce their compliance with 2013 because the RFS allows refiners to save a certain amount of renewable credits (known as RINs[1]–are serial numbers assigned to biofuel for the purpose of tracking its production, use and trading, and can be purchased to fulfill part of the RFS requirement) to use to show compliance the next year.

Here is a table of how the regulatory process is supposed to work and what has actually happened:

How the regulatory process is supposed to work for the 2014 RFS:

What actually happened so far with the 2014 RFS:
Before end of September 2013:

EPA proposes RFS numbers for the next year (allowing companies to figure out whether to “spend” or “save” RINS for the 2013 compliance year)

November 29, 2013:

EPA released its proposed 2014 RFS numbers on November 29th, 2013, which was followed by a comment period that ended on January 28th, 2014.
Before November 30, 2013:

EPA finalizes the biofuel volume requirements for 2014

Ongoing…

EPA still has not finalized their 2014 RFS and originally stated they would finalize the numbers in February but didn’t meet that deadline and will release it “soon”.
Before February 28, 2013:

Refiners submit their compliance report detailing their use of RINs for 2013 compliance year.

 Ongoing…

The deadline for the 2013 compliance report has been pushed back twice first to June 30th, 2014 and now until September 30th 2014.

 

It is apparent that EPA has been behind on their deadlines throughout the entire regulatory process for the 2014 RFS. However their recent extension for 2013 compliance buys them more time to delay the entire process which could likely result in similar uncertainty and delay next year when EPA is promulgating the 2015 RFS.

EPA Drags their Feet

This is not the first time EPA has waited until August to set the final volumes. In fact, EPA hasn’t met the statutory deadline in November since 2011. EPA claims that extensive comments on the proposal have forced them to take additional time to finalize the targets for the 2014 RFS[2], but this does not explain why EPA was late with the proposed rule in the first place. And it does not explain why, six months later, that EPA has not finalized the rule.  None of the factors that EPA uses to determine RFS targets have changed in any material way since the fall, it’s likely the delay resulted from an internal decision.

According to EPA, “The four separate renewable fuel standards (cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel) are based primarily on 49 state gasoline and diesel consumption volumes projected by EIA, and the total volume of renewable fuels by EISA (the legislation that created RFS) in the coming year.”[3] In this case, EPA can revise the numbers set by EISA by looking at the EIA projection for demand and setting targets lower than the “blend wall.”

The blend well is a term to describe the fact the vast majority of cars can only use E10 (gasoline that is 10 percent ethanol). This places a cap on the total amount of ethanol that can be blended with the gasoline supply.

These constraints leave little room for the EPA to make any drastic changes to the numbers they already proposed last fall.

The only opportunity that would allow EPA to significantly change the 2014 numbers they proposed last November would be to set the target above the “blend wall” to “create” a market for higher blends of ethanol. However the White House has already stated this is not a “practical solution” when promulgating the 2013 RFS because vehicle engine durability would be compromised, manufacturers won’t warranty gasoline vehicles for more than 10 percent ethanol, and there is a lack of fueling infrastructure.[4] Since the situation has not changed this year, it seems unlikely that the White House would reverse its claims from last year.

Political Considerations

Given that that there have been no material changes to the fuel market since last year, it is difficult to see why EPA would not have finalized the 2014 volumes, especially now that it is July, 2014. But another possible explanation for EPA’s actions is that EPA is working to create a political issue to be used by RFS supporters in the upcoming mid-term elections.

More specifically, the recent extension has been reported by Energy and Environment Publishing as a possible “gift package”[5] for Rep. Bruce Braley, who is campaigning for the seat of the retiring Iowa Senator Tom Harkin. Braley has been a critic of the 2014 EPA proposal to reduce the required RFS volumes and has signed onto numerous letters asking President Obama to reconsider the cuts.[6] If the EPA’s final 2014 renewable fuel mandate is higher than their fall proposal, Braley can claim his influence in the administration directly benefited corn growers in Iowa  while an election is looming. Competitive Senate races such as Braley’s are now critical to the Obama administration.[7]

Because the administration has not finalized the 2014 RFS, Senators and Representatives from both parties are using this as an opportunity to express their support for the RFS. Recently, 50 members of Congress sent a bipartisan letter to President Obama, which urged him to boost the proposed target[8]. As the saying goes, “all policy is local” and these Members come from districts and states with constituents who benefit from the RFS and by failing to finalize the RFS volumes, the Obama administration keeps the RFS issue alive for their political allies by giving the allies an important issue to use in their campaigns.

Conclusion

EPA is many months behind schedule with their rule specifying 2014 RFS mandated volumes. One of the only possible reasons for this is politics—creating a issues for the Obama administration’s allies to talk about. But in the long run, politically-motivated timing hurts everyone involved, regardless if they support reducing or increasing the target.

Everyone else is hurt by the distortions the RFS has created in the liquid fuel market. A recent report by the Congressional Budget Office shows that the RFS will increase the price of gasoline next year. If the targets are not lowered or removed.[9]  Removing the RFS would allow Americans to decide what fuel works best for themselves instead of relying on a politicized process.

IER Policy Associate John Glennon authored this post

[1] Amanda Peterka, EPA extends compliance period for the 2013 blend requirement, E&E News, 6/6/14, http://www.eenews.net/eenewspm/2014/06/06/stories/106000088585.

[2] Environmental Protection Agency, EPA Extends the Compliance Deadlines for the 2013 Renewable Fuels Standards, 9/30/14, http://www.gpo.gov/fdsys/pkg/FR-2014-06-16/pdf/2014-14019.pdf

[3] 40 C.F.R. § 14716(e)1

http://www.gpo.gov/fdsys/pkg/FR-2010-03-26/pdf/2010-3851.pdf

[4] Office of Management and Budget, The U.S. Renewable Fuel Standard, http://www.whitehouse.gov/sites/default/files/omb/assets/oira_2060/2060_08142012-1.pdf

[5] Amanda Peterka, EPA extension of RFS deadline ‘a gift package’ for Braley in Iowa?, 6/9/14, http://www.eenews.net/eedaily/stories/1060000917

[6] http://braley.house.gov/press-release/braley-%E2%80%9Cangered-and-frustrated%E2%80%9D-obama-renewable-fuels-standard

[7] Paul Lewis and Dan Roberts, US midterm elections: Republicans could triumph- but it’s not a sure thing, 6/10/14, http://www.theguardian.com/world/2014/jun/10/midterm-elections-republicans-senate-races

[8] Amanda Peterka, 50 bipartisan House members urge Obama to boost RFS target, 6/27/14, http://www.eenews.net/eenewspm/2014/06/27/stories/1060002110

[9] Congressional Budget Office, The Renewable Fuel Standard: Issues for 2014 and Beyond, 6/26/14, http://www.cbo.gov/publication/45477

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California’s LCFS Raises Prices at the Pump

July 23, 2014 by Leave a Comment

The United States Supreme Court announced on June 30 it would not review California’s Low Carbon Fuel Standard (LCFS). This decision allows California to go forward with its LCFS. As a result we will likely see even higher gasoline prices in California.

A Low Carbon Fuel Standard limits the amount of greenhouse gases vehicle fuel can emit in its production and usage. Transportation fuel (ie. gasoline and diesel) producers are encouraged to reduce the amount of greenhouse gas emissions used in the manufacturing of fuel or to purchase credits to offset their impact.[1] According to California, certain biofuels decrease the “carbon intensity” of the fuel, which means that one way to comply with an LCFS is to blend biofuel with gasoline. Because of the need to buy credits or use more expensive feedstocks an LCFS program increases the cost of gasoline at the pump.[2]

California’s LCFS Law Upheld

The first state to adopt a LCFS was California in 2007. It has served as a model for other proposed LCFS regulations throughout the world.[3] California hopes the regulation will reduce all greenhouse gas emissions by 10 percent by 2020. California’s regulation assigned each fuel a “carbon intensity rating” a calculation based on projected emissions. The rating takes into account the conversion of forests and diverse ecosystems into farmlands to grow biofuels (land use factor), transportation of the raw resources to the refineries, the refining process, transportation to the consumers, and the usage of the fuel.[4] As a result, fuel from states and countries outside California has a higher carbon intensity rating than the same fuel produced within California.

Biofuel producers outside of California and conventional fuel producers filed a lawsuit against the California Air Resource Board alleging the regulation violated the Commerce Clause because it favored in-state biofuel producers to out-of-state producers. At trial, federal district court Judge Lawrence O’Neill found that California’s LCFS violated the Commerce Clause by giving an economic advantage to Californian fuel producers by assigning a mandatory economic disadvantage to out-of-state and foreign fuel producers.[5] Accordingly, the Court ordered an injunction that prevented implementation of the law. On appeal, the Court of Appeals for the Ninth Circuit reversed the district court’s decision, holding that the regulation did not violate the Commerce Clause because it served a legitimate local purpose.[6] The decision lifted the injunction, allowing California to implement its LCFS.

In response to the Ninth Circuit, fuel producers petitioned the Supreme Court for writ of certiorari. The Court decided not to hear the case.[7] The Supreme Court’s decision is not an endorsement of the California policy, but it means that the Ninth Circuit’s decision will stand. Because the Supreme Court did not rule on the case, it means that courts outside of the Ninth circuit are not bound by the Ninth Circuits opinion and can rule with the Ninth Circuit and allow LCFS or agree with the Judge O’Neill and not allow LCFS.

LCFS Standards in the Ninth Circuit

The Court’s decision affects two other states that have discussed implementing LCFSs—Washington and Oregon. Washington State Governor Jay Inslee issued an executive order that authorizes the Legislation and Policy Office to draft a LCFS proposal for the state. The Office’s commission is creating a legislative proposal to establish the total reduction goals and target year, and Governor Inslee hopes to make the proposal in 2015.[8]

Oregon’s legislature began implementing a LCFS in 2009 by collecting data to aid lawmakers in developing their standard. The legislature hopes to reduce CO2 emissions by 10 percent by 2020.[9] Using this data, the legislature can determine the availability of advanced biofuel and the potential economic and societal effects of implementing a LCFS. If the legislature cannot agree that there are enough advanced biofuels available in Oregon to implement the standard by 2015, the data collection process will end without implementing a LCFS.

State Senators have attempted to implement a LCFS several times, but past attempts have failed because of concerns of fuel price volatility.[10] The current proposal to implement the LCFS in Oregon addresses this concerns by allowing for a suspension of the standard if the price of gasoline and diesel increase 4 percent above the “anticipated cost” because of the standard. The Senate Committee on Environment and Natural Resources has not yet reviewed this bill.[11] Critics of the bill are skeptical of the LCFS in Oregon because of its potential impact on poorer households.[12] The lack of large-scale production of advanced biofuels coupled with growing global food demand could contribute to high grocery and food prices, which would disproportionately affect low-income families.[13] Data from the EPA and U.S. Energy Information Administration provides evidence for this skepticism; national production of advanced biofuels has not kept up with the increase in national demand.[14] Despite this data, Governor Kitzhaber is calling for implementation of the LCFS.[15]

Conclusion

In the short run, the Supreme Court’s failure take up this LCFS case only means that California will go forward with their LCFS and Oregon and Washington will continue to consider implementing an LCFS. By not granting cert, the Court has given the LCFS a second chance, meaning that California and continue to implement its LCFS. .

But the main problem with the LCFS remains—it increases the price at the pump. As the Oregonian explains:

It will raise fuel prices for many Oregonians and create a costly compliance burden. And for what? The program will harm Oregon’s competitiveness far more than it will help the environment. And that assumes it works as intended. You’d think lawmakers would have learned by now how badly off-track attempts to shovel subsidies to chosen industries can go.

California’s LCFS is just one more reason why California has some of the highest gas prices in the county. So far, it’s good to see that no other states have followed California’s lead in implementing a program that is all cost and no benefit.

IER Summer Associate David Greenberg authored this post.


[1] Cal. Code Regs. tit. 17 § 95480 – 95490, (2009), http://www.arb.ca.gov/regact/2009/lcfs09/lcfscombofinal.pdf.

[2] Alexander E Farrell et al., A Low-Carbon Fuel Standard for California Part 2: Policy Analysis 108 (2007), http://www.energy.ca.gov/low_carbon_fuel_standard/UC_LCFS_study_Part_2-FINAL.pdf.

[3] Cal. Health & Saf. Code § 38550 – 38551, (2006), http://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=HSC&division=25.5.&title=&part=3.&chapter=&article=.

[4] Cal. Code Regs. tit. 17 § 95480 – 95490, supra note___.

[5] 843 F. Supp. 2d 1071, Rocky Mt. Farmers Union v. Goldstene, (2011), http://scholar.google.com/scholar_case?case=1592326759043682575.

[6] 730 F.3d 1070, Rocky Mt. Farmers Union v. Corey, (2013), cdn.ca9.uscourts.gov/datastore/opinions/2014/01/22/12-15131.pdf.

[7] Howard R. Rubin et al., 20005 Petition for a Writ of Certiorari (2014), http://sblog.s3.amazonaws.com/wp-content/uploads/2014/04/2014-03-20a-Rocky-Mountain-Farmers-v-Corey_Petition-for-Certiorari.pdf.

[8] Wash. Exec. Order No. 14-04, 9 (2014), http://governor.wa.gov/office/execorders/documents/14-04.pdf.

[9] Or. Rev. Stat. § 468A.270, (2009), http://www.oregonlaws.org/ors/468A.270.

[10] Or. S.B. 1570, (2014). Or. S.B. 488, (2013).

[11] https://olis.leg.state.or.us/liz/2014R1/Committees/SENR/Overview

[12] Todd Myers, Real World Costs Show Effective, Low-Carbon Fuel Standard Costs $1.01 Per Gallon Washington Policy Center (2014), https://www.washingtonpolicy.org/blog/post/real-world-costs-show-effective-low-carbon-fuel-standard-costs-101-gallon (last visited Jun 16, 2014).

[13] Carol Graham et al., (Un?) Happiness and Gasoline Prices 43 (2010), https://www.washingtonpolicy.org/blog/post/real-world-costs-show-effective-low-carbon-fuel-standard-costs-101-gallon.

[14] 2014 RFS2 Data, Environmental Protection Agency (2014), http://www.epa.gov/otaq/fuels/rfsdata/2014emts.htm. U.S. Product Supplied of Finished Motor Gasoline, U.S. Energy Information Administration, http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mgfupus1&f=a (last visited Jun 14, 2014).

[15] Rachel Wray, Governor Kitzhaber announces new clean fuel initiative, http://www.oregon.gov/gov/media_room/Pages/press_releases/press_021314.aspx.

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Carbon Camo

July 22, 2014 by Leave a Comment

Carbon-Camo-590-AEA

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The buck stops somewhere

July 11, 2014 by 2 Comments

G Prices 590 AEA

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Biofuels Industry’s Claims for RFS don’t Stack Up

July 9, 2014 by Leave a Comment

In a last ditch effort to drum up support from lawmakers in light of the recent Environmental Protection Agency (EPA) proposal that would decrease the amount of biofuels required by the Renewable Fuel Standard (RFS) in the nation’s fuel supply from 18.15 billion gallons to 15.21 billion gallons[1], representatives from biofuels companies recently flocked to the Hill to lobby Congress. Anne Steckel, Vice President of Federal Affairs for the National Biodiesel Board (NBB) cited the recent spike in oil prices as the justification to maintain the original mandate, stating:

The recent spike in oil prices stemming from the situation in Iraq should remind us all why these policies are so important. We constantly talk about the need to reduce our dependence on oil. Doing that requires massive investments and infrastructure that simply won’t happen without strong energy policy. We can’t keep taking one step forward and two steps back.[2]

Steckel here is admitting that the biofuel industry is dependent on subsidies and mandates. This calls into question why we still have mandates for biofuel production. After all, the ethanol industry is more than a 100 years old. The first automobiles ran on ethanol. If the ethanol industry cannot be competitive after more than 100 years, when will it be competitive?

Ethanol is more expensive than gasoline

Even with the RFS requiring the use of billions of gallons of ethanol an year, ethanol is still more expensive than gasoline. Currently the average gasoline price in the United States is $3.68[3] while E85 on an equivalent energy basis, is $3.90.[4] If ethanol were cost-competitive, then the Renewable Fuel Standard would not be needed. Prices reflect the availability of resources, and these prices show that biofuel is not the most efficient way to produce fuel.

The reality is that billions of gallons of ethanol would be used regardless of the existence of the RFS. Ethanol is a useful product that has important blending properties that increase the octane in gasoline in a cost-effective manner. But just because some ethanol is good does not mean that the federal government needs to mandate more.

Ethanol supports do not support policies to reduce our use of foreign oil

The claim that we need to reduce our use on foreign oil has been a mantra of many groups since the 1970s. But few groups who claim to want to reduce foreign oil imports actually promote the most obvious source of reduction import–increasing domestic U.S. oil production. Instead of reducing barriers to oil production in the United States, these special interest promote whatever their preferred policy is whether it’s mandating ethanol, forcing automakers to increase fuel efficiency, or arguing for a carbon tax.

Over the past 5 years, we have actually reduced our oil imports. Ethanol has played a role, but the role of domestic oil production has played an even bigger role. Since 2005, biofuels have only contributed to roughly 25% of new domestic liquid fuel production with petroleum contributing to the remaining 75%.[5] And oil production continues to increase.

The biofuel industry uses the concern about foreign oil imports to promote subsidies and set-asides for biofuel.  Other claims reported on Hoosier Ag Today, an agriculture publication, were made by the biofuel industry that make it evident that their industry is dependent for subsidies and mandates instead of a legitimately economically competitive industry:

Anne Steckel VP of Federal Affairs NBB:

“People are losing their jobs in this industry as we speak, and it’s largely because Washington has delivered sporadic, inconsistent policy.”[6]

Grant Kimberley Executive Director of Iowa Biodiesel Board:

“This swinging pendulum of government policy is wreaking havoc on small businesses with real employees who have banked their future on the promise of growing the American energy industry. EPA’s current RFS proposal represents a giant leap backwards for American-made fuel and advanced biofuels. Our Iowa biodiesel producers and soybean farmers strongly oppose it.”[7]

This is the sad reality when businesses are built on government subsidies and not economic reality—the businesses shrink as soon as the taxpayer dollars go away. Steckel and Kimberley are implicitly admitting that the biofuel industry is driven by taxpayer dollars and is not competitive in the real economy.

Conclusion

For the biofuel industry, it is important to come to Washington D.C. and lobby for subsidies because the industry is not economically competitive without handouts from the U.S. taxpayer. Biofuels have been around for more than 100 years. It’s time that the biofuel industry spend more time on becoming more economically competitive and less time lobbying Congress to give it special favors and set asides. The American people would be far better off with more innovation from the biofuel industry instead of continuing ethanol mandates.

IER Policy Associate John Glennon authored this post.


[1] Environment Protection Agency, EPA Proposes 2014 Renewable Fuel Standards, 2015 Biomass-Based Diesel Volume, November 15, 2013, http://www.epa.gov/otaq/fuels/renewablefuels/documents/420f13048.pdf

[2] John Davis, Biodiesel Supporters Hit DC in Final Push for RFS, BiodieselFuel.com, June 17, 2014, http://domesticfuel.com/2014/06/17/biodiesel-producers-hit-dc-in-final-push-on-rfs/

[3] Energy Information Administration, Daily Prices, 6/24/14, http://www.eia.gov/todayinenergy/prices.cfm

[4] Ibid.

[6] John Davis, Biodiesel Supporters Hit DC in Final Push for RFS, Hoosier Ag Today, June 17, 2014, http://www.hoosieragtoday.com/biodiesel-producers-hit-dc-in-final-push-on-rfs/

[7] Ibid.

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“Risky Business” Nonsense

July 7, 2014 by Leave a Comment

The unlikely trio Michael Bloomberg, Hank Paulson, and Thomas Steyer are the co-chairs of a new study, “Risky Business.” It purports to quantify the economic risks of climate change threatening the United States, if the government fails to take action to curb greenhouse gas emissions. The choice of three titans from the financial world as chairs of the report serves rhetorically to reach out to the business community and get them on board with the climate policy intervention agenda.

As so often happens in this arena, “Risky Business” paints a terrifying portrait of American doom that is not supported by the latest IPCC report. Furthermore, even if the scary scenarios really were plausible outcomes, there is nothing that U.S. policymakers could do to avert the alleged dangers. “Risky Business” is thus doubly wrong, offering nonsensical policy “solutions” in response to greatly exaggerated threats.

The study is 56 pages long, and will take more than one post to deal with its claims. In this introductory post I will address the biggest problems with the report, and set the context for some of the more detailed criticism to come later.

Shameless: Paulson Makes Analogy With Financial Crisis

Naturally the most important flaws with the “Risky Business” study concern its exaggerated threats and non sequitur policy responses. But I can’t resist pointing out the utter shamelessness of former Goldman Sachs CEO Hank Paulson’s attempt to liken climate change to the financial crisis. As the reader will recall, Paulson was the last Treasury Secretary in George W. Bush’s administration, and was one of the key players in the U.S. government’s initial response to the financial crisis of 2008. In his recent New York Times op ed talking up “Risky Business,” Paulson tries to leverage his previous experience in order to promote the public’s interest in climate change. Here’s how Paulson opens his piece:

THERE is a time for weighing evidence and a time for acting. And if there’s one thing I’ve learned throughout my work in finance, government and conservation, it is to act before problems become too big to manage.

For too many years, we failed to rein in the excesses building up in the nation’s financial markets. When the credit bubble burst in 2008, the damage was devastating. Millions suffered. Many still do.

We’re making the same mistake today with climate change. We’re staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked.

This is simply jaw-dropping chutzpah from Paulson. From reading the above, one would think the poor Treasury Secretary was a Cassandra when in office, doing his darndest to warn the public and regulators about the crisis building in the financial sector.

In reality, of course, Paulson did his best to reassure the public that everything was fine with the American economy. We’ve compiled a short clip of Paulson’s appearance on “Face the Nation,” taken from July 2008, fully eights months after the recession officially began and a mere two months before the worldwide panic. Yet look how Paulson does everything in his power to bamboozle Americans:

But wait, it gets worse. Not only was Paulson totally incompetent and/or dishonest before the financial crash, but in the immediate aftermath he was instrumental in one of the greatest bait-and-switch moves in world history. Recall that the infamous “TARP” stood for “Troubled Asset Relief Program.” The original proposal was that the federal government would spend many hundreds of billions of dollars buying up so-called “toxic” assets (tied to the collapsing real estate market) from financial institutions, so that they could shore up their balance sheets and prevent world credit markets from freezing up.

Yet in practice, the government didn’t buy assets, but instead acquired equity positions in major investment banks. Furthermore, this wasn’t a voluntary transaction: Paulson made them an offer they couldn’t refuse. He told the bank CEOs that if they didn’t accept the Treasury’s generous infusion of capital (in exchange for preferred stock), then their chief regulator—Ben Bernanke—would suddenly discover problems with their firms.

In case the reader thinks I’m exaggerating, here’s how Business Insider’s Joe Weisenthal put it after FOIA requests showed just how that meeting went down:

Remember the infamous meeting when then Treasury Secretary Hank Paulson had the heads of 9 major banks come down to Washington? It was then that he made them the offer they couldn’t refuse. Take TARP cash, or else!

Now Judicial Watch…has uncovered secret documents from that meeting via the Freedom of Information Act. A few of them are really quite stunning.

The first 1-pager is Paulson’s talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank’s regulator would force them to take it anyway.

In a sense, Henry Paulson actually is a great guy to be spearheading the movement to get the federal government heavily involved in the energy sector. He has a history of obfuscation and mafia tactics with which he showers his cronies with government-backed privileges.

In any event, it’s worth pointing out that the actual insurance sector—let alone the broader business community—is not embracing climate alarmism the way Paulson, Bloomberg, and Steyer are. A recent E&E article reported: “Zurich Insurance Group is closing its U.S. climate change office six years after opening it to help persuade companies to press public officials for solutions to climbing disaster losses, according to several sources.”

Examples of “Risky Business” Nonsense

In future posts we’ll dig into the details, but for now let’s highlight just two examples of the misleading scare tactics and non sequitur statements in “Risky Business.”

First, consider this statement from the Executive Summary: “If we continue on our current path, by 2050 between $66 billion and $106 billion worth of existing coastal property will likely be below sea level nationwide…”

The report is full of statements in this genre. It certainly leads the reader to believe that (a) these are definitive “scientific” statements similar to predicting the phases of the moon (b) that the U.S. government has the power to affect what the global climate does between now and 2050.

Yet according to official climate models, even if the U.S. enacted an immediate and total ban on all human emissions of greenhouse gases, the difference in global temperature by the year 2050 would be a mere five one-hundredths of a degree Celsius.[1] And that’s the most that the U.S. government could possibly achieve, even if it relied on a ridiculously draconian ban on all future emissions.

This post is already getting long, so let us provide just one more example for now. Consider the following factoid from “Risky Business”:

As extreme heat spreads across the middle of the country by the end of the century, some states in the Southeast, lower Great Plains, and Midwest risk up to a 50% to 70% loss in average annual crop yields (corn, soy, cotton, and wheat), absent agricultural adaptation. [Bold added.]

Those last three words are fairly crucial, no? In order to generate such enormous losses (of 50% to 70% of crop yields), the study not only has to focus on a very unlikely climate outcome, but also has to assume that farmers stupidly ignore the changing conditions for the next 85 years.

With that benchmark, you could generate all sorts of catastrophic predictions. For example, if we assume motorists don’t apply the brakes when they see an accident in front of them, then by the end of next week we can expect 50% of Americans to be involved in a huge pileup on the highway.

Conclusion

The 56-page “Risky Business” document is just another sleek marketing effort to scare the American public into accepting radical government interventions into the energy sector. It is based on farfetched claims about the risks involved, and furthermore its policy “solutions” make no sense, even if those risks were accurately portrayed. The whole thing is all the more dubious when you consider the key players involved with the report.

IER Senior Economist Bob Murphy authored this post.

[1] This calculation assumes a (generous) “climate sensitivity” parameter of 3 degrees Celsius. Based on the latest research, a lower figure is more appropriate, but we hardly need to push on that front in order to make the point in the text.

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Happy Carbon-Free Fourth!

July 3, 2014 by Leave a Comment

Carbon-Free-590-AEA-3

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CBO Reports Higher Gasoline Prices if RFS Target is not Lowered

July 1, 2014 by Leave a Comment

Last week the Congressional Budget Office (CBO) produced a report on the feasibility of complying with the Renewable Fuel Standard (RFS), a federal mandate that requires minimum volumes of renewable fuels to be blended into transportation fuels.  The original volume mandated by the Energy Independence and Security Act of 2007 (EISA) for 2014 is 18.15 billion gallons, which continues to increase annually.[i] However, after recognizing severe challenges in meeting the EISA target, primarily due to the lack of supply of cellulosic biofuels and the blend wall,[1] the EPA is proposing to lower the EISA 2014 mandate by 3 billion gallons to 15.21 billion gallons[ii].

CBO’s study evaluates both the extent to which an increase in the supply of renewable fuels would be necessary to comply with RFS standards and also how food prices, fuel prices, and emissions would vary in 2017 based on compliance with the original EISA mandates compared to EPA’s lowered targets. The report suggests that the most probable outcome is the success of EPA’s proposed lowering of the 2014 RFS target.[iii] CBO concludes that lobbying efforts by biofuel producers to increase the EPA’s lowered 2014 target are impractical and will cause a severe increase in gas prices, and that the EPA will likely continue to keep in place lower mandates than what were required under the 2007 EISA.[iv]

In defending the EPA’s lowered targets against the mandated EISA targets, CBO’s study found that if EISA targets are not lowered, the price of petroleum-based diesel would rise by between 30 cents and 51 cents per gallon (9-14 percent increase), and the price of E10 fuel (most of the gasoline in the country is now E10) would increase by between 13 cents and 26 cents per gallon (4-9 percent increase) by 2017.  The only fuel that would experience a decrease in price is E85, Flex Fuel, which would decline by between 91 cents and $1.27 per gallon.  However, not only is E85 limited to Flex Fuel vehicles, but currently fewer than 2 percent of filling stations in the United States sell E85.[v]

Additionally, CBO applauds EPA’s efforts to lower the 2014 RFS target by 3 billion gallons due to the 6% average increase in corn prices that would otherwise occur by 2017 if adhering to EISA volume requirements.  The report expects that the lowered 2014 target is set at roughly the same volume by which fuel suppliers would demand corn for ethanol even if they were not required to meet RFS standards.  Therefore, while upward pressure is put on price of corn due to the demand for biofuel, CBO suggests that such pressure would occur even without the RFS.[vi]  If fuel suppliers find it more cost effective to continue using corn ethanol to produce E10 even in the absence of the RFS, questions should be raised as to the effectiveness or necessity of the RFS, which is mandating the same demand levels that would otherwise be present in market conditions.

According to the CBO it is imperative that the RFS is either completely repealed or adjusted using EPA’s 2014 target of 15.21 billion gallons.  Not lowering the RFS targets would greatly increase the price of transportation fuels, and would force fuel refiners to exceed the 10 percent blend level, an unsafe level for older vehicles.  In addition, recent research suggests that greenhouse gas emissions from the use of renewable fuels is no different, and may be even worse, than emissions from gasoline.[vii]  While the federal government can be expected to support EPA’s lowering of the 2014 RFS targets, CBO also states that repealing the RFS should be a considered scenario, which is one that should be more seriously considered if the market will produce the same use of ethanol that is required under the RFS ethanol mandate, rendering the legislation unnecessary.

IER Summer Associate Sarah Pearce authored this post.

[1] Currently, most gasoline sold in the U.S. is a blend that includes up to 10 percent ethanol (E10), referred to as the “blend wall” because it is the maximum concentration of ethanol in gasoline that is feasible to avoid damage to the fuel systems of older vehicles.


[i]  Environmental Protection Agency, Federal Register Vol. 78, No. 230, November 29, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-11-29/pdf/2013-28155.pdf.

[ii] Ibid

[iii] Congressional Budget Office, The Renewable Fuel Standard: Issues for 2014 and Beyond, June 2014, http://www.cbo.gov/sites/default/files/cbofiles/attachments/45477-Biofuels2.pdf.

[iv] Edward Felker, CBO: Lower ethanol use likely for years to come, Energy Guardian, June 27, 2014, http://energyguardian.net/cbo-lower-ethanol-use-likely-years-come.

[v] Congressional Budget Office, The Renewable Fuel Standard: Issues for 2014 and Beyond, June 26, 2014, http://www.cbo.gov/publication/45477.

[vi] Ibid

[vii] Environmental Working Group, Ethanol’s Broken Promise, May 29, 2014, http://static.ewg.org/reports/2014/ethanol_broken_promise/pdf/ethanol_broken_promise_ewg_2014.pdf.

 

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