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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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Uncertainty Surrounds Ethanol’s Impact on GHG Emissions

June 30, 2014 by Leave a Comment

The EPA is proposing to lower the 2014 RFS biofuel blending mandate by 1.4 billion gallons, from the statutory mandate of 18.21 billion gallons to 15.21 billion gallons.  While a study by the Environmental Working Group (EWG) concluded that reducing the biofuel target would reduce emissions by the equivalent of taking 580,000 cars off the road,[i] a study conducted by Biotechnology Industry Corporation found that reducing the target would add greenhouse gas emissions equivalent to placing 5.9 million more cars on the road.[ii] So which is it? Does ethanol reduce or increase carbon dioxide emissions? After years of research, the answer is still not clear.

This latest research suggests that the impact on carbon dioxide emissions of using biofuels over petroleum-based fuel is unclear, primarily due to uncertainties in modeling biofuel emissions associated with life cycle production and land use changes.[iii]

Four years ago, when the EPA wrote its final rule on the RFS and released its Regulatory Impact Assessment in 2010, there was little doubt that biofuels produced lower greenhouse gas emissions than gasoline.  The Impact Assessment predicted that corn ethanol’s emissions would be 17 percent lower than gasoline’s by 2022.  By setting thresholds that require a certain amount of biofuels to be blended into transportation fuel each year, the EPA sought to cut emissions by 20 percent using corn ethanol and 50 percent using advanced biofuels.[iv]

However, studies today have resulted in a variety of conclusions that both question and confirm the original belief that the RFS would help reduce greenhouse gas emissions.  The EWG report produced this past May concluded that the EPA proposal to cut the 2014 RFS target by 1.4 billion gallons would actually lower U.S. greenhouse gas emissions by 3 million tons of carbon dioxide.  EWG concluded that previous estimates and models dramatically underestimated carbon emissions associated with land changes—plowing grasslands and wetlands to turn into corn fields for biofuel production—which release carbon locked up in trees and soil into the atmosphere.  Therefore, EWG suggests that by taking the full life cycle of biofuel production, transmission, and tailpipe emission into account, biofuels release more carbon dioxide into the air than gasoline.[v]

In response to EWG’s study, a group of seven scientists conducted their own research, and came to similar conclusions as the ones produced by the Biotechnology Industry Corporation.  The reports suggested that EWG’s models both exaggerate the total amount of land that has been converted into corn ethanol production and overestimate the carbon released from such land changes.[vi]  They therefore concluded that reducing the 2014 RFS biofuel mandate would increase greenhouse gas emissions, because even after accounting for the life cycle of biofuel production corn ethanol still reduces emissions by about 30 percent compared to petroleum-based fuel.[vii]

When the RFS was created, there was great confidence that domestic oil production would continue to fall, that cellulosic ethanol would quickly become cost competitive, and that using more ethanol would reduce greenhouse gas emissions. Today, domestic oil production is booming, cellulosic ethanol production is almost non-existent, and it now isn’t clear whether ethanol reduces carbon dioxide emissions.  Questions surrounding biofuel life cycle emissions and the impact of land changes make it difficult to definitively conclude whether biofuel or petroleum-based fuel produces less carbon dioxide emissions. This is a good reminder of the folly of mandates—politicians understand far less of the world than they think they do.

IER Summer Associate Sarah Pearce authored this post.

[i] Environmental Working Group, Ethanol’s Broken Promise, May 29, 2014, http://www.ewg.org/research/ethanols-broken-promise.

[ii] Amanda Peterka, RFS proposal would reduce greenhouse gas emissions- enviro report, Greenwire, May 29, 2014, http://www.eenews.net/greenwire/stories/1060000375/.

[iii] Amanda Peterka, DOE-backed study questions life-cycle analyses of carbon footprint, Greenwire, http://www.eenews.net/greenwire/stories/1059987911/.

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

[v] ibid

[vi] Michael Wang, Jennifer B. Dunn, Steffen Mueller, Zhangcia Qin, Wally Tyner, Barry Goodwin, Comments on Ethanol’s Broken Promise by the Environmental Working Group (May 2014), June 11, 2014, http://ethanolrfa.3cdn.net/c9820f88366b2d2b3f_ykm6bnsvc.pdf.

[vii] Amanda Peterka, Industry Group says EPA proposal will increase GHG emissions, Greenwire, March 26, http://www.eenews.net/greenwire/stories/1059996767/.

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Disaster

June 27, 2014 by 1 Comment

Ethanol-590-AEA-1

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EPA Should Rethink Unrealistic 2014 Biofuel Standards

June 25, 2014 by Leave a Comment

The EPA is planning to set an unrealistic target for cellulosic biofuel production for the 5th year in a row, although the final rule will be postponed until late summer due to an extension of the 2013 deadline for refiners to meet renewable fuel blending requirements from June 30 to September 30. Last year, EPA proposed adjusting the 2014 Renewable Fuel Standard (RFS) cellulosic target to 17 million gallons (15.21 billion gallons of total renewable), down from the original 1.75 billion gallon (18.15 billion gallon total renewable) statutory target set by the Energy Independence and Security Act of 2007. [i]

The EPA has regularly adjusted RFS targets, as the original EISA mandated unreachable levels of 9 billion gallons of total renewable fuel by 2009 and 36 billion gallons by 2022.[ii]  However, the EPA’s 2014 target for cellulosic biofuels jumped 11 million gallons from its 2013 target of 6 million gallons, which is both concerning and unrealistic.

With only 72,111 gallons of cellulosic biofuel production in the first quarter of 2014, it is unlikely that even the level that EPA mandated for 2013, 6 million gallons, will be reached, let alone the proposed 17 million gallon target for 2014.[iii]  EPA’s targets are therefore still greatly out of touch with reality, and should take into account actual production levels rather than projected production targets.

Source: EPA 2014 RFS Data, http://www.epa.gov/otaq/fuels/rfsdata/2014emts.htm.

The chart above suggests that such a difference between EPA targets and actual cellulosic biofuel production in 2014 should not come as a surprise, as the EPA has consistently chosen targets that are greatly above actual cellulosic biofuel production.  Rather than assessing actual production from 2013, the EPA instead increased the unmet target from last year by 11 million gallons.[iv]

In EPA’s proposed rule for 2014, the EPA based its adjustments for the cellulosic target on simulations and assessments of projected production volumes instead of considering the fact that EPA’s estimates have overestimated actual production 4 years running by at least 5 million gallons a year. EPA’s simulations for 2014 predicted a range of production from 8 million to 30 million gallons. In the first quarter, only 72,111 gallons of cellulosic biofuel were produced—far less than EPA’s simulation. Despite being wrong 4 years in a row, EPA’s simulation obviously failed to quantify important uncertainties, showing that EPA’s target of 17 million gallons is both arbitrary and ambitious.[v] For example, EPA models suggest that new facilities projected to be brought online in the United States in 2014 will increase the production capacity of the cellulosic industry by 600 percent, seemingly ignoring the reality that sheer capacity is much different than actual production.[vi]

Even one of the leading companies of cellulosic biofuel production cannot meet EPA’s projected production rates. KiOR, the nation’s first commercial-sale cellulosic biofuel plant and one of the most significant actors in the EPA’s calculation of cellulosic fuel volumes for the RFS program, has grossly and consistently underperformed EPA’s expected production.  While the company produced a record 385,000 gallons of total fuel in the fourth quarter of 2013 (which was still way below EPA projection), high production costs and insubstantial profits forced the company to freeze its production in the first quarter of 2014.[vii] If the U.S.’s largest cellulosic ethanol provider is considering bankruptcy, defaulting on its loans, and delisting from Nasdaq,[viii] it is an illusion to think that another 16.9 million gallons can be produced by the end of this year.  The EPA should seriously reconsider raising the RFS target from 6 million in 2013 to 17 million in 2014, because the target is likely unattainable.

Setting unrealistic targets has led the often referred-to “phantom fuel” situation to persist, in which petroleum refiners are mandated to include renewable fuels that do not exist.  Because there is not enough actual production of cellulosic biofuel to meet the RFS target, refiners are required to purchase credits that cost the industry more than $2.2 million in fees last year.[ix]  Refiners are not only mandated to blend biofuels that do not exist, but are also forced to purchase credits that may push costs onto consumers. This unnecessary financial drain is the product of unrealistic EPA targets and should be seriously reconsidered in the final decision on the 2014 RFS adjustments taking place at end of this summer.

IER Summer Associate Sarah Pearce authored this post.

[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] Environmental Protection Agency, Renewable Fuel Standard (RFS), June 6, 2014, http://www.epa.gov/otaq/fuels/renewablefuels/.

[iii] Environmental Protection Agency, 2014 RFS Data, May 7, 2014, http://www.epa.gov/otaq/fuels/rfsdata/2014emts.htm.

[iv] ibid

[v] See footnote i

[vi] See footnote i

[vii] Amanda Peterka, First U.S. cellulosic plant goes idle as EPA weighs production targets, Governors’ Biofuels Coalition, January 16, 2014, http://www.governorsbiofuelscoalition.org/?p=8108.

[viii] Amanda Peterka, Bankruptcy worries loom as funding dries up at cellulosic plant, Governors’ Biofuels Coalition, March 19, 2014, http://www.governorsbiofuelscoalition.org/?p=8722.

[ix] Reuters, UPDATE 2-U.S. may lower 2013 target for cellulosic ethanol, January 23, 2014, http://www.reuters.com/article/2014/01/23/usa-ethanol-cellulosic-idUSL2N0KX1IS20140123.

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AEA Enlists New House Leaders to End Wind Welfare

June 23, 2014 by Leave a Comment

WASHINGTON – American Energy Alliance President Thomas Pyle sent a letter today to House Leadership congratulating the newly elected Majority Leader Kevin McCarthy and Majority Whip Steve Scalise. The letter also urges them to remain opposed to an extension of the recently expired Wind Production Tax Credit (PTC). AEA also ran a full page ad in today’s edition of Politico as part of a broader paid initiative that includes digital and social media.

Excerpts from the letter:

The PTC expired as of January 1, 2014. However, green pressure groups and the wind lobby are working to revive this costly policy as part of a tax extenders package and also have it be retroactively reinstated. We urge you to oppose such an action.

We agree with Majority Leader McCarthy that subsidies for wind have “had their time”. Majority Whip Scalise, you have similarly condemned the PTC. In late 2012, you joined with 44 fellow Representatives in a letter stating, “Twenty years of subsidizing wind is more than enough.” This decades old subsidy has far outlived its usefulness. The wind industry should be left to compete in the free market based on its own merits, not rely on taxpayer dollars. We ask that you stand by your previous positions and remain in opposition to an extension of this wasteful subsidy.

The effect of providing a subsidy worth half or more of the wholesale price of electricity has already negatively impacted electricity reliability, because the artificial price structure created by the PTC encourages the development of uneconomic wind while undermining the economics of reliable full-time generation such as coal, natural gas, and nuclear. Investor Warren Buffett made this fact very clear when her recently said, “…On wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

To read the full letter, click here.
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The National Interest

June 13, 2014 by Leave a Comment

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U.S. Energy Boom Helping Refiners and Manufacturers

June 11, 2014 by Leave a Comment

The U.S. oil boom is helping U.S. manufacturers, including refiners, by producing low-cost energy to help American companies compete in a global economy. The latest example of this is a recent report by the Energy Information Administration (EIA) that compares the profitability of American and European refiners over the past 10 years. EIA’s analysis shows that over the last three years American refiners have reported considerably higher profits than their European counterparts due to lower input costs. This is because of benefits of increased domestic natural gas and oil production.

The recent influx of oil obtained through the use of hydraulic fracturing and directional drilling has widened the spread between the price of WTI (domestic) and Brent (European) crude oil prices. This has resulted in lower input costs for U.S. refiners that acquire their oil domestically. After the first quarter of 2014, the EIA reports American refiners earned around $6 more per barrel processed than refiners operating in the European markets—all because of an increase in U.S. natural gas and oil production.

This increase in supply of oil for U.S. refiners comes in the wake of a large build-out of transportation and storage infrastructure over the past several years. Firms spent billions to complete projects that move oil and gas across the United States from operating wells to refiners, and ultimately to consumers.

This increase in available oil is leading refiners to actually increase refining capacity in the U.S. A Wall Street Journal article from March 2014 reports an estimated increase in oil-refining capacity of 400,000 barrels per day to existing plants by 2018 – the equivalent of constructing a new, large-scale refinery – the last of which was built over three decades ago.

One town reaping the benefits of the refining boom is Nixon, Texas, profiled in a New York Times article earlier this year. The town is home to a refining plant owned by Blue Dolphin Energy, which resumed operations 2 years ago. The opening of the refinery resulted in the direct employment of 50 individuals, has packed the town’s diners and stores, quadrupled home values and allowed the town to improve infrastructure like roads and water systems.

The re-opening of the refinery in Nixon, Texas and the proposed capacity additions highlight the beneficial impact increased energy production, and the resulting lower energy prices, can have on individuals, small businesses, and towns alike.

IER summer associate Justin Bohlen authored this post

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