News - American Energy Alliance

Baucus’ Energy Plan is a Train Wreck

November 22, 2013 by AEA Leave a Comment

WASHINGTON — Senate Finance Committee Chairman Max Baucus (D-Mont.) released yesterday a federal tax reform discussion draft that includes a number of energy provisions. American Energy Alliance Senior Vice President Dan Kish released the following statement in response to the Senator’s plan:

“Senator Baucus’ energy tax plan should serve as a reminder that he was Obamacare’s chief author and then later distanced himself from his work by calling it a “train wreck”. Americans should be getting wise to career politicians who feign surprise when their “solutions to problems” end up blowing up in Americans’ faces. The Baucus energy plan is just another train wreck waiting to happen, and in this case, it’s just another hidden tax on Americans who are struggling to work and pay their bills. Montanans and Americans don’t need fewer jobs and higher energy prices – the logical result of Baucus’ latest train wreck proposal. It’s just proof his decision to retire is long overdue.”

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Filed Under: Press Releases Tagged With: Max Baucus, Tax Reform

Big Ethanol Running Empty On Rhetoric

November 22, 2013 by AEA Leave a Comment

Last week was unkind to the ethanol lobby. The EPA proposed a reduction in the biofuel mandate, and a scathing AP investigation undermined the environmental case for ethanol support. To gauge just how serious the situation is, we need only look at the weak arguments put forth by the ethanol lobby in rebuttal.

First let’s review what happened: The EPA proposed rolling back the 2014 amount of ethanol to be included in the nation’s fuel mix. According to the schedule passed by Congress in 2007, the 2014 mandate would have been 18.15 billion gallons. Yet now EPA is proposing a 16 percent reduction (citing a new range of 15 billion to 15.52 billion gallons), which would pull the 2014 level even below the existing 2013 mandate. Thus, for the first time since the Renewable Fuel Standard was put in place, the mandated level of ethanol would fall.

The primary reason for the rollback was simple common sense: Gasoline consumption had not grown as quickly as forecasted (because of the recession and advances in fuel economy), and so the original mandate for 2014 would have pushed the ethanol content above the E10 “blend wall.” This would have risked actual damage to engines.

The other backbreaking development last week was the release of an AP investigation showing that even environmental activists are now recognizing that federal support for corn-based ethanol is having environmental impacts, leading to soil erosion, higher food prices, and even increased CO₂ emissions. Thus the policy is a failure on any dimension.

The pro-ethanol lobby was not happy with EPA’s announcement:

“EPA is proposing to place the nation’s renewable energy policy in the hands of the oil companies,” said Bob Dinneen, CEO of the Renewable Fuels Association, a major ethanol industry group. “That would be the death of innovation and evolution in our motor fuel markets, thus increasing consumer costs at the pump and the environmental cost of energy production. This proposal cannot stand.”

Dinneen’s complaints are misplaced. It’s not placing policy “in the hands of the oil companies” for the government to simply move in the direction of consumer and business choice. In reality, policy is still in the hands of the ethanol companies, because the government is literally forcing refiners to use more ethanol in the fuel mix than they would voluntarily choose to do.

This also shows the flaw in Dinneen’s claim that cutting back on the mandate will increase “consumer costs at the pump.” If it really were the case that ethanol made it cheaper to drive—after accounting for the lower mileage because ethanol has a lower energy content per volume than gasoline, and also accounting for the various hidden costs borne by refiners because of the mandate—then why would the government have to force refiners to use it? (Also note that the “econometric” tests of ethanol’s impact on prices contain design problems that bias the results.)

Finally, it doesn’t make sense to encourage “innovation” in economically inefficient areas. If the government mandated that fast food restaurants serve rising amounts of Brussels sprouts with every meal, that would “spur innovation” in the industry as well, but it would hardly be what consumers wanted.

It was years in the making, but at long last there has been just a smidgen of common sense in federal ethanol policy. The response from the pro-ethanol forces shows just how weak their position is.

IER Senior Economist Robert P. Murphy authored this post.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: AP, EPA, ethanol, rfs

EPA's 2014 Ethanol Mandate Ignores Reality

November 18, 2013 by AEA Leave a Comment

The proposed 2014 mandate for the Renewable Fuel Standard Program demonstrates that the RFS is irreparably broken and should be scrapped. Until Congress repeals the entire RFS, EPA should lower the total ethanol mandate and set the advanced ethanol and cellulosic ethanol mandate to zero. Despite years of trying, EPA has proven incapable of setting ethanol volumes that correspond in any way to reality, especially cellulosic ethanol. Furthermore, in the name of reducing greenhouse gas emissions, keeping the advanced biofuel standard leads to the environmentally and economically absurd practice of importing Brazilian sugarcane ethanol and then exporting U.S. corn ethanol back to Brazil to replace the sugarcane ethanol. This is what happens when government tries central planning, and that is what the RFS is.

The RFS is fundamentally flawed because it is based on the belief that the White House or Congress or EPA can accurately project overall gasoline and diesel demand years in advance, as well as ethanol production and demand. After their projections have proven woefully wrong year after year, it is time to end the RFS and empower everyday Americans to make food and fuel choices, instead of bureaucrats and politicians.

The 2014 ethanol mandates are flawed

While it is good to see EPA acknowledge a little bit of reality and reduce the overall ethanol mandate with their proposed 2014 rule, EPA continues to ignore reality by failing to further reduce the “advanced biofuel mandate” and the “cellulosic mandate.”

The proposed rule sets the total ethanol mandate at 15.21 billion gallons. This is down from the total Congress specified in the Energy Independence and Security Act of 2007 of 18.15 billion gallons. EPA’s reduction is an acknowledgement of the simple reality that there was not enough gasoline being used in America to blend 18.15 billion gallons of ethanol. Through September the U.S. motorists are on pace to use 134 billion gallons of gasoline in 2013. If the mandate remained at 18.15 billion gallons, then gasoline would average 14 percent ethanol—more than almost all cars can currently safely use.

EPA Continues to Promote Cellulosic Ethanol

While EPA recognizes there was nowhere for 18.15 billion gallons of ethanol to go, they continue to promote “advanced” and cellulosic ethanol to the detriment of Americans. Congress and the Bush Administration were so convinced that more ethanol was the way forward in 2007, they mandated 36 billion gallons must be sold by 2022, comprised of 15 billion gallons of corn ethanol with the remainder being cellulosic or advanced ethanol. Biofuels lobbyists convinced them that it would be commercially available, but they were wrong. As a safety valve, EPA was given the authority to adjust the numbers should the numerical mandates be unachievable. EPA, however, has a track record of grossly overestimating cellulosic ethanol volumes, and has done so repeatedly. Despite the D.C. Circuit chastising EPA for “let[ting] its aspirations for a self-fulfilling prophecy divert it from a neutral methodology”, EPA continues to promote cellulosic production instead of using a neutral methodology and projecting realistic cellulosic volumes.

For 2013, EPA mandated 6 million gallons of cellulosic ethanol, so far this year 217,569 “gallons”[1] of cellulosic ethanol have been produced. This is ten times as much cellulosic ethanol as was produced in 2012, but there is no reason to believe that cellulosic production will suddenly increase by nearly 80 times to the 17 million gallons that EPA is mandating in the proposed rule. This is especially true because KiOR, one of the only cellulosic producers, missed its 2nd quarter forecast by 75 percent and is now involved in a lawsuit because of alleged misleading statements.

Advanced Ethanol is not “advanced”—it’s just another name for sugar cane ethanol from Brazil

Another problem with the 2014 RFS volumes is the mandate for advanced biofuel. EPA’s 2014 proposed ethanol mandate sets the advanced ethanol mandate 2.2 billion gallons. While it is good that EPA gives a nod to reality by reducing the amount of advanced ethanol required by EISA, it is important to understand what “advanced” biofuels are and why this requirement leads to environmentally and economically absurd results.

Advanced biofuels are biofuel other than ethanol derived from corn starch (ie. corn kernels) which EPA deems to have 50 percent lower lifecycle greenhouse gas emissions relative to gasoline. Sugarcane ethanol is the only mass-produced product[2] which EPA has certified to meet the definition of “advanced” biofuel. As a result, we have the absurd situation were the U.S. imports sugarcane ethanol from Brazil and exports corn ethanol to Brazil as this chart from EIA shows:

As EIA explains, “U.S. obligated parties [ie. U.S. refiners] prefer sugarcane ethanol over corn ethanol” because “sugarcane ethanol counts toward the RFS advanced requirement.” Brazilian ethanol users are indifferent between corn ethanol and sugarcane ethanol.

This situation is completely absurd. First, sugarcane ethanol is not “advanced.” Sugarcane has been used to make ethanol in Brazil since the late 1920s.[3] The only reason sugarcane is deemed to be “advanced” is because EPA believes it has 50 percent lower lifecycle greenhouse gas emissions than gasoline. The Renewable Fuels Association does not agree with EPA’s assessment of 50 percent lower lifecycle greenhouse gas emissions from sugarcane ethanol.

Second, while sugarcane ethanol may have lower lifecycle greenhouse gas emissions, any reductions are wiped out by what happens with sugarcane ethanol in the real world. The preference that EISA sets up for sugarcane ethanol means that not only is sugarcane ethanol imported to the U.S., increasing its lifecycle greenhouse gas emissions, but corn ethanol is then exported to Brazil further increasing the true lifecycle greenhouse gas emissions of sugarcane ethanol. When EPA deems sugarcane ethanol an advanced biofuel, they have to consider its true lifecycle greenhouse gas emissions not only the greenhouse gas emissions required to get the sugarcane ethanol to the U.S., but also what replaces that ethanol in Brazil. Swapping Brazilian sugarcane ethanol with U.S. corn ethanol actually results in overall higher greenhouse gas emissions—not lower emissions, which was supposed to be the point of the advanced ethanol provision in EISA.

Worse, swapping Brazilian sugarcane ethanol with U.S.-produced corn ethanol is completely economically wasteful. This swap does nothing, except increase costs and energy use required to swap Brazilian for U.S. ethanol.

EIA believes that this absurd trade in ethanol will continue for the next 30 years, with imported ethanol expected to play a much more important role than cellulosic ethanol.

The free market would use billions of gallons of ethanol a year—just let the market work

Ending the RFS does not mean that ethanol would not be used. What it does mean is that the absurd and inefficient Brazilian-U.S. ethanol swaps would end, that research dollars would be spent on projects that make economic sense, and that the American people would balance the competing uses of corn instead of the federal government dictating a certain amount of ethanol.

If the RFS were repealed, the reality is that billions of gallons of corn ethanol would still be used in transportation fuel. One of the most important, and free market, uses of ethanol in the United States today is ethanol’s use as cost-effective way for refiners to increase octane in gasoline.

While repealing the RFS would still mean that billions of gallons of ethanol are used, it would end the absurd and economically inefficient swapping of corn for sugarcane ethanol. Without the RFS, the only reason sugarcane ethanol would be imported to the U.S. is because it makes economic sense and the only exports of ethanol to Brazil would occur because it makes economic sense.

One of the arguments for the advanced and cellulosic provisions in EISA was to create increased demand for alternative fuels. This argument however, overlooks a simple fact of the size of the liquid fuel market. The global market for gasoline and diesel is literally worth trillions of dollars. Products that economically replace conventional oil production in that market do not need subsidies and mandates from the federal government.

The obvious example is shale oil production. Shale oil did not need billions of dollars of subsidies or a mandate that compels refiners to blend shale oil with conventionally-produced oil and consumers to buy it. Shale oil producers saw a huge market opportunity and developed the technology to compete. Because of shale oil, the U.S. energy picture has completely changed since 2007, when the law was passed to reflect that year’s energy picture. The U.S.’s oil production is rapidly increasing because of shale oil production—something a law like EISA did not foresee or take into account.

Cost effective ethanol products will find a place in the market, but only if, like shale oil, they are cost competitive. The government can mandate the use of billions of gallons of cellulosic ethanol, for example, but that has not made it economic.

Lastly, corn ethanol has been implicated with increasing the price of food by reducing the amount of corn available for uses other than ethanol. The problem with the RFS is the law essentially requires turning billions of bushels of corn into ethanol. In a free society, the federal bureaucrats should not be deciding how much corn to use for fuel; the American public should be making those decisions based on their free choices. Repealing the RFS would empower everyday Americans to make these important financial choices, just as they choose what kind of cell phone or computer to buy. When each of us makes decisions, we live with the consequences, whereas when the government makes decisions for us, no one has the freedom to escape a bad decision.

Conclusion

EPA continues to promote environmental and economically absurd practices by mandating artificially higher levels of ethanol production, especially advanced and cellulosic production. There is however, a simple fix—repeal the RFS and thereby empower everyday Americans to make the important choices about what fuel to use and how to balance food and fuel conflicts.

[1] Technically, 145,042 gallons of cellulosic ethanol have been produced, but that translates to 217,569 RINs.

[2] See U.S. Biofuel Policy, http://sugarcane.org/global-policies/policies-in-the-united-states/us-biofuel-policy.

[3] USGA: Em 1927, O Primeiro Grande Empreendimento Brasileiro em Alcool Combustivel,http://web.archive.org/web/20080319112800/http://www.aondevamos.eng.br/boletins/edicao07.htm.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: cellulosic biofuel, EPA, ethanol, rfs

PYLE: EPA’s Biofuel Fix is Only a Band-Aid

November 15, 2013 by AEA Leave a Comment

WASHINGTON — The U.S. Environmental Protection Agency released today its 2014 requirements for the Renewable Fuel Standard (RFS). The proposed rule scales back the ethanol mandate to the 2012 level of 15.2 billion gallons, down from 16.55 billion gallons in 2013. American Energy Alliance President Thomas Pyle released the following statement in response to the announcement:

“The American Energy Alliance welcomes today’s better-late-than-never announcement that the EPA will scale back the ethanol mandate for next year. With this ruling, even the EPA now recognizes that this program is flawed and fails to take into account existing market realities. Today’s action by the EPA, however, does not take away the need for Congress to act quickly to repeal the law. With this ruling, the “blend wall” may not immediately be hit, but the real problems for consumers have not gone away.

“With this RPS ruling, the EPA is still requiring the production of millions of gallons of phantom cellulosic biofuel, an 800 percent increase from the 2013 levels that were actually produced. Further, the 2.2 billion gallon mandate for “advanced biofuel” is especially absurd considering the practical result is we are merely swapping Brazilian sugarcane ethanol with U.S corn based ethanol in the marketplace.

“If the purpose of the RFS was to to reduce our dependence on foreign oil, it is certainly no longer necessary to worry about that given we are poised to become the world’s number one producer of oil. If the purpose of the RFS was to help the environment, we also know that is doing quite the opposite. In fact, the only ones benefiting from this program are lobbyists for the corn and biofuels industries who falsely claim they are fighting for rural states, farmers, and a cleaner energy source when in reality they are merely lining their pockets with Americans’ tax dollars. The renewable fuels standard has driven up the cost of both food and fuels, and distorted energy markets to the disadvantage of American consumers.

“The EPA decision today is not a fix, but a band-aid. Congress must work immediately to fully repeal this bad law.”

For an analysis on the 2014 RFS proposal, click here.

Filed Under: Press Releases Tagged With: cellulosic ethanol, EPA, ethanol, Renewable Fuel Standard

PYLE: EPA's Biofuel Fix Is Only a Band-Aid

November 15, 2013 by AEA Leave a Comment

“The American Energy Alliance welcomes today’s better-late-than-never announcement that the EPA will scale back the ethanol mandate for next year. With this ruling, even the EPA now recognizes that this program is flawed and fails to take into account existing market realities. Today’s action by the EPA, however, does not take away the need for Congress to act quickly to repeal the law. With this ruling, the “blend wall” may not immediately be hit, but the real problems for consumers have not gone away.

“With this RPS ruling, the EPA is still requiring the production of millions of gallons of phantom cellulosic biofuel, an 800 percent increase from the 2013 levels that were actually produced. Further, the 2.2 billion gallon mandate for “advanced biofuel” is especially absurd considering the practical result is we are merely swapping Brazilian sugarcane ethanol with U.S corn based ethanol in the marketplace.

“If the purpose of the RFS was to to reduce our dependence on foreign oil, it is certainly no longer necessary to worry about that given we are poised to become the world’s number one producer of oil. If the purpose of the RFS was to help the environment, we also know that is doing quite the opposite. In fact, the only ones benefiting from this program are lobbyists for the corn and biofuels industries who falsely claim they are fighting for rural states, farmers, and a cleaner energy source when in reality they are merely lining their pockets with Americans’ tax dollars. The renewable fuels standard has driven up the cost of both food and fuels, and distorted energy markets to the disadvantage of American consumers.

“The EPA decision today is not a fix, but a band-aid. Congress must work immediately to fully repeal this bad law.”

For an analysis on the 2014 RFS proposal, click here.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard Tagged With: blend wall, cellulosic ethnaol, EPA, ethanol, rfs

RFS: Windfall for Ethanol, Burden on American Families

November 15, 2013 by AEA Leave a Comment

As we have explained on these pages before, the Renewable Fuel Standard (RFS) amounts to a massive subsidy for the ethanol industry. By forcing refiners to purchase and blend rising volumes of biofuels, regardless of whether it makes economic sense, the RFS provides ethanol producers guaranteed demand for their product.

To protect their mandate, the ethanol industry tries to blame oil companies and refiners to deflect the public away from the fact that the RFS forces the public to buy ethanol—whether the public wants it or not. For example, Renewable Fuels Association President Bob Dinneen put forward the latest deflection:

Who stands to gain from higher gasoline prices and more gasoline volume? Oil refiners, of course. That’s what this is really all about—Big Oil wants to shut out competition and put more money in its already-stuffed pockets.

Dineen doesn’t talk about the people who really lose under the RFS—American motorists who are forced to buy Dineen’s product, whether they like it or not. Refiners would buy billions of gallons of ethanol, regardless of the RFS, because ethanol can be a cost-effective way to increase octane in gasoline.

As the American Fuel & Petrochemical Manufacturers (AFPM) explain in a letter to the White House, ethanol producers—not refiners—make gasoline more expensive and limit consumer choice by supporting a mandate that forces Americans to consume more biofuel than the market demands and their vehicles are equipped to handle.

Despite the ethanol industry’s claims, there are physical limitations to the amount of ethanol that can be safely added to the nation’s fuel supply. For instance, 95 percent of vehicles on the road today are certified to run on E10, gasoline that contains up to 10 percent ethanol. Ethanol producers want more cars to use E15, but as AAA points out, running cars not designed for higher ethanol blends on E15 would likely cause “consumer confusion and the potential for voided warranties and vehicle damage.” This physical constraint on increased ethanol use is known as the E10 blend wall.

If left unchanged, as the ethanol industry demands, the RFS would likely require refiners next year to blend more than 10 percent ethanol into the U.S. fuel supply. As the Environmental Protection Agency (EPA) explained in the 2013 RFS, while biofuel volumes as set forth in federal statute rise to 18.15 billion gallons in 2014, the “maximum volume of ethanol that could be consumed as E10 in 2014 is projected to be just 13.2 bill[ion] gal[lons].” Recognizing the “infrastructure- and market-related factors” that constrain consumption of higher ethanol blends, EPA has signaled a willingness to reduce the RFS next year, noting that “in 2014 compliance is expected to become significantly more difficult.”

In addition to damaging vehicle engines, higher ethanol blends also make gasoline more expensive. A gallon of ethanol contains less energy than a gallon of gasoline. This means that as the ethanol content of gasoline rises, fuel economy decreases. Indeed, the BTU-adjusted price of E85 (gasoline with up to 85 percent ethanol) on November 11 was nearly 30 cents higher than regular gasoline, according to AAA’s Daily Fuel Gauge Report.

With public support evaporating and opposition in Congress growing, the ethanol industry is resorting to increasingly desperate attacks to justify their lavish mandate. The RFS is misguided policy that enriches the ethanol industry at the expense of everyone else, while hurting American families by damaging vehicle engines and raising gasoline prices. It is time to repeal the RFS.

IER Policy Associate Alex Fitzsimmons authored this post.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: AAA, AFPM, ethanol, Gasoline, oil, Renewable Fuel Standard

Congressional Members Call for an End to the Wind PTC

November 14, 2013 by AEA Leave a Comment

WASHINGTON – Congressman Mike Pompeo (R-KS) and 51 other Members of Congress have joined today in opposition to another extension of the wasteful wind production tax credit (PTC). In a letter sent to Chairman Dave Camp (R-MI) of the House Committee on Ways and Means, the Congressional signatories call for the permanent expiration of the wind PTC. AEA President Thomas Pyle released the following statement:

“The American Energy Alliance welcomes Congressman Pompeo’s renewed efforts to end this special interest giveaway to the wind lobby. It is now time for the rest Congress to follow suit and allow the wind PTC to expire at the end of the year. The expiration of this decades old government giveaway is long overdue, yet the wind industry continues to rake in federal dollars and distort energy markets at great cost to American consumers. Last year’s extension of the wind PTC expanded the program and fleeced taxpayers to the tune of $12.1 billion. Another one-year extension would add another $6 billon to the tab. The wind industry is no longer the infant that it professes to be and no longer needs the wind PTC. The Pompeo effort comes at an important moment as Congress finally begins to consider tax reform. Powerful and well-financed lobbyists are working overtime to push Chairman Camp to bury another wind giveaway in any reform proposal. Growing bipartisan opposition to the wind PTC signals that the time has come to finally allow Big Wind to stand or fall on its own.”

To read the full Pompeo letter, click here.

For more information on wind energy and the wind PTC, click here.

To help end the wind giveaway, click here.

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Filed Under: Press Releases Tagged With: Mike Pompeo, wind power, wind ptc

Aussie PM Moves to Repeal Carbon Tax

November 13, 2013 by AEA Leave a Comment

WASHINGTON — Australian Prime Minister Tony Abbott followed through today on a major campaign promise and introduced a bill to repeal Australia’s controversial carbon tax. The carbon tax was a key issue leading up to Australia’s Sept. 7 election in which Abbot defeated Labor Party candidate Kevin Rudd. AEA President Thomas Pyle released the following statement in response to Prime Minister Abbot’s move:

“The American Energy Alliance welcomes Prime Minister Abbott’s effort to end Australia’s carbon tax and begin restoring sanity to that nation’s energy policies. Weeks before Prime Minister Abbot’s election, the Institute for Energy Research released a study demonstrating the disastrous economic and environmental consequences of Australia’s carbon tax, including increased electricity prices and higher unemployment. Not only that, but this failed policy had the reverse effect of increasing carbon dioxide emissions, proving again that bureaucratic tinkering with energy markets leads to unintended consequences that undermine carbon tax advocates’ chief claims. Australia’s experience should serve as a warning to policymakers in the United States who seek to implement similar policies here at home. Past supporters of a U.S. carbon tax — like Senator Kay Hagan (D-N.C.), Senator Mark Begich (D-Alaska), Congressman Bruce Braley (D-Iowa), among others — would be wise to observe the Australian experiment very closely and publicly reject all efforts to institute a carbon tax on American consumers.”

To read IER’s study, “Australia’s Carbon Tax: An Economic Evaluation”, click here.

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Filed Under: Press Releases Tagged With: Australia, carbon tax, Ton Abbott

Big Brother Black Box for Your Car?

November 13, 2013 by AEA Leave a Comment

A recent story in the LA Times explains that government officials at various levels are keen on putting little black boxes in everyone’s vehicle. Civil liberties groups are concerned—and rightly so—about Big Brother being able to track everyone’s movements. Yet even the official reason is ominous: It will allow the government to tally a citizen’s mileage and then send him or her a tax bill.

Here are the chilling details:

WASHINGTON — As America’s road planners struggle to find the cash to mend a crumbling highway system, many are beginning to see a solution in a little black box that fits neatly by the dashboard of your car.

The devices, which track every mile a motorist drives and transmit that information to bureaucrats, are at the center of a controversial attempt in Washington and state planning offices to overhaul the outdated system for funding America’s major roads.

…

And while Congress can’t agree on whether to proceed, several states are not waiting. They are exploring how, over the next decade, they can move to a system in which drivers pay per mile of road they roll over. Thousands of motorists have already taken the black boxes, some of which have GPS monitoring, for a test drive.

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The push comes as the country’s Highway Trust Fund, financed with taxes Americans pay at the gas pump, is broke. Americans don’t buy as much gas as they used to. Cars get many more miles to the gallon…

“The gas tax is just not sustainable,” said Lee Munnich, a transportation policy expert at the University of Minnesota. His state recently put tracking devices on 500 cars to test out a pay-by-mile system. “This works out as the most logical alternative over the long term,” he said.

It is no surprise that political liberals support the plan, since it allows government to raise revenue (always a plus for those in favor of Big Government) and it is yet another mechanism to punish the use of fossil fuels.

However, what may surprise some readers is to learn that some libertarians are applauding the innovation as well. Their reasoning is that it’s more efficient to charge for road use in terms of actual miles driven, rather than (say) how many gallons of gasoline are sold at the pump.

It is amazing how often free-market economists analyze government policy from the perspective of the best possible outcome. Yes, in theory a textbook tax system based on miles driven, rather than gallons of gasoline purchased, arguably would be a more sensible way to finance road construction and maintenance.

Yet the government in the real world doesn’t operate according to the textbook plans of economists. Giving the government yet another source of tax revenue will simply mean that…the government gets more tax revenue. The mileage tax will be based on political expediency, rather than a desire to set the “optimal” fee for road usage.

When government manages a resource like a road, they have less incentive to manage it efficiently. Because it derives its revenue from involuntary taxes, the government has little incentive to keep its customers happy. And because it is a monopoly supplier, there is little innovation.

On top of the economic waste, there is the added danger of giving government officials the ability to track every motorist’s movements. One doesn’t have to work for the ACLU to see why that is a bad idea.

IER Senior Economist Robert P. Murphy authored this post.

Filed Under: Facts, News, Products and Power Tagged With: gas tax, Gasoline, mileage tax

AP Exposes 'Secret, Dirty Cost' of Federal Ethanol Mandate

November 12, 2013 by AEA Leave a Comment

All energy sources involve tradeoffs. Ethanol production, for example, requires vast amounts of farmland and additional use of fertilizer can contaminate water supplies. As a new Associated Press investigation uncovered, the environmental tradeoffs associated with ethanol production have intensified as the federal ethanol mandate has expanded. The AP explains:

With the Iowa political caucuses on the horizon in 2007, presidential candidate Barack Obama made homegrown corn a centerpiece of his plan to slow global warming. When President George W. Bush signed a law that year requiring oil companies to add billions of gallons of ethanol to their gasoline each year, Bush predicted it would make the country “stronger, cleaner and more secure.”

But the ethanol era has proven far more damaging to the environment than politicians promised and much worse than the government admits today.

As farmers rushed to find new places to plant corn, they wiped out millions of acres of conservation land, destroyed habitat and contaminated water supplies, an Associated Press investigation found.

Passed by Congress in 2005 and expanded in 2007, the Renewable Fuel Standard (RFS) requires oil refiners to blend increasing amounts of biofuels into the U.S. fuel supply. Over the last five years, volume requirements under the RFS have risen from 6 billion gallons in 2008 to 16.55 billion gallons in 2013, the vast majority of which comes from corn-based ethanol.

The dramatic increase in mandated ethanol volumes has coincided with growing concerns about the environmental impacts of ethanol production. According to the AP, “Between 2005 and 2010, corn farmers increased their use of nitrogen fertilizer by more than a billion pounds.” Moreover, since 2009, “Five million acres of land set aside for conservation—more than Yellowstone, Everglades and Yosemite National Parks combined—have been converted on Obama’s watch.”

The Obama administration defends corn-based ethanol as a bridge fuel to greener biofuels. The RFS requires refiners to blend 36 billion gallons of biofuels by 2022, with a cap of 15 billion gallons on corn-based ethanol. So-called “next-generation” biofuels, such as cellulosic ethanol, are supposed to make up the difference. These next-generation biofuels are also supposed to be better for the environment than corn-based ethanol. But as the AP points out, cellulosic biofuel production has fallen woefully short of expectations.

In the case of ethanol, the administration believes it must encourage the development of next-generation biofuels that will someday be cleaner and greener than today’s.

“That is what you give up if you don’t recognize that renewable fuels have some place here,” EPA administrator Gina McCarthy said. “All renewable fuels are not corn ethanol.”

But next-generation biofuels haven’t been living up to expectations. And the government’s predictions on ethanol have proven so inaccurate that independent scientists question whether it will ever achieve its central environmental goal: reducing greenhouse gases.

Cellulosic ethanol plants existed in the U.S. 100 years ago, but because they were inefficient, they went out of business.[i] It wasn’t until last year that cellulosic biofuel was produced commercially again. As the following chart shows, EPA mandated 5 million gallons of cellulosic biofuel in 2010, yet not a drop was produced for commercial purposes. In 2011, EPA actually increased its mandate, but still no cellulosic was biofuel was produced. EPA raised the mandate to 8.65 million gallons the following year, though cellulosic producers eked out just 20,269 gallons. So far this year, a little more than 217,000 gallons have been produced, despite a mandate for refiners to blend 6 million gallons. Given this track record, the administration’s hope that cellulosic biofuels could play a significant part in reducing greenhouse gas emissions remains a pipedream.

After forcing refiners to blend millions of gallons of biofuel that were never produced, EPA then fined refiners millions of dollars for failing to blend fuels that did not exist. As a result, the American Petroleum Institute successfully challenged the 2012 mandate, with the D.C. Circuit Court declaring that EPA “let its aspirations for a self-fulfilling prophecy divert it from a neutral methodology.”

EPA is poised to once again mandate unrealistic cellulosic biofuel volumes. Despite consistently overestimating cellulosic biofuel production, a leaked draft proposal shows that EPA is considering raising the cellulosic mandate to 23 million gallons in 2014, a nearly fourfold increase.

Under federal law, EPA must adjust required cellulosic volumes “based on“ the Energy Information Administration’s (EIA) annual estimate of cellulosic biofuel production for the next year. EIA, however, has not released their projected cellulosic volumes for 2014. That means EPA’s leaked draft proposes almost quadrupling the cellulosic mandate next year apparently without considering EIA’s 2014 volume projection that the EPA’s cellulosic projection is supposed to be “based on.”

Given that the biofuel industry has failed for four years in a row to meet the EPA’s mandates, it seems unlikely that 23 million gallons is a realistic goal for next year. It is unreasonable to expect refiners to blend fuels that do not exist, and especially egregious to fine them for failing to comply with an unattainable mandate.

The history of U.S. ethanol policy exposes the unintended consequences of government intervention in energy markets. Since the RFS became law, millions of acres of land set aside for conservation have been converted to ethanol production. Meanwhile, refiners are forced to pay fines for failing to blend essentially non-existent “next-generation” biofuels that “haven’t been living up to expectations.” This does not even account for the fact that the RFS raises gasoline prices and damages vehicle engines. Though it may have been designed with good intentions, the RFS is an intrinsically flawed policy that has failed to make America “stronger, cleaner and more secure.”

IER Policy Associate Alex Fitzsimmons authored this post.

[i] See Barry D. Solomon, et. al., Grain and cellulosic ethanol: History, economics, and energy policy, 31 Biomass and BioEnergy 416 (June 2007).

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: associated press, cellulosic biofuel, EPA, ethanol, rfs