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In the Pipeline: 7/26/12

July 26, 2012 by Leave a Comment

President Obama built this.  We did not. IER (7/24/12) reports: “In addition to Solyndra, Beacon Power, and a host of other “Stimulosers,” we can now add solar panel manufacturer Amonix to the list of federally-backed alternative energy companies jeopardizing taxpayer funds. The latest embarrassment is especially relevant in light of this week’s planned vote on the “No More Solyndras Act” [.pdf], which would discontinue new loan guarantees and would limit the DOE’s discretion in approving pending applications.”

No doubt Josh Fox, the Russians, the Qataris, and others opposed to production from the shale formations will have something contrary to say.  But the evidence continues to mount:  production is good for economic growth and is being safely regulated by the States. AP (7/25/12) reports: “The U.S. Environmental Protection Agency said Wednesday that it has completed tests on drinking water in the northeastern Pennsylvania village of Dimock and has determined it is safe to drink, despite the claims of some residents who say it has been polluted by gas drilling.”

Brookings has decided that AEI shouldn’t be the only think tank advocating an energy tax.  Let me spare you the read.  Economic growth goes down. Government revenue goes up.  The use of energy goes down.  Wages go down. What a shocker. Brookings (7/24/12) reports: “We find that the carbon tax will raise considerable revenue: $80 billion at the outset, rising to $170 billion in 2030 and $310 billion by 2050. It also significantly reduces U.S. CO2 emissions by an amount that is largely independent of the use of the revenue. By 2050, annual CO2 emissions fall by 2.5 billion metric tons (BMT), or 34 percent, relative to baseline, and cumulative emissions fall by 40 BMT through 2050.”

Andy Revkin puts the wood to NASA and those who intentionally twisted the press release on Greenland. NYTimes (7/25/12) reports: “Unprecedented means “never done or known before.” Yet the news release beneath the headline directly undercuts that description of this melting event, saying that it is rare — the last wide surface melt was in 1889, recorded in separate ice cores at the Greenland ice-sheet summit and in the northwestern part of the vast frozen expanse — and has happened roughly every 150 years over a long stretch of centuries, as recorded deeper in the ice.”

Inexplicably, neither Dan Kish nor Tom Pyle is on this list. The Hill (7/25/12) reports: “Forget the Loaded Potato Skins. Max Engling was surely the best thing to come out of an Indianapolis TGI Friday’s, where he was waiting tables when a diner with ties to the modeling industry discovered him.”

Filed Under: Blog Tagged With: , , , , , , ,

“No More Solyndras Act”

July 25, 2012 by 4 Comments

Representative Cliff Stearns recently introduced the “No More Solyndras Act,” which would exercise more oversight of the $16 billion federal program that loaned $528 million dollars to the now-bankrupt solar manufacturer Solyndra and subsidized other clean energy companies that have had subsequent financial troubles.  An up-to-date list of these companies can be viewed on IER’s Stimulosers report here.

The “No More Solyndras” bill would prohibit any new loan guarantees from being issued under the Department of Energy’s Section 1705 program, and would require more oversight of pending and existing loans that the agency has already made commitments for.  Specifically, the act would give the Secretary of the Treasury oversight of decisions regarding current loan guarantees, and requires the Secretary of Energy to explain his or her reasoning is that decision is not followed.  These decisions must be reported back to Congress, placing responsibility back on the lawmakers that authorized the program to ensure it is properly administered.

The “No More Solyndras” legislation would also make a crucial change to existing loan guarantee terms that would stipulate that taxpayers are the senior debt holders, even if the loan is restructured.  That means that the taxpayers are paid back first if a company goes bankrupt, rather than being last in line in the case of Solyndra.

While millions of dollars in government subsidies can keep any business afloat for a time, the fact that so many of the companies that received government assistance have failed within a few years’ time is a testament to the folly of attempting to pick winners and losers in the marketplace.   The Section 1705 program has demonstrated that government bureaucrats lack neither the knowledge nor the expertise to make decisions on what technologies will best fulfill consumers’ energy needs—rather, superior, cost-effective products typically arise from the competition that subsidies insulate companies against.

Moreover, allowing government employees to make decisions about how to disburse billions of taxpayer dollars—the loss of which is of no risk to them—provides incentives for abuse when oversight is lax.  Such has been the case with politically connected firms receiving funds.  Solar company BrightSource energy is a prime example of how the loan guarantee process can become entangled with political considerations: released emails showed that the chairman of the company, which received $1.6 billion for a solar installation in California, had corresponded with officials in charge of the program right before the loan guarantee came through.  The chairman, John Bryson, was also subsequently chosen by President Obama to be the Secretary of Commerce. Another individual involved with BrightSource was also “installed at the Department of Energy advising on energy grants.” The revolving door of loan guarantee recipients and decision makers in Washington is troubling, and additional scrutiny would mitigate opportunities for improper influence to play a role in the administration of public monies.

The “No More Solyndras Act” is an attempt to restore fiscal discipline to Washington, and its passage would help bring transparency to a process that has subordinated the taxpayer’s interests to that of politically connected companies.  Whether it becomes law remains to be seen, but it should nonetheless be regarded as a bellwether for determining if Congress is truly serious about cutting wasteful spending.

Filed Under: Blog Tagged With: , , , ,

In the Pipeline: 7/25/12

July 25, 2012 by Leave a Comment

You have to hope that at some point, Governor Romney will start talking about this. WSJ (7/24/12) reports: “President Obama may not want to exploit the energy buried in Canada’s Alberta oil sands, but China sure does. Think of Monday’s $15.1 billion offer by China’s state-owned Cnooc to buy Canadian energy giant Nexen as a post-Keystone XL Pipeline bid to replace the U.S. as Canada’s biggest energy investor and market.”

This is what regressivity looks like outside of an economics classroom. Herald Sun (7/24/12) reports: “This would scare them to death really. “Electricity is such a basic need. When prices threaten things like proper heating, especially on cold nights when you’re sick, it can make life miserable.”

Again, please make sure to think of this next time you are tempted to argue that Republicans are uniformly better than Democrats on energy issues. Triple Crisis (7/23/12) reports: “Even though Congress was sold the RFS on the promise of energy independence, those “other biofuels” do not have to be produced in the United States. (In fact, mandating U.S. sourcing could have been subject to a WTO challenge.) Brazil’s sugarcane-based ethanol is considered advanced, with a GHG-reduction score of 50% despite widespread concerns about a range of other social and environmental impacts.”

I would like to meet the person who thinks (or thought) that this Administration was ever going to let Shell drill in the Beaufort or Chukchi.  And I would like to play poker with them. National Journal(7/23/12) reports: “A series of mishaps and bad breaks appear to be making a dent in Shell’s goal of starting five exploratory wells by mid-July—two in the Beaufort Sea and three in the Chukchi Sea on Alaska’s northern coast. Now, assuming the Interior Department approves final permits in the next few weeks, the earliest Shell can begin drilling is mid-August.”

The internet?  Nope.  Hydraulic fracturing?  Not so much.  Millions of businesses?  No. WSJ (7/22/12) reports: “A telling moment in the presidential race came recently when Barack Obama said: “If you’ve got a business, you didn’t build that. Somebody else made that happen.” He justified elevating bureaucrats over entrepreneurs by referring to bridges and roads, adding: “The Internet didn’t get invented on its own. Government research created the Internet so that all companies could make money off the Internet.””

This is an email that went out from Arthur Brooks yesterday.  He runs AEI, which, as you may be aware, is currently working with a fairly questionable group (including Mr. Carol Browner) on ways to impose a new energy tax on unsuspecting American citizens.  Those guys should probably make up their mind – more production or more taxes; it will be difficult to have both. Locker Room (7/24/12) reports: “We stand to gain a great deal more from America’s shale revolution than simply jobs. Cheap and abundant energy is the lifeblood of any prosperous society. Energy use is so routine we often don’t think of all the ways we depend on it. When energy prices rise, it’s the poor who suffer the most as the cost of powering their homes, buying food and filling their gas tanks increases.”

Filed Under: Blog Tagged With: , , , ,

AEA President: “No More Solyndras” is a “Line in the Sand”

July 24, 2012 by 1 Comment

WASHINGTON D.C. — Thomas Pyle, president of the American Energy Alliance, released the following statement in advance of a vote this week of the energy and power subcommittee of the House Committee on Energy and Commerce, which is scheduled to consider the “No More Solyndras” Act of 2012.  The act would prohibit the Department of Energy from issuing any Section 1705 loan guarantee applications submitted after December 31, 2011, and greatly reduce taxpayer risk for loans submitted prior to that time. Last week, the Wall Street Journal Editorial Board took three lawmakers to task for supporting a “politicized venture capital operation” and Solyndra-style loan guarantees at taxpayer expense.

“The ‘No More Solyndras’ Act is one of the most common sense pieces of legislation to come from the 112th Congress. It ends a system of crony capitalism, strips the Department of Energy of its authority to put taxpayers on the hook for billions of dollars in loan guarantees, and steers the federal government back toward fiscal sanity,” noted Pyle.

“This is a line in the sand for Republicans and Democrats. Either you stand with Solyndra and other bankrupt experiments in politicized venture capital, or you stand with hardworking American taxpayers.  Either you want to protect rent-seeking cronies in the renewable industry, or you want to preserve the sacred trust of the men and women who sent you to Washington.

“After billions of dollars wasted — never to be recovered — and years of a failed energy program that spans both Republican and Democratic regimes, the time has come to end Solyndra-style loan guarantees once and for all. The Section 1705 program is rotten from the root, and no parliamentary maneuver or tweaked amendment can recover lost billions in taxpayer money or set the program aright. The only responsible course of action is to close this awful chapter of failed bureaucratic tinkering with our energy future.”

To read more about the Obama administration’s “Stimulosers” that have received taxpayer backing and still gone bust, click here.

To read about Amonix, the latest ‘Stimuloser” to go bankrupt, click here.

To view a video exposing the failed experiment that led to Solyndra, click below.

Filed Under: Press Releases Tagged With: , , , , , ,

Low Carbon Fuel Standards Will Raise Fuel Prices

July 19, 2012 by 4 Comments

 

Recognizing that American motorists will reject any policies that raise fuel prices, the people pushing new regulations on the energy sector are trying to have their cake and eat it too. For example, a new report [.pdf] claims that a national Low Carbon Fuel Standard would not only reduce carbon dioxide emissions, but it would also lower fuel prices for consumers. This defies both economic theory and common sense, and a chart from the report itself will highlight the absurdity.

The report explains, in jargon-heavy notation, what a Low Carbon Fuel Standard is, and how it compares with other regulatory measures:

A low carbon fuel standard (LCFS) is different from biofuel mandates such as RFS2 [national Renewable Fuel Standard] in several ways. First, it includes all transportation fuels—electricity, natural gas, and hydrogen as well as biofuels. Second, it is a performance standard, requiring reduction of a fuel’s average life-cycle GHG emissions or carbon intensity (CI)—measured in grams CO2 equivalent per mega-joule of fuel energy (gCO2e/MJ)—over a certain period of time. Under an LCFS, fuel providers can reduce the CI of fuels they provide by selling more low-carbon fuels; reducing the CI of fossil fuels by reducing flaring, improving refinery and oil-field efficiencies and carbon footprints, and capturing and sequestering carbon; and/or purchasing credits from other producers and fuel suppliers who are able to supply low-carbon fuels at lower prices. Third, it is more effective at stimulating innovation. Fuel suppliers are rewarded for reducing carbon emissions at every step in the energy supply chain from cultivation and extraction to fuel processing, transport, and distribution, unlike under RFS2. In summary, an LCFS is technology and fuel neutral, and is premised on stimulating innovation. (p. 5)

Given that a LCFS will force fuel providers to reduce the carbon intensity of their products, it is not surprising that academic studies estimate that the policy would lower total greenhouse gas emissions relative to the business-as-usual (BAU) baseline. Nobody denies that if the government penalizes energy producers for doing activity X, that they will then have an incentive to avoid activity X. However, the important economic question is always, what is the cost of such a policy? What are we giving up—in terms of economic growth, affordable energy prices, and other desirable things—by forcing energy producers to adopt different techniques from the ones they would have chosen voluntarily on a free market?

Here is where the report, though dressed up in very formal, technical language and listing impressive credentials, delves into absurdity. It claims that a LCFS will not only reduce emissions, but that it will lower fuel prices for consumers and even for some producers. Here is the relevant chart, Figure ES 1, from page 7 of the report:

Notice what the above chart is saying. The black line represents the estimated fuel price in the year 2035 under “business-as-usual,” meaning without a Renewable Fuel Standard (RFS2) or a Low Carbon Fuel Standard (LCFS). The study claims that by adding these regulations on the energy sector—by placing new hurdles and constraints on the way energy producers conduct their operations—it will become cheaper to deliver fuel to the end consumer.

This is nonsensical. The report, and the models upon which it is based, get lost in the weeds talking about the “feedstock mix, feedstock prices, demand for gasoline and diesel fuel, demand for plug-in electric vehicles and fuel cell vehicles, and future production costs of biofuels and other alternative fuels.” The main driver of the result seems to be their belief that by lowering the demand for fossil fuels, their world price would drop.

Yet this is confusing cause and effect. Remember, the LCFS doesn’t directly pick winners and losers; that’s what its supporters mean when they call it a “market-based solution” and call it “technology and fuel neutral.” All the LCFS does is penalize energy producers for using carbon-rich fuel sources, which just so happen to include fossil fuels more than (say) electric batteries. Therefore, the reason the LCFS reduces the demand for fossil fuels, is that the government is imposing artificial penalties on their use. If consumers were able to buy crude oil at world prices, refine it in their garages, and be exempt from the LCFS, then the study might have a point. But to the extent that motorists still have to buy their gasoline from a distribution network subject to the LCFS, then of course they will see their end prices rise along with producer costs.

In summary, if the proponents of a Renewable Fuel Standard and a Low Carbon Fuel Standard want to claim these measures will reduce emissions and are therefore good policies, we can have that debate. What is not up for debate is that restrictions from Washington on the energy sector will raise energy prices for consumers.

Filed Under: Emissions Standards, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: , , , , , , ,

IER PRESIDENT TO NAVY SECRETARY: GET THE FACTS

July 18, 2012 by 1 Comment

WASHINGTON, D.C. – IER President Thomas Pyle sent a letter today to Navy Secretary Ray Mabus criticizing the use of experimental biofuels by a carrier strike group in the Pacific ocean. Pyle also informed Mabus of his request for Congress to initiate an “immediate, exhaustive, and unyielding” investigation of the abuse of taxpayer dollars represented by the Navy’s biofuel experiment, called “The Great Green Fleet” be defense department officials.

“The Navy Department’s claim that the U.S. possesses only 2 percent of the world’s oil reserves is a vast understatement of our real domestic energy potential at best, and an intentional distortion at worst.  A recent report from the U.S. Geological Survey indicates that the U.S. possesses at least 26 percent of the world’s oil supply, leading top policymakers to call the President’s claims “less than honest,”” Pyle wrote.

“The continued use of a dishonest, specious claim about America’s true resource potential by the U.S. Navy is troubling. The American people would not support your decision to purchase $27 per gallon biofuels at ten times the going rate for fuel if they knew that decision rests on faulty rhetoric and propaganda. And they deserve to know, since their taxpayers’ dollars are funding your green experiment that is taking money away from critical functions of the Navy.

“The United States is the most energy rich country on earth, and our Navy is its most advanced sea power force. The uniformed men and women who serve the U.S. Navy – and the people they serve to protect – deserve better than half-truths and outright distortions of fact to facilitate a green energy agenda that has nothing to do with our national security. Using our limited national defense dollars on agendas that are premised on faulty data is scandalous. I urge you to consider the facts, direct the Navy to cease publication of specious claims about American energy resources, and return to pursuing the Department’s core mission.”

To read the full letter from Thomas Pyle to Navy Secretary Mabus, click here.

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Filed Under: News, Products and Power

Inglis Provides Grist to Interventionists

July 16, 2012 by Leave a Comment

 

Former Republican South Carolina Rep. Bob Inglis has started up a new 501(c)(3) organization reportedly to show conservatives the light on climate change and other energy issues. Yet Inglis’ case for a “free market” heavy hand of federal intervention makes little sense.

The following excerpt is from an interview Inglis gave David Roberts, an environmental writer at Grist.com. It provides good flavor of Inglis’ views:

[David Roberts:] Tell me about the new organization you’re starting.

[Bob Inglis:] It’s called the Energy & Enterprise Initiative. It’s an effort to advocate for the elimination of all subsidies for all fuels and the attachment of all costs to all fuels. That’s the free-enterprise fix to energy and climate…

The freebies for coal and petroleum are substantial even if you leave out the climate change impacts — just consider the health impacts, or attach to petroleum some of the defense costs in the Persian Gulf.

…

And to the economic-issue conservatives, the argument is, don’t you see the market distortion? If those costs aren’t attached to coal, how will you ever build a nuclear power plant?…

For the libertarian conservative, our case will be that we shouldn’t socialize costs and privatize profits. And for the national-security conservative, the case is, why haven’t we broken this addiction to oil?…Because we haven’t said we’re ready to fight this thing; we’re gonna make the economics right.

There are so many things wrong here, it’s hard to know where to begin. First, a modest but crucial point: Suppose for the sake of argument that Inglis is correct about the underlying climate science and the economic tradeoffs involved. Even so, how can anyone talking to libertarians and conservatives possibly say with a straight face that the U.S. federal government is “gonna make the economics right”? When has the federal government ever gotten the economics right?

This isn’t a throwaway line; it alone would demolish Inglis’ case. Inglis is making it sound as if the reason the tax code’s economics are currently not “right” is that policymakers up until now have been ignorant of the impacts of climate change.

But that’s not it at all. No, the tax code is a convoluted nightmare, with all sorts of wild inefficiencies from the perspective of economic theory. More generally, federal policies often operate at cross-purposes, where you have (say) subsidies to tobacco farmers amidst money spent on anti-smoking campaigns. Inglis is essentially telling conservatives, “Look how screwed up the federal government is right now. Give it even more power to tax and regulate oil, coal, and natural gas , so that we will then have the ability to do things the way economic theory would recommend.”

Beyond Inglis’ charming confidence in the willingness of policymakers to implement the “right” economic policies, he suffers from what Friedrich Hayek called the fatal conceit. Even if it is true that most professional climate scientists believe that industrial activities play a significant role in climate change, the proper policy response in light of the economic tradeoffs is much less clear, and some of the loudest voices in the debate have misled the public. For example, the “consensus” (if we want to use that term) of economic studies shows that climate change will confer net benefits on humanity for another fifty years. Is Inglis’ educational outfit going to spread that message to the public?

If Inglis wants to appeal to conservatives and libertarians, by all means he can champion the removal of all subsidies to energy companies, including the ones to solar and wind projects (which receive far, far more subsidies in terms of energy output than the fossil fuel companies). If he is worried about dependence on unstable regimes for oil, then Inglis can champion the development of North American oil and gas resources. But when he goes further and calls for new tax and regulatory powers at the federal level, Americans of all stripes should be suspicious.

Filed Under: News, Products and Power, Threats Tagged With: , , , , , ,

Bursting at the Seams: America's Energy Potential

July 11, 2012 by Leave a Comment

 

Can you imagine a prosperous America that utilizes its domestic energy resources to fuel a dynamic economy, jobs and technological innovation? President Obama doesn’t appear to imagine a future of plentiful energy resources.

Instead, the President perpetuates the myth that America is strapped for energy with only 2% of the world’s proven oil reserves and leads an Administration that is more hostile to American energy development than any in recent history. Unfortunately for the President and his anti-affordable energy agenda, proven reserves are not the total reserves; in fact, the US has 1,442 billion barrels of technically recoverable oil, of which only 20.7 billion are counted as “proven reserves.”

The amount of “proven reserves” increases over time. In 1944 the U.S. had 20 billion barrels of proven reserves, yet from 1945 to 2010, the US produced 167 billion barrels of oil. So how did we produce eight times the estimated amount? Proven reserves are reserves that have been discovered, generally via drilling, and can be removed economically with today’s technology. Reserves such as ANWR and others that are blocked by regulation are not considered. Nor does this include oil that is yet to be discovered or that will be recoverable with future innovations.

We have more oil than the President will ever admit, and when we also consider our reserves of coal and natural gas, it’s clear the United States is awash in affordable domestic energy. Unfortunately, costly, unnecessary regulations are stymying any hope of using these bountiful resources. Less than 6% of Federal land is currently leased for production, the White House has blocked construction of the Keystone Pipeline, and the administration’s five-year plan for offshore drilling on the Outer Continental Shelf (OCS) placed vast energy resources under lock and key, all of which impeding economic growth.

A study from Citi GPS suggested that “[t]he main obstacles to developing a North American oil surplus are political rather than geological or technological.” Our problem is that our President is tying our hands behind our back. He’s not letting us live up to our full potential as a nation. If Americans were allowed to access their own energy, this country would experience untold economic growth.

Accessing our abundant energy would decrease the cost of heating homes, driving cars, operating businesses, and it would create countless jobs not only in recovering the reserves but also in small businesses that support that process. We could “add as many as 3.6 million net new jobs by 2020…and shrink the deficit by 60 percent,” not to mention vastly strengthen our geopolitical influence and stability. A report from the Manhattan Institute suggests that the United States could gain $5 trillion in the next two decades with a more commonsense energy policy. The report even shows that North America could become the largest supplier of fuel in the world by 2030 if we open up our hydrocarbon resources, breaking our reliance on foreign fuel and asserting ourselves as the world’s premier energy producer.

Taking advantage of the massive resources here at home is not only our right, our duty as we build a wealthier, healthier, and better America than the one we received.

Filed Under: Facts, News, Products and Power Tagged With: , , , , , , , , , , , , , , , ,

IER President Calls for Investigation into Navy Biofuel Contracts

July 10, 2012 by 1 Comment

 

WASHINGTON D.C. — IER President Thomas Pyle sent a letter today to four congressional chairmen calling for an “immediate, exhaustive and unyielding” investigation of the Defense Department’s decision to fuel naval exercises in the Pacific ocean using biofuels that cost $27 per gallon. The letter was sent to Chairman Buck McKeon of the House Armed Services Committee, Chairman Carl Levin of the Senate Armed Services Committee, Chairman Darrell Issa of the House Oversight Committee, and Chairman Joseph Lieberman of the Senate Government Affairs Committee.

“The Obama administration’s push to develop the biofuel industry around America’s military is a textbook example of government cronyism . . . The American people have a right to know if the Defense Department is awarding their tax dollars to certain biofuel industries for reasons other than strategic military purposes,” Pyle wrote.

“Already the government’s joint ventures with biofuel companies are creating ripe opportunities for waste, fraud and abuse . . . For the Defense Department to launch so boldly into partnerships with renewable industries fast becoming known for financial insolvency and fraud appears to be more about shoring up the administration’s failing green energy agenda than about securing the future of our sea and air power supremacy.

“The Obama administration is squandering limited national defense dollars on a political agenda premised on their insistence that the United States has insufficient supplies of conventional energy sources to meet our current needs. This claim is false, and the agenda it informs is wrongheaded.”

To read the full text of Pyle’s letter, click here.

Filed Under: News, Products and Power, Renewable Fuel Standard Tagged With: , , , ,

EPA’s Folly; Refiners’ Punishment

July 9, 2012 by 1 Comment

 

The Environmental Protection Agency’s (EPA’s) Renewable Identification Numbers, RINs, are causing the refining industry a lot of grief and the American public a lot of money.  If nothing changes, the grief and the money wasted could grow rapidly, damaging the economy and family budgets. RINs are a byproduct of the Renewable Fuels Standard that mandates a certain amount of biofuels (e.g. ethanol) to be produced and used by refiners each year. The purpose of RINs is to track biofuel sales. But, fake RINs have become a problem and refiners are caught in the middle. Refiners pay for the purchase of mandated biofuels via a RIN only to have it turn out fake and then be fined by EPA for not using the required amount of biofuels.

History of Biofuel Mandates and RIN Development

The Energy Policy Act of 2005 established the Renewable Fuel Standard (RFS), which mandated the use of at least 4 billion gallons of biofuels in 2006 and at least 7.5 billion gallons by 2012 to be blended into transportation fuels. Two years later, the Energy Independence and Security Act of 2007 vastly expanded the mandate to 9 billion gallons of biofuels in 2008, increasing to 36 billion gallons by 2022. It also stipulated that the 36 billion gallons should consist of not more than 15 billion gallons of corn-based ethanol and at least 16 billion gallons of cellulosic biofuels with additional requirements for other advanced biofuels.[i] Thus, fuel blenders must incorporate minimum volumes of biofuels in their transportation fuel sales regardless of market prices, or be fined. The fines are assessed on the refiner or blender, not the producer of the biofuel.

EPA is responsible for implementing the program and ensuring that the mandates are met for 4 specific categories of biofuels: advanced biofuels, biomass-based diesel, cellulosic ethanol, and total renewable fuels. Each year, EPA calculates blending standards for the 4 biofuel categories that refiners, blenders, and importers of gasoline and diesel fuels must meet with each company receiving a renewable volume obligation (RVO). The RVO is calculated by using the EPA standard for each of the 4 biofuel categories and applying them to the firm’s annual fuel sales. EPA checks that the mandate has been met through the RINs that each firm has. RINs were developed to deal with regional differences in biofuels production and availability and to ensure that the blending requirements have been met.

Source: Congressional Research Service, http://www.fas.org/sgp/crs/misc/R40155.pdf

 

A RIN is a unique number consisting of 38 characters that is initially issued by the biofuel producer or importer at the point of production or importation. Each qualifying batch of renewable fuel has its own RIN. RINs consist of

RIN=KYYYYCCCCFFFFFBBBBBRRDSSSSSSSSEEEEEEEE

Where

K = a code that distinguishes RINs still assigned to a batch from those detached
YYYY = the calendar year of production or import
CCCC = the company ID
FFFFF = the company plant or facility ID
BBBBB = the batch number
RR = the biofuel equivalence value
D = the renewable fuel category
SSSSSSSS = the start number for the batch of biofuel
EEEEEEEE = the end number for the batch of biofuel

The latter 2 components of the RIN provide the number of gallons of biofuel in the batch, adjusted for its equivalence value. For example, a 1,000 gallon batch of biodiesel with an equivalence value of 1.5 would start with 00000001 and end with 00001500. When biofuels change ownership, the RINs are transferred and the Code K is updated accordingly. RINs are valid for the calendar- year generated, or they can be extended into the following year.

To deal with geographic and other differences among refiners, RINs can also be traded. If a blender has already met its mandated share, it can sell extra RINs to another blender who has not met its mandate. Thus, blenders that have not met their quota have the option to buy RINs instead, making them a replacement for an actual purchase of biofuel.

Some Issues with the Renewable Fuel Standard

The EPA Administrator has the authority to waive the requirements if there is inadequate domestic supply to meet the mandate, or if “implementation of the requirement would severely harm the economy or environment of a State, a region, or the United States.” In particular, EPA must make a market determination of the amount of cellulosic biofuel that will be available each year—a fuel that is not yet commercially available. The EPA has lowered the mandate for cellulosic biofuels tremendously, but is still vastly overestimating actual production.  As we explained, in an earlier post, even the amount mandated for 2012, 8.65 million gallons, does not exist commercially, necessitating refiners to pay fines.[ii]  For reference, EPA’s Moderated Transaction System shows zero gallons of cellulosic produced as of April of this year.

EPA had also lowered the amounts of cellulosic biofuel mandated for 2010 and 2011. In 2010, the law mandated 100 million gallons of cellulosic biofuel; EPA reduced the mandate to 6.5 million gallons, and in 2011, the law mandated 250 million gallons of cellulosic biofuel; EPA reduced the mandate to 6.6 million gallons. The USDA Office of Energy and New Uses projects that cellulosic biofuels are not expected to be commercially available on a large scale until at least 2015. But yet, the Renewable Fuel Standard mandates that 3 billion gallons of cellulosic biofuel be produced by 2015.[iii]

According to the Congressional Research Service, there are no large scale commercial cellulosic biofuel plants in operation in the United States. Moving an industry from the laboratory to commercialization is nontrivial as demonstrated  when two recipients with total grant funding of $113 million dropped out of the program—in at least one of those cases, the company determined that the risks outweighed the anticipated benefits.

Because current production costs are so high for some biofuels, especially cellulosic biofuels and biodiesel from algae, either significant technological advances or significant increases in petroleum prices are needed to make them competitive with gasoline. Without such cost reductions, requiring large amounts of biofuels will have the unfortunate consequence of raising fuel prices. The fees that refiners have had to pay for not blending non-existent ethanol are on a per gallon basis, $1.58 in 2010, $1.13 in 2011, and $0.78 for 2012. For 2011, the total fee paid by refiners and blenders is estimated at $6.8 million. EPA will announce the 2013 fee amount on November 30, 2012. The statutory minimum fee is 25 cents. The waiver fee formula is $3.00 per gallon less the wholesale gasoline price with the difference adjusted for inflation since 2008.  Thus, as the price of gasoline goes up, the fees go down, and vice versa.

Even corn-based ethanol has increased prices–food prices– due to the amount of corn that has been diverted from home and livestock uses to produce ethanol. Today, about 40 percent of corn production is used to make ethanol, making it the largest use for corn in the United States; in 2001, just 10 years ago, it was only 7 percent.

Source: Congressional Research Service, http://www.fas.org/sgp/crs/misc/R40155.pdf

U.S. taxpayers have supported the renewable fuel program through tax credits, subsidies, loans and grants. In 2011, federal subsidies were estimated at over $7.8 billion, of which almost $7.5 billion were tax credits. While most of these tax credits expired at the end of 2011, the $1.01 per gallon credit for cellulosic biofuels remains.  According to the Congressional Research Service, the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) provided authorized research programs, loans and grants in excess of 1 billion dollars to “support the nascent cellulosic industry.”[iv]

To make matters worse, the program is fraught with fraud and abuse. Due to the tradable nature of RINs, the requirement to produce non-existent biofuels and lax oversight from EPA, a market of fake RINs has developed. Dishonest producers have generated RINs without manufacturing any corresponding renewable fuel since they can be bought and sold like shares of stock. EPA puts the burden on refiners and importers to ensure the credits they purchase are valid, fining them for insufficient biofuel blending even though they paid for what they thought were legitimate RINs because the sellers were on EPA’s approved sellers list.

For example, Exxon paid a fine of $165,407; Shell, $110,331; ConocoPhillips, $250,000; and a unit of BP, $350,000. Janet Grothe, a spokeswoman for ConocoPhillips, said in an email, “ConocoPhillips purchased the RINs in good faith and was the victim of fraud committed by the seller. The civil settlement does not constitute an admission of liability.”[v]

Since November, 2011, the EPA has accused three companies (Clean Green Fuel of Baltimore, Absolute Fuels of Lubbock, Texas, and Green Diesel LLC of Houston) of selling RIN credits without producing any biofuel.  Each company sold between 32 million and 60 million RINs for a total of about 140 million fake credits, or about 10 percent of the annual credits.[vi] Some companies selling fake RINs remained on EPA’s approved sellers list even as the agency was investigating fraud charges.[vii] As of early June, the EPA issued “notices of violation” to 30 refiners and blenders that unknowingly bought fake RINs to comply with their production mandate.[viii]

Conclusion

Charles T. Drevna, president of the American Fuel & Petrochemical Manufacturers, recently said “EPA officials should have alerted members of my trade association when they suspected that some companies registered with the agency were producing fraudulent credits.  Penalizing refiners who unknowingly bought fraudulent RINs from sellers registered with EPA is unjust, irresponsible and bad policy because it punishes crime victims instead of criminals.”

To fix the problem the industry is proposing that EPA–or third parties that the agency chooses—administer a voluntary enhanced certification and validation program for RIN producers that buyers could use as a defense if fake RINs were issued.

The RIN situation once again shows EPA’s antipathy toward energy producers. EPA creates RINs, but fails to police the RIN market, allowing fraudulent RINs to be traded. Instead of stopping fraud, EPA fines the companies that were defrauded. EPA, not the refiners, should bear the burden of a program that EPA has failed to develop satisfactorily. This is just another example of what EPA Regional Administrator Al Armendariz’s disclosed regarding the agency’s policy of “crucifying” oil companies as an enforcement strategy.  In the end, however, targeting energy producers simply targets energy consumers…the American public whose tax dollars pay the salaries of the EPA officials whose policies bring public disdain on their own agency and contribute to declining public trust in governmental institutions.


[i]  Congressional Research Service, Renewable Fuel Standard: Overview and Issues, January 23, 2012, http://www.fas.org/sgp/crs/misc/R40155.pdf

[ii]  Institute for Energy research, Government forces refiners to pay for non-existent ethanol, January 12, 2012, http://www.instituteforenergyresearch.org/2012/01/12/government-forces-refiners-to-pay-fine-for-nonexistent-ethanol/

[iii]  Congressional Research Service, Cellulosic Biofuels: Analysis of Policy Issues for Congress, January 13, 2011, http://assets.opencrs.com/rpts/RL34738_20110113.pdf

[iv]  Ibid.

[v]  Bloomberg, U.S. EPA Settles With 30 Companies Over Fake Fuel Credits, April 30, 2012, http://www.bloomberg.com/news/2012-04-20/u-s-epa-settles-with-refiners-over-fake-renewable-fuel-credits.html

[vi]  New York Times, Fraud Case Shows Holes in Exchange of Fuel Credits, July 4, 2012, http://www.nytimes.com/2012/07/05/us/biofuel-fraud-case-shows-weak-spots-in-energy-credit-program.html?_r=3

[vii]  Politico Pro, House plans RINs probe while W. H. talks to industry, June 26, 2012, https://www.politicopro.com/story/energy/?id=12339

[viii]  Washington Examiner, EPA punishes the innocent for green fuels fraud, June 7, 2012, http://washingtonexaminer.com/article/702811

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