The EPA's New Mandate: Pump Grass, Not Gas

07 30, 2012 by Forbes

If you think the government penalizing — or is it taxing? — people for not buying health insurance is bad, at least there are health insurance companies actually selling coverage. By contrast, the Environmental Protection Agency (EPA) fined oil refiners $6.8 million last year for not incorporating cellulosic ethanol in gasoline — even though the product doesn’t exist.

That’s right. As bizarre as it sounds, the New York Times reports that oil refiners were required to blend 6.6 million gallons of cellulosic ethanol — a biofuel made from grasses such as switchgrass, woodchips, the inedible parts of plants and other organic material — in the gasoline intended for cars or pay a fine. But since cellulosic ethanol has never been mass-produced, there was none to buy. And so the refiners paid the fine (or is it a tax?).

It’s all part of a bizarre attempt to impose a “green dream” on the country. In 2005 a Republican-led Congress and White House passed the first Renewable Fuel Standard (RFS) mandating that a minimum of 4 billion gallons of renewable fuels, such as ethanol, be used in the national transportation fuel supply by 2006, and 7.5 billion gallons by 2012. (See history here.)

Then in 2007, a Democratic Congress and President Bush — remember Bush scolding the country about breaking its addiction to oil? — expanded the mandate to 9 billion gallons by 2008 and 36 billion gallons by 2022, of which no more than 15 billion gallons could be from cornstarch-based ethanol and no less than 16 billion gallons from cellulosic ethanol. But since there is no cellulosic ethanol, Congress decided to throw $1.5 billion at companies willing to try to develop it.

Several companies were given grants and loan guarantees to produce cellulosic ethanol, according to the Wall Street Journal. Cello Energy Corp. of Alabama was supposed to lead the pack by producing 70 million gallons, but the company went bankrupt in 2010 without producing a drop. At least Solyndra was actually making solar panels.

These R&D failures forced the EPA to reduce its initial projection from 100 million gallons of cellulosic ethanol in 2010 to 6.5 million gallons. However, the manufacturers didn’t even achieve that goal.

In 2011 the EPA reduced its prediction again, from 250 million to 6.6 million gallons, but the companies didn’t hit that goal either. The original goal for 2012 was 500 million gallons, but the EPA cut it to 8.65 million — with virtually no chance of reaching that goal. Are you detecting a pattern?

But just because there is no cellulosic biofuel, either foreign or domestic, for oil refiners to mix with gasoline didn’t mean they got an EPA waiver on the penalty for not doing so. Aren’t you glad an administration that uses this kind of logic hasn’t taken over the health care system? Oh, wait …

But there’s more. Refiners have been blending corn-based ethanol with gasoline for years, but there has been a “blend wall,” or limit, of 10 percent. The ethanol industry, which is one of the more potent lobbies in the country, has been pushing to raise the blend wall up to 15 percent, known as E15, and some want to go to E20.

In June the EPA gave its final approval for the sale of E15 ethanol blends in cars made in 2001 and later.

The automotive industry has raised serious questions about whether higher ethanol blends can damage cars, which is why the EPA only approved E15’s use in newer cars.

Setting aside the mechanical questions, the more important problem right now is the upward pressure the increased demand for ethanol will have on corn prices at a time when the U.S. Department of Agriculture is dramatically reducing its corn-harvest prediction for this year and the price of corn futures are skyrocketing to record levels.

Corn is a staple food item for the poor in many parts of the world. A few years ago the poor in Mexico rioted because of high corn prices — partly the result of diverting corn to gasoline. The U.S. drought in much of the heartland — hopefully temporary, but who knows — will create a worldwide corn shortage. The EPA’s approval will put even more upward pressure on corn demand and prices by putting more of that food in our tanks.

Oh, and the Navy has decided it wants to begin transitioning to a 50-50 blend of alternative fuel and petroleum, according to the Associated Press. Senator John McCain said that the Navy spent $26 a gallon last year to buy 450,000 gallons of biofuel to use in a recent demonstration project. The AP quotes Navy Secretary Ray Mabus as saying, “We’re not doing it for any other reason except it takes care of a military vulnerability we have,” in having to rely solely on often-imported petroleum. But as the drought demonstrates, there are limitations on biofuels too.

There’s noting wrong with transitioning to biofuels; it may even be the wave of the future. But that transition needs to be led by science and economically viable alternatives. Instead, it is being led by a political agenda that believes that pumping grass, rather than gas, is good for the planet — no matter how much it hurts people and their pocketbooks.