The Ethanol Scramble

By Harold Brown

Harold Brown, Senior Fellow, Georgia Public Policy Foundation

Harold Brown, Senior Fellow, Georgia Public Policy Foundation

The Renewable Fuels Standards (RFS) were enacted to solve perceived problems with energy independence, carbon footprints, job creation and the farm economy, among others. They are proof positive that government solutions are always complicated, especially with mandates that address future, undefined problems.

The legislation mandated fuel uses that were not yet developed and of questionable benefit. Proposed rules in the Federal Register announced in 2006 that, “Under the Clean Air Act … the Environmental Protection Agency is required to promulgate regulations implementing a renewable fuel program.”

The most controversial mandate was for the use of ethanol as a fuel. The main goal was to replace petroleum fuels with renewable fuels, mainly ethanol in motor vehicles. So the federal Environmental Protection Agency (EPA) was charged with making the regulations, monitoring compliance and adjusting goals to realities.

The Energy Policy Act of 2005 specified the amount of renewable fuel (mostly ethanol) to be blended with gasoline to rise from 4 billion gallons in 2006 to 7.5 billion in 2012. The Energy Independence and Security Act of 2007 revised the mandate for the same years from 4 billion gallons to 15.2 billion gallons. Annual goals were set up to 2022.

The mandate for ethanol use was met or exceeded every year until 2010 when the mandate and consumption were just under 13 billion gallons. Consumption has levelled off since then, probably because it has saturated the market of 10 percent ethanol in gasoline (E10) that most stations carry.

The mandates do not end there. The law specifies that 36 billion gallons of renewable fuel be used by 2022. The most logical mechanism is a higher percentage of ethanol in gasoline blends (E85) and flex-fuel vehicles, which can run either on gasoline or a blend of fuels.

But the EPA is in a bind because of market forces. Although 15 million flex-fuel vehicles had been sold by 2012 (98 percent of all alternative-fuel vehicles), E85 now makes up less than one-tenth of 1 percent of motor fuel and the Department of Energy estimates that in 2020 it will still make up only 1.2 percent. Flex-fuel vehicles have been manufactured since the 1990s yet flex-fuel is nearly unavailable.

In 2014 the number of stations was as few as those dispensing propane, and less than 2 percent of those dispensing other gasoline. In addition, the cost of E85 turns customers away: You may pay less per gallon at the pump, but it doesn’t go as far. Adjusting for its lower energy content, the price of E85 has averaged 90 cents a gallon higher than gasoline since 2010.

To make bad policy worse, the RFS legislation mandates that a specified volume of the renewable fuels come from ethanol produced from cellulose, fiber found in plant leaves, stems and wood. The kabuki dance that this mandate has produced best illustrates the fallacy of basing law on non-existent technology.

The Federal Register’s 2006 EPA proposal noted, “The Act also stipulates that at least 250 million gallons out of the total volume required in 2013 and beyond must be cellulosic biomass ethanol.” The second version of the Renewable Fuels Standard (RFS2 – effective in 2010) mandated four times as much in 2013.

This strange statement was in the 2006 document, “…starch-based ethanol can be counted as cellulosic if at least 90 percent of the process energy is derived from renewable feedstocks …” In other words, cellulosic ethanol can be produced from non-cellulosic materials if no more than 10 percent fossil energy is used in producing it!

But the dancing extended beyond definitions. The EPA expected commercial distillers of cellulosic ethanol to come online from the beginning. A 2009 assessment listed 11 plants, expected to have 23 million gallons of production capacity.

None was produced in 2010, and in that year another report was more cautious, “… we believe that 6.0 million ethanol-equivalent gallons (not the 100 million predicted in the previous year) represents a reasonable projection of potential 2011 cellulosic production volume…” A 2012 report projected 10.45 million gallons for that year.

But by 2013 no ethanol had been produced from cellulose. The Energy Information Administration’s long range projection issued in 2014 is not bright. By 2022, when the use of cellulosic biofuels (including ethanol and diesel) is mandated to be 16 billion gallons, this agency predicts 327 million gallons, about 2 percent of the mandate.

Also seldom mentioned is that fossil fuels are used to produce the ethanol meant to replace them. Fossil fuels supply energy used in plowing, harvesting, fertilizing, controlling pests, and the processing and transporting of raw materials and finished ethanol products. Still, it is impossible to get consistent, firm estimates of how much fossil fuel is used to produce a gallon of ethanol.

Why would the government get involved in choosing the products citizens must buy, when benefits, availability and equivalents are so scrambled? From bipartisan legislation introduced in the U.S. Senate last January to abolish corn ethanol mandates, it appears legislators are asking that question, too.

University of Georgia Professor Emeritus Harold Brown is a Senior Fellow with the Georgia Public Policy Foundation and author of “The Greening of Georgia: The Improvement of the Environment in the Twentieth Century.” The Georgia Public Policy Foundation is an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (May 15, 2015). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.