The Environmental Protection Agency has been demanding the impossible of refiners and then penalizing them when they fail to comply. A new ruling from a federal appeals court stops this shakedown.
For the past few years, the EPA has required refiners to purchase vast quantities of cellulosic biofuel, which is made from non-edible plant parts such as wood, grass, and cornstalks, and to use it in the gasoline they produce. The problem? The EPA wants refiners to buy more of this fuel than is available on the market — or has ever been available, for that matter. When those refiners have understandably failed to comply, the EPA has forced them to pay for an exemption.
The problem is that the raw inputs to cellulosic biofuel simply aren’t grown on a commercial scale. And there’s reason to doubt anyone would want to grow them. The cost of farming the plant waste, and then transporting large quantities for processing, is already astronomic. The Institute for Energy Research estimates that the raw inputs alone cost $1.30 to $1.48 per gallon — and that’s before the conversion to fuel even begins. For such biofuel to compete with petroleum, the cost of oil would have to rise to $191 a barrel, about double what it is now. Furthermore, the United States also lacks the cellulosic-biofuel plants equipped to process the substance on the scale the EPA has demanded.
Nevertheless, in 2011, the EPA made refiners cough up $6.8 million in fines for insufficient purchase of cellulosic biofuel, even though sufficient quantities never materialized. And if the court hadn’t intervened last week, refiners would have had to pay around $8 million for 2012.
But it’s taxpayers who got the worst shakedown. Already, tax dollars prop up the biofuels industry. The added expenses for refiners mean higher energy prices passed on to consumers, and drivers get fewer miles per gallon using the required ethanol-blended fuel.
The EPA’s overshot standards were no accident. The U.S. currently lacks the technology and infrastructure to make cellulosic ethanol on the scale the federal government demands. So the EPA tried to give the energy industry an incentive (more of a stick than a carrot, really) to pursue cellulosic-biofuel technology.
“It was completely unfair,” Rich Moskowitz, general counsel for American Fuel & Petrochemical Manufacturers, tells National Review Online. “And this is the poster child for exactly what’s wrong with the national renewable-fuel policy. Congress can’t just pass a law saying that if you mandate it, industry will invent it. Sometimes that just doesn’t work.”
If cellulosic biofuel is in short supply, it’s not for want of federal spending. The government has provided more than $1.5 billion in federal grants and loan guarantees for cellulosic-biofuel production over the past five years. Washington has also funded research and development, offered tax credits, and penalized competitors. But despite the best efforts of its federal sugar daddy, cellulosic biofuel has yet to flourish.
When subsidies failed, Congress and the EPA sought to use regulation to generate artificial demand for cellulosic biofuel. Last year, Congress wanted to require refiners to use 500 million gallons of cellulosic biofuel. Even the National Academy of Sciences questioned whether such a goal is remotely attainable. Smacked with reality, the EPA scaled back its demands considerably, creating a mandate for 8.65 million gallons.
Nevertheless, the commercial market produced only 20,069 gallons by November 2012, according to the Institute for Energy Research. The entire supply was exported to Brazil, so that attendees of the 2012 Rio climate conference could boast they’d greenly fueled their vehicles.
Meanwhile, American refiners were unable to make up for a cellulosic-ethanol shortage even by substituting corn or sugar-cane ethanol. The U.S. Court of Appeals for the District of Columbia acknowledged refiners’ conundrum on Friday, ruling that the EPA overstepped its authority and instructing the agency to base its mandates on more realistic projections.
Thomas Pyle, president of the Institute for Energy Research, commended the ruling in a news release.
“This particular rule mandated the use of a cellulosic biofuel that does not even exist in the commercial market,” Pyle said. Businesses across the country are fined large sums for failing to use this nonexistent fuel. Pyle argues that the EPA should take the court ruling “as a sign that its decision to set unattainable goals when it comes to burning biofuel is at best naïve, and at worst irresponsible and reckless.” Otherwise, “American consumers will continue to pay the price.”
It’s unclear whether the EPA will repromulgate its 2012 rules in light of the ruling. Meanwhile, the 2013 biofuels mandate is still under review by the Office of Management and Budget, which also creates considerable uncertainty.
While the court ruling is helpful, the real problem lies with the wishful thinking behind the 2007 law. Plant waste hasn’t yet become a viable fuel source, and no amount of regulatory pressure has made a difference. But don’t count on Congress or the Obama administration to subject its environmental agenda to something as niggling as facts.
— Jillian Kay Melchior is a Thomas L. Rhodes Fellow of the Franklin Center for Government and Public Integrity.