A growing mandate for sales of something nonexistent shows yet again why Congress must correct its errors on biofuel.
The Environmental Protection Agency late in December published final renewable fuel standards for 2012 requiring the sale of 10.45 million gal of biofuel made from cellulose—cellulosic ethanol. The volume is not great. It represents a tiny fraction of the 137 billion gal of gasoline sold in the US last year. And it's 2% of the amount Congress stipulated for 2012 in the Energy Independence and Security Act of 2007. The law authorizes EPA to require less than the statutory requirement for cellulosic biofuel if supply projections warrant a lower figure.
Supply questions
Even at the drastically reduced level, however, the required amount of cellulosic ethanol probably won't be available. Despite volumetric mandates and generous subsidies, the substance has proven difficult to produce at commercial scale. EPA earlier had proposed a 2012 requirement of 3.45-12.9 million gal. It obliged prospective producers of the material by opting for the higher side of the range, explaining in the final rule that it expects production from six plants this year.
Time will tell. Start-ups of cellulosic plants are prone to delays. In at least one case, a plant started up and shut down almost immediately. The volume EPA enshrined in its final rule exceeded a projection from the Energy Information Administration by 3.55 million gal.
Regardless of supply, the mandate for sale of cellulosic ethanol applies. In the very probable event of a shortfall, refiners and marketers must buy credits against their pro rata requirements—in effect paying tax on someone else's deficiency. The cost won't be calamitous. But the regulatory jeopardy is repugnant.
That the biofuel requirements of EISA are impracticable becomes clearer with time. In October, the National Research Council published findings of a study on biofuels concluding that in the absence of "major technological innovation or policy changes" the US won't meet EISA's ambitious target for cellulosic biofuel—16 billion ethanol-equivalent gal by 2022. The required processing technology isn't developing fast enough, despite strong federal help. And the economic challenges are daunting, despite subsidies.
Problems don't end with the fading hope for cellulosic ethanol, according to the study. "Only in an economic environment characterized by high oil prices, technological breakthroughs, and a high implicit or actual carbon price would biofuels be cost-competitive with petroleum-based fuels," says one of several findings in an executive summary.
A more-immediate constraint looms: the blend wall, the maximum amount of ethanol the gasoline market can absorb under regulatory and practical blending limits. EPA has deferred the problem by raising the ethanol cap in gasoline for many vehicles to 15% from 10%—but only, according to the study, until about 2014. After that, surmounting the blend wall depends on surges in the sales of fuel containing 85% ethanol and vehicles able to burn it. The surges would require greatly expanded subsidies and other forms of federal expenditure at a time of historic fiscal austerity.
EPA can't keep renewable fuels standards of EISA alive forever by tweaking volumetric mandates and blending limits. The program is fatally flawed. Congress, with the biofuel mandates it expanded and created in EISA, sacrificed economic and physical reality to grandiose energy schemes and the urge to grant political favors. The consequent waste now represents an extra burden on a troubled economy.
Admitting error
Congress won't try to repair the damage in an election year. Both political parties share blame for the EISA fiasco. Neither will want to admit error now. Still, a reckoning looms. Rising mandates for biofuels are crashing wastefully against physical limits to consumption and supply. Stretching those limits requires policy adjustments certain to cost too much.
Congress created the mess and eventually must clean it up. Adjusting numbers won't be enough. The job won't be complete until lawmakers acknowledge institutional recklessness on energy and muster the discipline not to let this happen again.
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