The Energy Spectator

The Ultimate Individual Mandate

Its name is cellulosic ethanol -- it's nonexistent but oil companies are still being fined by the EPA for not buying into it.

By 1.13.12

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Peering ahead at the worst possible outcomes of Obamacare five years from now, imagine that individuals were being fined by the Department of Health and Human Services for failing to buy health insurance -- even though insurance companies have withdrawn from the market and aren't offering it anymore! Would that be fair?

Well, it's exactly what's happening right now as the Environmental Protection Agency penalizes oil companies for failing to buy non-existent cellulosic ethanol.

Ah, ethanol. What market atrocity hasn't yet been committed in pursuit of the idea that we should power our cars from farmland rather than taking the fossilized stuff out of the ground?

In case you haven't noticed, the 30-year-old program for subsidizing ethanol production through tax credits has expired. Congress let it to happen over the Christmas holidays while hassling over how to fund the federal government for fiscal 2012. Republicans (minus a few farm state members) have long condemned the program while Democrats, who usually hail it as a triumph of the Carter Administration, finally decided it wasn't worth defending anymore. This means the tax credit for ethanol -- which started at 3 cents per gallon and eventually rose to 54 cents -- is now off the books. Also gone is the 46-cents-per-gallon tariff on imported ethanol to protect the domestic industry.

Does that mean we're back to reality? Unfortunately, no. Still in place are the mandates adopted when the Bush Administration set phantasmagorical goals for ethanol production, particularly cellulosic ethanol, which brings us to our original subject.

The ethanol that we've been putting in our gas tanks for the last 20 years is made from corn seeds. The sugars and starches in the grain break down under heat and can be easily fermented into alcohol. We've been doing it since Neanderthal days (the Cave Men had a version of beer), so it's not too complicated. The problem is that the seeds make up only 15 percent of the corn plant. The rest is cellulose, the much tougher molecules that give the plant its structure and do not break down so easily. It can be accomplished with chemical enzymes or by evaporating everything and then combining it back to liquid ethanol, but both methods are far too expensive and energy intensive.

So the preferred techniques are biological. There are bacteria in the guts of cows and termites that break down cellulose but they are highly adapted and have trouble living outside their native environment. Only in 2010 did someone genetically engineer a strain of yeast that can do the same thing. But that is getting way ahead of the story.

Drawing on only 15 percent of the plant, we are now processing an incredible 40 percent of the 12 billion bushels grown on 400,000 farms into fuel ethanol. The entire world crop is only 25 billion bushels, which means that one out of five bushels worldwide is going into American automobiles. This has crimped the world food supply and set off riots in places as diverse as Mexico and Southeast Asia. The UN Food and Agricultural Organization regularly condemns ethanol as a "crime against humanity" but no one in this country pays much attention.

Always on the horizon of this effort, however, has been the vision that we will one day be able to process the remaining 85 percent of the plant -- the cellulose -- into a usable fuel as well. Then we wouldn't have to be taking food out of people's mouths.

Unfortunately, while it's been accomplished here and there in the laboratory, no one has ever been able to scale the process up to a commercial level. Nor is there any assurance that anyone ever will. People have been trying to domesticate morel mushrooms for centuries without any success. Somewhere around 2005, however, the environmental movement and its tagalongs in the Bush Administration came upon the perfect solution -- government mandates!

"America is addicted to oil," President George Bush, Jr., pronounced in his 2006 State of the Union address, even mentioning the magic word "switchgrass," which serves as a shibboleth among renewable energy enthusiasts. Switchgrass is a fast-growing weed that sprouts anywhere and could provide enough feedstock to replace significant portions of our domestic oil -- if anybody ever figures out how to ferment it. Charging straight ahead, however, Congress adopted the 2007 Energy Independence and Security Act, which mandated the consumption of 100 million gallons of cellulosic ethanol in 2010, 250 million by 2011, and 500 million in 2022 at a time when no one had ever mastered the technology. To make sure it happened, the bill added a $2 billion Department of Energy program to fund manufacturing plants. The Department of Agriculture kicked in another $1.6 billion. You say you want technological progress? Put things in the hands of the government.

The first company to take advantage was Range Fuels, a Colorado company that broke ground in November 2007 in Soberton, Georgia, promising to generate 100 million gallons of ethanol a year out of pine-logging wastes. Before it even built the plant, Range Fuels won the 2008 North American Fuels Technology Innovation Award for Green Excellence. Full operation was promised by 2009.

By 2010, Range had received a $50 million grant from the Department of Energy with another $26 million promised when it produced its first gallon. The State of Georgia contributed another $6 million and the Department of Agriculture added an $80 million loan guarantee from the U.S. Biorefinery Assistance Program. Still, Range had not produced a single gallon of ethanol. In January 2011 Range finally opened the factory to produce one 200-gallon run of methanol -- which can't be used in cars -- and then closed down, saying the plant didn't work. That single run allowed it to collect the last $26 million, so that Range was able to reimburse its investors while leaving taxpayers holding the bag. It was a bigger scandal than Solyndra, although no one noticed at the time.

By this time the EPA had scaled the 100-million gallon mandate down 6.6 million, yet even that wasn't available. Cello Energy, an Alabama company with similar ambitious, also gave up on the process after receiving government money. There was no cellulosic ethanol to be had anywhere. Still, the mandates remained in place and so the EPA decided to enforce them anyway. It required several major oil companies to buy $6.8 million worth of "credits" for future cellulosic ethanol on the presumption that one day they will be able to cash them in. At this point, the higher the EPA raises the mandates, the more they can collect from the oil companies.

Is anyone in the government or environmental community repentant or even discouraged by any of this? Hardly. Cathy Milbourn, of the EPA, said the quotas were still "reasonably attainable" and that by maintaining them "we avoid a situation where real cellulosic biofuel production exceeds the mandated volume." Try to figure that one out. Retired Vice Admiral Dennis V. McGinn, who serves with the American Council on Renewable Energy, added: "I am absolutely convinced from a national security perspective and an economic perspective that the renewable fuel standard, writ large, is the right thing to do."

So that's what it's like when the government decides to run the renewable fuel industry. Just imagine what it's going to be like when it's running health care. 

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About the Author
William Tucker is news editor for RealClearEnergy.org.