Crony Capitalism in Biofuels Policy

The starting point for any consideration of a biofuels policy is an acknowledgement that the biofuels initiatives over the past two decades have been a government sanctioned scam that did nothing more than promote crony capitalism. They took money from taxpayers and enriched the few. These programs have not worked and more of the same will not work either. Proponents seek profit though laws and regulations because they can’t compete in the market place for fuels.

A forward looking policy should begin with energy realities and a good understanding of what we are trying to accomplish in promoting biofuels and the implications in pursuing them. For too long, biofuel policy decisions have been driven by the illusion of energy independence, meaning no or very low oil imports, pursuing air quality improvements, and addressing climate change. These pursuit of these objectives has lead to policy decisions that were detached from reality and an understanding of economics, science, and technology.

Corn based ethanol has been subsidized for decades even though the impact on oil imports has been trivial. Instead of reducing imports, the ethanol policy has simply been a political tool to enrich corn farmers and ethanol producers at the expense of taxpayers. Since the passage of the 1990 Clean Air Act amendments, the waste probably exceeds $100 billion. Producers over the past 20+ years have lobbied continuously for larger and larger mandates because their greed knows no bounds. In the process, corn production has been shifted from food uses to fuel, leading to higher food prices and lower exports to countries who rely on corn as a basic food product.

When the Clean Air Act was being amended in 1990, the oil and auto industries urged Congress to just set emission standards and let the industries work together to meet them. Instead, Congress mandated how reformulated gasoline would be made and where it would be used. This opened the door for ever increasing mandate levels. In 2007, the Energy Independence Act, required domestic fuel suppliers to meet quotas of a special biofuel blended into gasoline and diesel fuels. The requirements were intended to spur greater alternative fuel development, improve energy efficiency, and cut back on greenhouse emissions in the long-run. In 2011, the target was set at 6.6 million gallons; this year it’s 8.65 million. The ultimate goal is to introduce 36 billion gallons of biofuel into the market by 2022. On paper, it seems like a logical objective. There’s only one catch – the cellulosic biofuel blend doesn’t exist in usable form .

Within 2 years of Congress acting, oil consumption plateaued. But the mandate trumped the marketplace and now we have the perverse situation that companies are being fined for not using a blending additive–cellulosic ethanol– because it doesn’t exist. But, EPA remains an agent for ethanol producers and is seeking ways to increase the amount of ethanol used in gasoline even though that would void many car warranties and create logistical nightmares.

The alleged contribution of ethanol is reducing greenhouse gas emissions is equally bogus. Whatever savings there are in tailpipe emissions are offset by increased emissions from fertilizers used to grow corn. Further, no attempt to control emissions is going to work as long as the developing world is pursuing economic growth and a better standard of living. Further, the notion that CO2 emissions automatically translate into dangerous warming is simply inconsistent with a real understanding of how the climate system operates.

Looking to the future, a rational biofuels policy would acknowledge that they are unlikely to make a significant contribution in the foreseeable future, perhaps a couple of decades. The private sector is conduction research on cellulosic technologies and the potential of algae. The government should look at research gaps and then fill them with investments in basic research. Both the IEA and EIA in their long term forecasts conclude that oil will continue to be the dominant transportation fuel source between now and 2035. Progress in engine and emission technologies will make gasoline and diesel use more efficient and cleaner. Over the course of the next two decades, natural gas for fleets will grow as a fuel source.

If biofuels are going to have a future as a transportation fuel, it will not come from subsidies and mandates but from innovation and technology. Incentives, like making the R&D tax credit permanent, will do more do spur innovation and technology advances than another flawed industrial policy. Policies and regulations should complement market forces instead of distorting them.

This article appeared in the National Journal’s Energy Experts webloghttp://energy.nationaljournal.com/2012/07/whats-the-way-forward-on-biofu.php#2227311

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