EPA's Ethanol Mandates Are Costing Consumers

The EPA must stop attacking affordable, reliable energy.

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Trucks waiting to unload corn are queued up at the Little Sioux Corn Processing plant in Marcus. Ethanol will be produced.

Daniel Kish is senior vice president at the Institute for Energy Research.

On Friday, the D.C. Circuit chastised the Environmental Protection Agency for favoring the biofuel industry instead of objectively projecting cellulosic ethanol production. You would think that the EPA would have been slightly cowed by the court, but they were not. Less than one week after the ruling, the agency has released new projections that are even more out of touch with reality than the projection that the court struck down. Sadly, the EPA's decision has consequences and in this case, it means higher gasoline prices at the pump.

In 2007, Congress and President Bush passed a law mandating fantastically large volumes of cellulosic ethanol. For example, for 2013 the law requires refiners to buy 1 billion gallons of cellulosic ethanol. But Congress understood that reality might not match their expectations and authorized the EPA to annually consult with the Energy Information Administration to project the amount of cellulosic ethanol that will be produced the next year. The EPA's projection would then be the mandated amount of cellulosic ethanol.

[See a collection of political cartoons on energy policy.]

The EPA's projections have been out of whack with reality and because oil refineries are required to buy this phantom fuel or purchase credit (in effect a tax), the refiners took the EPA to court for skewing its projections in favor of cellulosic ethanol producers to the detriment of refineries and gasoline-buying Americans. 

It is easy to see why the refiners were frustrated with the EPA's projections. In 2010, EPA projected that 5,000,000 gallons of ethanol would be produced, but not a drop was sold. In 2011, the EPA ignored the lack production.

In 2012, after two years of zero cellulosic ethanol production, the EPA's projection didn't return to reality, but further increased. At this point it became obvious that the EPA's projection was not an objective forecast, but an attempt to create a market for cellulosic ethanol. The refiners took agency to court and the court agreed.

[See a collection of political cartoons on gas prices.]

The chart below shows the Energy Information Administration's forecast, the EPA's forecast, and actual cellulosic ethanol production. In 2012, it turns out that there was some cellulosic ethanol production—20,069 gallons. This was far short of the 8.65 million gallons the EPA mandated.

After being reprimanded by the court, one would think that the EPA's projections would be a bit more reasonable. But that would be incorrect. Less than a week after the court instructed the agency to be objective, the EPA released a new forecast that projects a whopping 14 million gallons of cellulosic ethanol to be produced in 2013!

[Read the U.S. News Debate: Should the Government Invest in Green Energy?]

The EPA argues that more companies are building cellulosic ethanol plants and that more of these plants will produce ethanol this year. This may be true, but it was also true in 2010, 2011, and 2012. In those years the EPA projected that 20,250,000 gallons would be produced, but only 20,069 gallons were actually produced. In fact, the closest the EPA has come to accurately project cellulosic ethanol production was in 2010—EPA's first and lowest projection. In its subsequent forecasts, the EPA apparently learned nothing from history.

A week ago, the Obama administration's EPA was reprimanded by the D.C. Circuit Court for not being objective. Anyone can see with the EPA's history that they aren't engaged in objective forecasting. This is problematic for at least two reasons. First, as the D.C. Circuit pointed out, the EPA is trying to aid cellulosic ethanol producers at the expensive of refiners. The court explained that the EPA was essentially saying, "Do a good job, cellulosic fuel producers. If you fail, we'll fine your customers." And second, it's not really the refiners who will bear the brunt of the EPA's policy. Instead, the refiners will pass on their cost increases to you and me at the pump. This is just one more example of EPA's continuing attack on affordable, reliable energy.

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  • Corrected 2/7/2013: A previous version of this blog post incorrectly stated the author of the post. It was written by Daniel Kish.