Why Do I Think This Penalty Would Have Been Waived on GE or Dreamworks?

Politicians certainly live in their own world:

The Environmental Protection Agency has slapped a $6.8 million penalty on oil refiners for not blending cellulosic ethanol into gasoline, jet fuel and other products. These dastardly petroleum mongers are being so intransigent because cellulosic ethanol does not exist. It remains a fantasy fuel. The EPA might as well mandate that Exxon hire Leprechauns.

As a screen shot of EPA’s renewable fuels website confirms, so far this year - just as in 2011 - the supply of cellulosic biofuel in gallons totals zero.

“EPA’s decision is arbitrary and capricious. We fail to understand how EPA can maintain a requirement to purchase a type of fuel that simply doesn’t exist,” stated Charles Drevna, president of American Fuel & Petrochemical Manufacturers (AFPM), the Washington-based trade association that represents the oil refining and petrochemicals industries.

I will remind Republicans thought that ethanol is a bipartisan turd, this particular requirement having been signed into law by President Bush.

  • Wilhelm Arcturus

    Leaving aside whether the law is treasure or turd, one of the the assumptions in the bill was that the oil companies would go out and build the infrastructure to make cellulosic ethanol in order to comply.

    Cellulosic ethanol, unlike Leprechauns, does in fact exist in the real world. People have been producing and experimenting with it for over 100 years. It just isn't available in quantities anywhere close to what one would need to comply with the law. And it is not at all clear that it could be produced in quantity at a price that would make any economic sense.

    The oil companies made a business decision to not invest billions in producing the stuff and opted just to pay the fine while they lobbied to get the law amended and removed. That was the economically wise choice for them.

    And if they took the line that the government was holding a very small and ineffective gun to their head trying to force them to spend billions on making an economically nonviable fuel additive, I would be with them.

    But making the coy argument that they are being fined for not including fairy dust in gasoline because it doesn't exist strike me as disingenuous, insults my intelligence, and denies the fact that they could make the stuff but simply paying the fine is much better for their bottom line. Better to make the strong argument, to my mind, than play games that could be picked apart.

  • jeff

    "The oil companies made a business decision to not invest billions in producing the stuff and opted just to pay the fine while they lobbied to get the law amended and removed. That was the economically wise choice for them."

    You're assuming an investment of billions would create a marketable product the oil refiners could blend into gasoline. The leap from experimenting with a fuel on a small scale and large scale production of a marketable product is vast. I think it size of the problem is best illustrated by pointing out that the Feds chose to create a penalty, rather than a subsidy for cellulosic ethanol. If it was remotely close to feasible, some politically connected green energy firm would be getting a 50% subsidy to produce the cellulosic ethanol and the EPA would mandate the refiners buy it and add it to gasoline.

    This reminds me of the MTBE problem. First the Government creates a standard that can only be economically met by adding a single product (MTBE), so all the refiners added MTBE as an oxygenate compound. Then when it's found in ground water, the refiners get sued for adding MTBE to gasoline. For the refiners, it's heads they win, tails you lose.

    This type of mandate/market manipulation by the Feds is a slippery slope to confiscatory practices. Dream up impossible standards on an unreasonable timeline. Politicians get to claim they're "saving the children", and if the private sector can't reach it, hey, you still get to take their money. Win/Win.

  • Agammamon

    Ohh this is fun. We can be forced to buy a product, and now we can be forced to buy a product that doesn't exist.

  • Agammamon

    "But making the coy argument that they are being fined for not including fairy dust in gasoline because it doesn’t exist strike me as disingenuous, insults my intelligence, and denies the fact that they could make the stuff but simply paying the fine is much better for their bottom line."

    You're also making the (incorrect) arguement that the oil companies should have any responsibility for developing the infrastructure to create this stuff in the first place. If my business is refining petrochems then I have (and should have) no responsibility to build the infrastructure to produce something that isn't a petrochem product.

  • Ted Rado

    USG incompetence strikes again. Cellulosic ethanol has been around for a long time. The reason plants are not built is that it is much more expensive to build and operate than a corn ethanol plant (those are barely making money). For the USG to insist that industry does something that is nonsense is idiotic (so what's new in Washington?).

    All this idiocy does is prove once again tht the USG should stay out of everything that could conceivably be done by private enterprise. If it is feasible to do something, private investors will do it.

  • billwzw

    It should not be a surprise that the EPA required companies to use unprofitable technology to reduce pollution emissions - that has been occurring for some time. It is a basic tool used by the EPA to promote its Congressionally mandated objectives. After all, profitable technology would be used naturally !

    Most often investments in reducing emissions don't make financial sense to the individual corporation unless their competitors are required to do the same. Only when all of them must apply the technology can we prevent the market share shifting to the cheaper, dirtier providers and the corresponding incentives to firms to be that provider.

    The technology for cellulosic ethanol (CE)is well known - the technology for cheap CE might not be. That the oil companies prefer to pay the penalties rather than build the infrastructure may well be a rational business choice on their part. Despite that, it is still the right thing for a country that believes in global warming for the EPA to collect the penalty/fine as a Pigovian tax on the consumers of oil - ie those that benefit from the generation of carbon emissions. When the technology for CE is cheap enough the oil companies will switch to it of their own accord. Until then the Pigovian tax will discourage the use of oil and reduce the associated negative externalities. The technique of applying such a tax has high marks for economic efficiency and is far better than a governmental mandate that must be achieved irrespective of cost.

    The part of the story that offends me is the federal government's picking and choosing technologies to implement rather than focusing on the result to be obtained. If we want to reduce greenhouse gas emissions the best way to achieve that is to tax them. Let the market decide if biofuel, CE, diesel, electric vehicles, natural gas, methanol, lighter weight vehicles, carpooling, etc is the best alternative. Let the market decide if paying the tax is better and seek reduced greenhouse gas emissions somewhere else. The USG has a particularly bad track record of choosing specific technologies in this arena. An example of that is the Al Gore US Supercar effort. Another example is the mandate to use corn based ethanol, which some studies say adds cost with almost no reduction in greenhouse gases.

    The success in reducing CFC emissions demonstrates how the power of the market can be harnessed to achieve the desired social goal in an economically efficient manner. That we know what to do and how to do, yet still fail to do is the crime of the story in my eyes.

  • Ted Rado

    As has been discussed on this blog for years, the assumpttion that CAGW is true is in debate. Further, there is no sound alternative to fossil fuels, except nuclear. This is under debate since the Japanese disaster (The Germans are getting out of nuclear energy).

    Until there is a total plan for alternative energy, including standby, energy storage, costs, etc., it is madness to start dismantling the existing system. Saying it is the right thing to do does not justify driving of a cliff.

    CE is limited in that there is a finite amount of sustainable cellulose production (due to the earth's land area), and the energy required to harvest it and convert it exceeds the fuel value of the CE produced.

    The idea that the USG can mandte that you use a non-existing product, and that you must produce it yourself if it is non-existant, is the most insane idea I have ever heard of. Only our beloved politicians could come up with something so stupid (not to mention completely out of sync with our ideas of a free society).

  • http://mostlycajun.com mostly cajun

    "Dimmocrats and mainstream Republicans differ only slightly on the subject of Big Government. Both are willing to cut your throat, but the dimmocrats want it to be done by public employees and the country club Republican set want it to be done by private contractors."

    Neither of them has a clue about the technology and science that makes modern life possible.

    MC

  • MJ

    Dream up impossible standards on an unreasonable timeline. Politicians get to claim they’re “saving the children”, and if the private sector can’t reach it, hey, you still get to take their money. Win/Win.

    Plus, you have a convenient scapegoat if/when the impossible standard isn't reached. Anyone remember California's zero emission vehicle (ZEV) mandate?