The Wall Street Journal editorial in the url below contains some astonishing numbers. The editorial leads with a quote from George Bush’s 2006 State of the Union address in which he committed the U.S. to develop ethanol as an alternative fuel. It then proceeds to detail the consequences of this policy as implemented by Barack Obama. In addition to billions of dollars of subsidies:
“… Mr. Bush assured the nation that by 2012 cars and trucks could be powered by cellulosic fuels from switch grass and other plant life. To launch this wonder-fuel industry, the feds under Mr. Bush and President Obama have pumped at least $1.5 billion of grants and loan subsidies to fledgling producers. Mr. Bush signed an energy bill in 2007 that established a tax credit of $1.01 per gallon produced.”
“… Mr. Bush assured the nation that by 2012 cars and trucks could be powered by cellulosic fuels from switch grass and other plant life. To launch this wonder-fuel industry, the feds under Mr. Bush and President Obama have pumped at least $1.5 billion of grants and loan subsidies to fledgling producers. Mr. Bush signed an energy bill in 2007 that established a tax credit of $1.01 per gallon produced.”
In particular:
“Most important, the Nancy Pelosi Congress passed and Mr. Bush signed a law imposing mandates on oil companies to blend cellulosic fuel into conventional gasoline. This guaranteed producers a market. In 2010 the mandate was 100 million barrels, rising to 250 million in 2011 and 500 million in 2012. By the end of this decade the requirements leap to 10.5 billion gallons a year.”
“Most important, the Nancy Pelosi Congress passed and Mr. Bush signed a law imposing mandates on oil companies to blend cellulosic fuel into conventional gasoline. This guaranteed producers a market. In 2010 the mandate was 100 million barrels, rising to 250 million in 2011 and 500 million in 2012. By the end of this decade the requirements leap to 10.5 billion gallons a year.”
In reality, performance has been underwhelming, to say the least:
“When these mandates were established, no companies produced commercially viable cellulosic fuel. But the dream was: If you mandate and subsidize it, someone will build it. Guess what? Nobody has. Despite the taxpayer enticements, this year cellulosic fuel production won't be 250 million or even 25 million gallons. Last year the Environmental Protection Agency, which has the authority to revise the mandates, quietly reduced the 2011 requirement by 243.4 million gallons to a mere 6.6 million. Some critics suggest that even much of that 6.6 million isn't true cellulosic fuel. The EPA has already announced that the 2012 mandate of 500 million gallons is unattainable, so it is again expected to lower the mandate to fewer than 12 million gallons for next year.”
“When these mandates were established, no companies produced commercially viable cellulosic fuel. But the dream was: If you mandate and subsidize it, someone will build it. Guess what? Nobody has. Despite the taxpayer enticements, this year cellulosic fuel production won't be 250 million or even 25 million gallons. Last year the Environmental Protection Agency, which has the authority to revise the mandates, quietly reduced the 2011 requirement by 243.4 million gallons to a mere 6.6 million. Some critics suggest that even much of that 6.6 million isn't true cellulosic fuel. The EPA has already announced that the 2012 mandate of 500 million gallons is unattainable, so it is again expected to lower the mandate to fewer than 12 million gallons for next year.”
These numbers (6.6 million instead of 250 million) present the argument against economic micro-managing by politicians. With suspect allegiances and swayed by the disproportionate influence of money in politics today, government should focus on setting the broad legal framework within which market forces determine the most efficient outcomes. Regulation is an important part of this responsibility, but predetermined economic outcomes is well-beyond the government’s capabilities or the country’s economic interests. This is a theme I have touched on in prior newsletters (see: FREE ‘free markets’), but if the government wants to encourage alternative fuels, the most efficient way is to make carbon more expensive (i.e., a carbon tax). If this tax is transparent and equitably applied across industries, then the market will quickly marshal resources to produce a competitive alternative that is economically feasible. It is impossible to predict in advance, however, what that alternative will be (no matter how much public money you throw at the problem).
Take care
David
Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
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The Cellulosic Ethanol Debacle
December 13, 2011
The Wall Street Journal
Late Edition - Final
A20
