Executive Branch activism took a punch to the gut in a Jan. 25 court ruling calling on the US Environmental Protection Agency to accommodate rules to reality. What's needed now is a knockout blow to the law that made EPA's mischief possible.
The US Court of Appeals for the District of Colombia Circuit told EPA it had to calibrate its requirement for sales of cellulosic ethanol to tangible supply of the gasoline additive. EPA said the law specifying sales of cellulosic ethanol aimed to push technical development. It was only doing its part, it argued, when it set standards on the basis of what would-be makers of the substance promised rather than what they actually produced.
Anticipated problems
The Energy Independence and Security Act of 2007 (EISA) anticipated problems of technology. It allowed EPA to set requirements for cellulosic ethanol below statutory levels if it expected supply to fall short. EPA's annual requirements, beginning in 2010, have been far lower than standards in the law. But no one yet produces ethanol from cellulose commercially, despite a $1.01/gal tax credit, so any requirement for it at all is unrealistic. Unable to meet EPA's unachievable standards, refiners must buy waivers, essentially paying tax on nonsale of a nonexistent substance.
The DC court recognized the abomination here. It ruled EPA had exceeded its authority by forcing refiners to fulfill a mandate necessitating technological advances by another industry. And it vacated the 2012 requirement for total sales of 8.65 million gal of cellulosic ethanol, for which refiners would have needed to purchase waivers worth more than $8 million, according to the American Petroleum Institute.
This is a bold stroke on behalf of simple good sense, not to mention fair enforcement of law. But it doesn't solve the basic problem: governmental mandates for the sale of energy of any kind. Cellulosic ethanol isn't the only such program gone awry. A reciprocal perversion is at work with ethanol distilled from grain, the gasoline additive now in widespread use. With conventional ethanol, instead of miscalculating supply of the required substance as it did with cellulosic ethanol, Congress overestimated consumption of the carrier fuel. Demand for gasoline, by far the dominant product in the US oil market, has quit growing. Congress didn't see that development coming. Its requirement for conventional ethanol, which is mostly made from corn, increases yearly to a maximum level of 15 billion gal/year in 2015. But the stagnant gasoline market can't use that much at the traditional 10% blending cap. The ethanol market is saturated.
EPA has tried to finesse the problem by allowing ethanol to be blended with gasoline to a concentration of 15% for use in vehicles made since 2000. Refiners and makers of vehicles and small engines opposed the move, worried about engines damaged by fuel containing elevated ethanol levels. Last week, API released a study by a research group supported by oil companies and automakers warning of damage even to newer cars burning gasoline containing more than 10% ethanol.
EPA deserved its slap from the DC Court for requiring unfeasible sales of cellulosic ethanol. It will deserve the slap it will receive if consumers start making warranty claims for engines damaged by gasoline containing excessive ethanol. But EPA isn't the main problem.
Political favors
The problem is a law requiring more of a substance made one way than suppliers can supply and more of the same material made a different way than users can use. The blame belongs with a legislature that knows more about dispensing political favors than it does about future fuel markets.
Requirements by governments for sales of specific amounts of specific fuels always fail. At best, they create inefficiencies and raise energy costs. At worst, they require the impossible. Congress should apply two remedies. First it should fit existing energy mandates to market realities. For future energy mandates it should exercise its only constructive option: Outlaw them.