As markets balk, the US government recommits itself to the care and feeding of renewable fuels. Lavish subsidies and volumetric mandates haven’t been enough. The administration of Barack Obama could save itself trouble and the US money by learning that subsidies and mandates never will be enough.
Setting the leading renewable fuels back onto their feet won’t be easy. Fuel ethanol and biodiesel are now flat on their backs. Producers of both politically pampered fuels are struggling if not already bankrupt. Part of the reason is that recession has made business tough for everyone. But that’s far from the only problem.
Dependent energy
Energy sources dependent on governmental favoritism live or die by bureaucratic assessments of future business conditions and politically motivated dispensation of third-party funds. That means they die. Governments do no better than anyone else at predicting energy markets and worse than everyone else at reacting to market surprises. Political fuel choice is at best erroneous, at worst corrupt, and too frequently both.
Few in Washington, DC, will admit it, but the American biofuels program is a rapidly degenerating fiasco. Ill-considered energy laws require the use of biofuels in amounts that the market soon may not be able to absorb and that producers later may not be able to supply.
The immediate problem is escalation of biofuel mandates in a market for transportation fuels that has stagnated. Within a few years, the US gasoline market won’t need all the ethanol required by law at the 10% blending level. Consumer resistance and distribution-system limits probably will keep 85% ethanol blends in gasoline–E85–from making up the difference. Seeing trouble ahead, ethanol promoters want Congress to raise the cap on ethanol concentrations in fuel burned in conventional engines. Automakers and manufacturers of small engines fear the extra alcohol would damage their products.
Beyond the immediate problem of the market’s ability to absorb ethanol at required rates lie concerns about longer-term supply. The law requires escalating sales of fuel ethanol made from cellulose. There is no commercial production of such material at present, although reports of technical progress appear frequently. Even if cellulosic ethanol crosses the commercial threshold soon, the ability of the industry to expand production fast enough to satisfy future mandates remains in doubt.
Meanwhile, the heavily subsidized industries that produce conventional ethanol and biodiesel are retrenching. Both expanded too rapidly in response to government boosterism and now reel from excess capacity and feedstock costs uncompensated by fuel prices in a tepid market. Their government sponsors didn’t foresee such a squeeze. The future thus looks cloudy for the economics of conventional ethanol and the technology of its cellulosic successor. Biodiesel, which is far less important to energy supply than ethanol, teeters on the economic brink.
On May 5, therefore, the same day the Environmental Protection Agency proposed regulations implementing an RFS expanded by the Energy Independence and Security Act of 2007, Obama crooned to the rescue. He directed the agriculture secretary to “aggressively accelerate the investment in and production of biofuels” with financial help, interagency collaboration, and market enhancements. In other words, he ordered his administration to compound an enormous and very expensive mistake.
Economic health won’t come to biofuels by presidential decree. It can come only through survival of the rigors of commercial competition. Aggressive political support has put biofuels on a downhill path toward economic ruin, missed targets, and–at some point–political revulsion.
Political pressures
Obama and Congress should be discussing at least the relaxation of mandates and subsidies and a quick end to tariffs on imported ethanol. It’s too much to ask, but they also should take a critical look at price supports for corn.
That they’re not doing any of this testifies to the political pressures that have shoved these growing burdens onto the economic shoulders of American taxpayers and fuel consumers. Politics will keep politicians from genuinely fixing biofuels. But lessons from this latest misadventure with market intrusion should lead them to resolve not to make the same mistakes with other energy forms.