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Some ideas sound so plausible that they can fail nine times in a row and still be believed the tenth time. Other ideas sound so implausible that they can succeed nine times in a row and still not be believed the tenth time. Government controls in the economy are among the first kinds of ideas and the operations of a free market are among the second kind.
In the 2006 State of the Union address, President Bush promised the nation that he will use taxpayer funds to develop cellulosic fuels (fuel made from grass, woodchips, or other plant material) to power our cars by 2012.
In 2007, Speaker of the House Nancy Pelosi and her fellow members of Congress were big believers in cellulosic ethanol and subsequently mandated that the following quantities be produced. You might wonder how Congress could do that when no facility, no technology, and no idea how to make commercially viable cellulosic ethanol existed. These facts were apparently brushed aside as unworthy considerations, as is the tendency with facts regarding legislation labeled with the words “energy independence.”
For the first mandate, the Environmental Protection Agency (EPA) stated that the bulk of the 100 million gallons would come from two companies in particular, Cello Energy and Range Fuels.
Cello Energy failed to meet their end of the supply bargain, having been told they were responsible to produce 70 million gallons of cellulosic ethanol before they had built their first plant. When they didn’t come even close to meeting that target they subsequently lied about it. In 2009, they were taken to court and accused of fraud; by 2010 they had declared bankruptcy.
As for Range Fuels, they received much hype after claiming in 2007 that they would be the first company to build a commercially viable cellulosic plant in Georgia. In the process, they received a $76 million grant from President Bush’s Department of Energy and an additional $6 million from the State of Georgia. When 2008 ended and still no plant, President Obama’s Department of Agriculture threw in a whopping $80 million loan. By 2009, former Range Fuels CEO Mitch Mandich publicly stated that nobody had figured out how to commercially produce cellulosic ethanol.
That public announcement combined with Cello Energy just months away from cleaning out their office pressured EPA to lower the 2010 target from 100 million gallons to a mere 6.6 million. Range Fuels would go on to produce four million gallons of methanol.
For those counting, that’s $162 million of taxpayer money, already more than the cost Range Fuels estimated to create this wonder-fuel and accomplish everything the media hyped about. What taxpayers got in return were four million gallons of a biofuel that’s been around for decades.
Wednesday, the Atlanta Journal reported Range Fuels was sold to another biofuel-maker at a fire-sale price, with the taxpayer funds going unrecouped.
Sam Shelton, director of research programs at Georgia Tech’s Strategic Energy Institute, was long skeptical of Range Fuels’ plans and technology.
“It was too damn big a risk for an apparently unproven technology and the due diligence I personally performed on Range would not entice me to invest in it,” Shelton said Wednesday.
How one man’s due diligence manages to work better than the U.S. legislative process still no one knows.
Today, oil companies are still required to buy cellulosic ethanol to blend it with conventional gasoline or purchase waiver credits for not using it. Since oil companies cannot buy something that doesn’t exist they are forced to buy these waiver credits, essentially paying the government for failing to comply to their lack of due diligence.
As with any business, these costs are passed to the consumer. So if nothing else, the end result of your tax money was not “energy independence,” but higher gas prices.
Last month, the Wall Street Journal reported despite these failures, the subsidies continued to roll in:
In August 2011 the Obama Administration funded a $510 million program in partnership with the Navy to produce advanced biofuels for the military. In September the feds loaned $134 million to Abengoa Bioenergy to build a cellulosic plant in Kansas. The optimistic forecast is that this plant will produce about 23 million barrels a year—a fraction of what Washington promised in 2006. In September the Department of Energy provided POET, which advertises itself as the “world’s largest ethanol producer,” a $105 million loan guarantee for cellulosic.
Why do subsidies continue unabated if cellulosic ethanol has been nothing but a disaster? Manhattan Institute Senior Fellow Robert Bryce stated in his book, Power Hungry, that no matter how many times it does fail, enthusiasts always promise that its viability is just right around the corner, ready to rescue the nation from “dependence on foreign oil.” Of course the catch always being “given enough money.”
Consider this quote made by American inventor Thomas Midgley to the Society of Automotive Engineers, spoken in 1921:
From our cellulose waste products on the farm such as straw, corn-stalks, corn cobs and all similar sorts of material we throw away, we can get, by present known methods, enough alcohol to run our automotive equipment in the United States.
The only problem was the fuel cost about $2 per gallon to produce, about $24 per gallon in current money. Now consider another quote made almost three years ago, by U.S. Energy Secretary Steven Chu in an article for Newsweek:
We will continue to need high-energy-density fuels for years to come. But we can develop new liquid biofuels that will be direct replacements for gasoline and diesel fuel. These will be next-generation biofuels made from high-energy grasses such as miscanthus and from agricultural wastes.
Despite $1.5 billion of subsidies and grants from the Bush and Obama administrations, not much has advanced since Midgley’s time. But Chu and other renewable energy apologists have praised these efforts (at least Obama’s). Calling dependency on oil “dangerous and short-sighted.”
While Daniel Yergin’s essay, There Will Be Oil, became popular for explaining how maximum oil output and the ensuing catastrophe has been right around the corner – for over a century. It should be no coincidence that cellulosic ethanol has been advocated as a near-breakthrough substitute for nearly a century as well. This is likely to continue since it has proven to be a great money-making strategy for fledgling producers even if they don’t produce a drop of viable cellulosic ethanol and oil production continues to thrive.
But what gets overlooked when oil-dependence is referred to as “short-sighted” is the irony that a non-viable product which hasn’t existed anywhere but in the dreams of those in Washington, is being advocated in favor of what hundreds of millions of people who make up the marketplace determine is the most practical, viable form of energy.
For example, a study on alternative automotive energy solutions done by a Colorado-based energy consulting firm suggests that a singular focus on producing cellulosic ethanol in a commercially viable form obscures the huge operational demands that will ensue from trying to displace our transportation energy with a low-power density fuel.
Consider displacing 10% of current transportation energy with the yet-to-exist commercially viable cellulosic ethanol, and the following obstacles.
1) 15% of our cropland currently under cultivation re-purposed for biomass production. Roughly the size of Oklahoma. According to Bryce, that pinches America’s ability to grow food. Less American-grown food means higher prices, adversely affecting the poor the most.
2) The infrastructure required to meet the demands of biomass production on this large of scale is currently non-existent, and would require a billion-dollar-effort from the U.S. Farming Sector to make the tractors and processing material viable. With no guarantees it would even be worth it since the long fermentation periods of switchgrass would make preventing contamination impossible.
Also, environmental problems…
3) It would take 146 gallons of water to produce one gallon of cellulosic ethanol. Compared to five gallons of water for one gallon of conventional gasoline.
4) Production of cellulosic ethanol would also result in more than one-and-a-half times the CO2 emissions of conventional gasoline.
Politicians who are undeterred by the poor history of renewable energy subsidies should recognize that products with no economic merit cannot be force-fed into the market or it will be spit back out each and every time. If a product was truly profitable, then free individuals would have independently launched that industry long before it crossed the mind of any lawmaker, as was the case with every other great achievement in history. Government attempts to accelerate the process and the resulting backfires will surely put off the day a great renewable energy breakthrough is achieved.