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[ Congress’s Affair With Ethanol: Love Gone Wrong? ]

The ethanol mandate in gasoline is starting to sting.

Trouble Brewing

In a news article published in Science magazine last week, journalist Robert Service writes: “This year is shaping up to be decisive for ‘cellulosic’ ethanol made from corn stalks and other agricultural waste, as oil companies and the ethanol industry clash over government mandates for the automotive fuel.”

What’s going on? Let’s start with a brief primer on the use of ethanol in America’s automobile.

As a libation, ethanol’s been around for a long, long time. As a fuel, it dates back to 1826 when it was first used in an internal combustion engine. Ethanol was also the fuel that ran the 1908 version of the Ford Model T. But “the decreasing cost of oil (and US prohibition)” among other factors turned Ford’s “fuel of the future” into a fuel of the past and, with the exception of World War II [pdf], there it remained for much of the mid-20th century where the fuel of choice on America’s roadways was ethanol-free gasoline.

Congress’s Love Affair With Ethanol

Starting in the late 1970s, however, ethanol began to creep its way back into our fuel tanks, at first in response to oil shortages [pdf] and the Clean Air Act’s mandated phase-out of leaded gasoline (ethanol supplanted lead as an additive to enhance octane). Demand for ethanol increased as Congress began actively encouraging and then mandating its use in cars. For example, a 1978 tax break for ethanol-blended gasoline was followed by the 1990 Clean Air Act Amendments, whose requirements included the presence of an oxygenated compound such as ethanol in gasoline to produce cleaner automobile emissions and thus cleaner air.

More recently, Congress upped the ethanol ante with two renewable fuel standards: the 2005 Energy Policy Act “required 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012” and the Energy Independence and Security Act of 2007 greatly expanded the program by:

  • increasing the volume of renewable fuels from 9 billion gallons in 2008 to 36 billion gallons by 2022,
  • adding more renewable fuel categories each with separate volume requirements (including cellulosic ethanol targets of 100 million gallons in 2010 increasing to 16 billion gallons in 2022), and
  • applying life cycle greenhouse gas performance threshold standards to ensure that each category of renewable fuel emits less greenhouse gas emissions than the petroleum fuel it replaces.

Why the Love?

Knowing what’s behind Congress’s passion for ethanol as a fuel is not quite as inscrutable as knowing what sparks romantic love, so let’s look at some possibilities. First and perhaps foremost, ethanol is a homegrown energy source and one that was aided by a healthy tariff on imported ethanol that excluded Brazilian ethanol from competing in the U.S. market. It’s reasonable to assume Congress was considering national security. But that’s not all.

The desired air-quality improvements from the 1990 CAA were to be achieved, in part, by adding ethanol or a similarly oxygenated compound to the hydrocarbon chains of fossil fuels thus adding oxygen and encouraging a more complete and cleaner burn. But I’d take that with a bit salt. The evidence (see here and here) that that ethanol mandate actually led to significantly improved air quality is pretty thin.

That brings us to the renewable fuel standards. As summarized in a report [pdf] by the Congressional Research Service, the 2005 and 2007 mandates were aimed at alleviating our “increasing dependence on foreign sources of crude oil, concerns over global climate change, and the desire to promote domestic rural economies.” But like the air-quality mandate, there’s room for some skepticism here. For example, the climate benefits of ethanol have been challenged by a number of investigators (see here, here and here).

Which brings us to the other reason listed above: desire to promote domestic rural economies. Here I think we’ve found pay dirt — but not for any old rural economy, just the ones that grow corn.

Virtually all of today’s U.S.-produced ethanol comes from corn. So ethanol mandates raise the demand for corn — making it a commodity wanted not only for food but also for fuel. And so the result? Corn prices rise, and American corn growers benefit. Voting for the mandate means making the very powerful National Corn Growers Association happy. Voting against it, let alone trying to remove it, means risking the wrath of the lobby.

And then there’s Iowa. Ever wonder why in recent memory there’s near-unanimous support for ethanol mandates among presidential candidates? Could it have anything to do with the all-important caucuses in Iowa, a state also known as the Corn State where 90 percent of its land is agricultural?

With all those reasons going for it, you’d think the 2007 ethanol mandate would be sitting pretty. In fact, as noted by Service in that Science article, the mandate is in serious trouble.

Problem #1: Plenty of Ethanol, Not Enough Gasoline

Times change. In 2007 a trend was clear — gasoline consumption was on the rise. For an ethanol mandate to have teeth over time, the amount of ethanol produced, Congress reasoned, would also need to increase over time. And so federal mandates [pdf] required that the total volume of renewable fuel would increase (from 9 billion gallons to 36 billion gallons) with corn ethanol maxing out at 15 billion gallons per year.

The problem is that gasoline consumption did not increase as anticipated (see graphic below). First came the economic downturn of 2008 and then a hankering for more fuel-efficient cars. As a result, since peaking in late 2007, U.S. gasoline consumption has slowly declined (see graphic).

Used with permission by McClellan Financial Publications

Used with permission by McClellan Financial Publications

 

That’s generally good news. But for the ethanol mandate … not so much. The vast majority of U.S. cars are designed to use a fuel mix that contains no more than 10 percent ethanol, and most gas stations are set up for gasoline with a maximum ethanol content of 10 percent. So consider what happens if total gasoline consumption goes down while the total amount of ethanol required to be mixed with the gasoline increases? Eventually you hit what is known as the “ethanol blend wall” where any addition of ethanol to the mix will result in a fuel that is more than 10 percent ethanol. (See here and here [pdf].)

So how close is that ethanol blend wall? For all intents and purposes we’ve hit it. In 2012, the Energy Information Administration reports [pdf], the average ethanol content in U.S. gasoline was 9.7 percent. (See graphic).

biofuels chart

(From EIA’s Biofuels Issues and Trends [pdf], October 2012)

 

Suffice it to say, something’s gotta give. Either American cars need a mandated retrofit that would allow for a higher percentage of ethanol (just how expensive such a retrofit would be is up for debate — see here and here) or the 2007 mandate needs to be relaxed.

Problem #2: Not Enough of the Good Stuff (Cellulosic Ethanol)

Corn ethanol, like most alcoholic beverages, is produced from a plant’s starches and sugars. (Ethanol is “denatured “ to make it undrinkable.) But it’s corn ethanol’s cousin cellulosic ethanol – which is derived from a plant’s inedible cellulose (a major rigid component of plants) — that’s generally viewed as the ethanol of the future. Why? Plants have far more cellulose than starches and sugars. And so there’s much more stuff available to produce cellulosic ethanol than corn ethanol. At least in theory we can produce a lot more cellulosic ethanol than corn ethanol.

That’s in theory. In practice it hasn’t yet worked out that way. Turning cellulose into ethanol is a difficult task, made even more difficult with commercial viability as a goal. Giving a legislative leg-up is one way to overcome the hurdles of developing a commercial enterprise — and that’s essentially what the federally mandated increases in cellulosic ethanol in gasoline blends were intended in part to do but they have not worked.

The industry has simply not been able to make enough cellulosic ethanol to meet the mandates. In 2012, for example, instead of the 8.65 million gallons required by the Environmental Protection Agency, just 20,000 gallons of cellulosic ethanol were produced. Normally refiners would be required to purchase credits to make up the difference, but the American Petroleum Industry took EPA to court — and won (see decision [pdf]). EPA later eliminated the 2012 requirements ($ub req’ed). Meanwhile, the mandated totals for 2013 are expected to be challenged in court, even though 2013 is the year cellulosic fuel is expected by the biofuel industry to make good.

The Ethanol Mandate on the Ropes

So what’s in store? In his article in Science Service predicts a knock-down, drag-out fight “pitting the world’s largest oil and car companies against giant agricultural firms and Midwest farmers.” And the oil industry is primed for the kill with Charles Drevna, president of the American Fuel & Petrochemical Manufacturers, now calling for the repeal of the renewable fuel standards. Meanwhile several bills floating through Congress aim to slash the cellulosic ethanol mandate.

We’ll have to wait to see, but it could be that the Congressional romance with ethanol will turn out to be a perfect love gone wrong.

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