The Impact of an Increased Renewable Fuel Standard on Consumers

The Great Energy Deception
An adequate energy supply is vital to national economic and political well-being. Yet, few issues have degenerated into more ideologically driven misinformation than energy.
Figure 1:

Too many people focus on what they consider desirable and how the world should be, rather than taking the world as it is. As such, they ignore the gap between what is theoretically possible in their most perfect of worlds and what is practical at a given time.
This is one reason governments continually fail to make any significant difference when it comes to the world’s energy mix. It is also why the recent legislative push toward alternative fuels, including renewable biofuels, such as ethanol, is likely to fail.
The nation needs to diversify its energy supply so it is less reliant on any one energy provider. But it is unacceptable for political leaders, various interest groups and the media, in holding the others accountable, to ignore the economic and logistical problems in pursuit of unachievable goals such as “Energy Independence” or a “Fossil Fuel-less” society. More than lip service needs to be given to the huge costs to make the changes proposed and the miniscule odds of achieving such expansive ends no matter how much is spent.
Energy policy needs to be more than wishful thinking. Yet that is exactly what it has been for more than thirty years as policy makers fail to fully understand the inherent advantages of fossil fuels over alternatives and what is required to replace them.
Fossil Fuels Past, Present, Future?
Fossil fuels currently meet about 86 percent of the world’s energy needs. And this has not changed over time. (See Figure 2).
Figure 2:

Thirty years ago, when worldwide energy demand was 60 percent of current levels, fossil fuels were the source of nearly 90 percent of the world’s energy supply. Today, the Energy Information Administration of the U.S. Department of Energy forecasts that this is not likely to change in the future, with 86.5 percent of the total energy mix coming from fossil fuels in 2030 despite – or perhaps because of – an expected increase in total energy demand of 62 percent by then.
All of this is despite programs going back 30 years that have subsidized alternative forms of energy at substantial costs to U.S. taxpayers. Why is it so difficult? One first must consider fossil fuels advantages.
Fossil Fuels’ Advantages
“We hold these truths to be self-evident, that all men are created equal,” reads the beginning of the Declaration of Independence. Unfortunately, for those wistfully seeking “Energy Independence,” or more precisely “Fossil Fuel Independence,” all potential fuels are not created equal. Fossil fuels have distinct advantages as far as being a source for energy over their counterparts.
One advantage is abundance. Coal is America’s most abundant energy resource, with supplies capable of meeting electricity needs for more than 250 years. And despite current high prices for oil, it is not likely to run out any time soon. Geopolitical factors, including production quotas among major oil exporting countries and supply bottlenecks in major importing countries, have fed recent price increases.
This abundance produces a second advantage – price. Ethanol, for example, continues to cost significantly more than gasoline on an energy equivalent basis despite a 52-cent a gallon tax credit for its production. Coal is still half as costly as nuclear for electricity generation. Wind and solar are too intermittent to serve as base-load power generators, and cost two to five times as much per kilowatt hour of electricity generation when reliability is factored in.
Fossil fuels, in particular natural gas and oil, have enormous versatility, as figure 3 illustrates. Byproducts from fossil fuels not only help defray their costs as a fuel but make fossil fuels essential to a wide variety of industries. Only biofuels can provide similar byproducts.
Figure 3:

But another factor in the inequality of fuels is that they are not easily interchangeable.
Energy Interchangeability vs. Inflexibility
Fossil fuels such as oil, natural gas and coals can be used interchangeably, although with lesser levels of efficiency depending on the use. Coal is best used for electricity production as it is cheapest. But it can be pulverized to produce a natural gas to heat homes and through liquefication can, in a pinch, provide motor fuel for vehicles whose engines are modified to use it. Natural gas can be fired up to heat a home or a boiler for electricity. It can be reformed from a gas into a liquid through a well-known conversion process to fuel motor vehicles. Oil can be distilled into gasoline for transportation or burned directly to produce electricity (although virtually none is used to produce electricity since coal and natural gas are a lot cheaper.).
Alternative fuels such as solar, wind, geothermal and nuclear can provide electricity, in most cases at considerably higher costs, but they cannot provide liquid fuels for transportation. Their use for transportation would require motor vehicles equipped with battery packs that tend to increase costs. And to replace current motor fuels with electricity would require a substantial boost in electricity production, for which the lowest cost and most easily built plants would use coal and natural gas.
It is precisely because of these reasons that many lawmakers and groups interested in achieving Energy Independence with reduced fossil fuel use are backing the use of so-called biofuels, such as ethanol, for transportation.
But in pursuing biofuels, proponents are ignoring many shortcomings that make them inadequate and even potentially economically and environmentally hazardous if used as anything more than a supplement to existing gasoline stocks.
Biofuels: You Have to Know Their Limitations
Current production of ethanol comes 90% from corn and 10% from grain sorghum, barley, wheat, cheese whey and potatoes. Corn is a low cost source of starch that can be converted to sugar and fermented and distilled into alcohol.
The ethanol it provides now acts as a replacement for MTBE, a gasoline additive from petroleum and natural gas that helps reduce certain vehicle emissions. MTBE has been abandoned to avoid groundwater contamination, only to be replaced by ethanol that siphons off groundwater for irrigation.
The blend of ethanol in gasoline amounts to 10% of the total liquid volume, giving the blend the name E10.
A single bushel of corn produces 2.7 gallons of ethanol. From September 2005 through August 2006, an estimated 1.6 billion bushels of corn were used to produce 4.3 billion gallons of ethanol.
In the same year, motorists used about 140 billion gallons of gasoline.
In all, U.S. farmers produce just over 11 billion bushels of corn. If the U.S. turned all of its corn into ethanol, it would only supply 27.6 billion gallons, about 20 percent of the gasoline motorists consume (Energy Tribune, March 2007).
But there is another problem. Ethanol has a fifth less energy content than gasoline. Just a 6 percent additive to gasoline requires 9.3 billion gallons of ethanol, or about a third of the total corn crop.
So what’s the answer? Proponents point to ethanol from biowastes or energy crops such as switchgrass, so-called cellulosic ethanol, as offering promise in the future. Only as key studies show, “technologies to convert cellulose to ethanol at competitive costs seem distant” (Yacobucci, 2006). “The enzyme that will convert these plants to starch, and thus ethanol, has yet to be discovered” (Herbst, 2007).
The other bioenergy product, biodiesel, also offers promise as a replacement for diesel fuel. However, in the United States, as with corn ethanol, biodiesel comes from a primary food and feed crop, soy beans, or from recycled cooking oil, so-called yellow grease that is already used as an animal feed additive and in soaps and detergents. Globally, an expansion of palm oil production for biodiesel is threatening tropical forests in many parts of the world (Energy Tribune, March 2007).
Meanwhile, the current expansion of corn-based ethanol production has led to projections for “consumer prices for red meats, poultry, and eggs (to) exceed the general inflation rate in 2008-10 as the livestock sector adjusts to higher feed costs. … As a result, overall retail food prices (are expected to) rise faster than the general inflation rate in those years” (USDA, February 2007).
Bioenergy fuels under current standards, thus, threaten both our water and food supplies, and risk raising prices substantially for both, something that most proponents are ignoring.
The Pitfalls of Proposed Legislation
The previous remarks are offered as background to reveal the merits or flaws in proposed legislation related to a renewable fuels standard (RFS), and ethanol.
Legislation pertaining to liquid fuels for transportation targets 22 billion gallons per year, an amount capable of replacing 25% of gasoline at the current consumption rate. Actually, “approximately 4.0 billion gallons of ethanol fuel were consumed in the United States in 2005, mainly blended into E10 gasohol (a blend of 10% ethanol and 90% gasoline). … Under the RFS legislation, gasoline will be required to contain 7.5 billion gallons of renewable fuel annually by 2012. It is expected that most of this requirement will be met with ethanol” (Yacobucci, 2006). The total corn crop would have to be approximately doubled to produce the ultimate target amount of 36 billion gallons ethanol of in 2022, and it is doubtful that there is sufficient farm land and groundwater to grow so much corn.
The costs for ethanol are not only being passed on to consumers, as noted above, but to taxpayers. “In total, subsidies provided for liquid biofuels currently fall somewhere within the range of $5.1-$6.8 billion for ethanol, and $0.4-$0.5 billion for biodiesel. Because the bulk of subsidies are tied to output and output is increasing at double-digit rates of growth, the cost of these programs will continue to climb. High levels of legislative activity, especially at the state level, compounds the problem with new exemptions, purchase mandates, and subsidies appearing every month. … Per unit of energy produced, the subsidies generated by policies supporting liquid biofuels are higher than those going to most other fuels-on a thermal-equivalent basis (per MMBtu) with their petroleum-product equivalents, in the neighborhood of $1.05 to $1.38 per gallon for ethanol and $1.54 to $1.96 for biodiesel. Subsidies as a share of market price were above 40 percent as of mid-2006, and will rise as gasoline and diesel prices fall. Such high rates of subsidization might be considered reasonable if the industry was new, and ethanol and biodiesel were being made on a small-scale, experimental basis using advanced technologies. But that is not the case: they are being produced using mature technologies that, notwithstanding progressive improvements, have been around for decades” (Koplow, 2006).
Incredibly, still more aggressive legislation targets greenhouse gas emissions in transportation fuels. Biofuels emit carbon dioxide, but, only if they are produced using only energy from biofuels, they take about the same amount of carbon dioxide out of the atmosphere as they emit. The key question for biofuels is whether they can be produced without jeopardizing food or water supplies, and the answer is clearly no.
Until there is a cost effective alternative to corn, ethanol production should be limited to that required as a gasoline additive. From whatever source, ethanol requires an alternative transport infrastructure that is not required by GTL or CTL, both of which can share use of existing pipelines used for diesel or gasoline. It is doubtful that proposed legislation for a dedicated ethanol pipeline infrastructure can be justified for the amount of ethanol envisioned in the RFS legislation.
The proposed biofuels legislation is ideologically tainted and totally misplaced. It rests upon wishful thinking about mainstream energy realities such as the public’s and the economy’s need for adequate and affordable supplies of energy.
References
Brent D. Yacobucci, “Fuel Ethanol: Background and Public Policy Issues,” Congressional Research Service Report for Connotgress, updated October 19, 2006, pp. 5-6, at http://fpc.state.gov/documents/organization/76323.pdf
Herbst, Moira. “Ethanol: Too Much Hype-and Corn,” Business Week 1 February 2007,
http://www.businessweek.com/debateroom/archives/2007/02/ethanol_too_muc.html
Koplow, Doug. “Biofuels-At What Cost?” International Institute for Sustainable Development, October 2006, pp. 56-61, at
www.globalsubsidies.org/IMG/pdf/biofuels_subsidies_us.pdf
U.S. Department of Agriculture, Agricultural Projections to 2016, February 2007, at
www.ers.usda.gov/publications/oce071/oce20071.pdf
Prof. Christine Ehlig-Economides
Texas A&M University, Member national Academy of Engineering
Prof. Michael J. Economides
University of Houston
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