The New “Mandates” On Biofuels

Two postings ago, we presented Michael Economides’ quick retort—accompanied by graphics—in response to our question about the recently signed energy bill. With a bit more time and rumination, he offered us these thoughts on the biofuel mandates portion of the energy bill. Read it here first!

In this era of energy and environment polarization if most Democrats and Republicans in Congress agree and then the President signs, it must be a nothing bill. And so the recent Energy Bill came to pass, which will cost only money and will do nothing for either energy independence or green house gases or the environment. And, in the highly unlikely case that it may come close to fulfilling its provisions, it may do a lot more harm than good.

While there are many elements of the bill that could be discussed, here I will just write about the new “mandates” on biofuels.

First, Congress mandated that by 2022, biofuels will provide a total of 36 billion gallons per year. None of these fuels can ever make any market-based sense without government subsidies. Of the total, 15 billion will come from “conventional” biofuels, read corn-based ethanol, with all the often repeated impact on food prices, ground water and contamination of surface waters. The bill suggests that the share of these fuels of the total transportation fuels should increase from about 4% in 2008 (9 out of 220 billion gallons) to about 5.7% by 2022 (15 out of 260 billion gallons.)

I am not even going to apply the multiplier of 0.7 with which ethanol gallons must be multiplied to be compared with e.g., gasoline. What is actually astonishing is that most of the remaining 21 billion gallons will have to come from “cellulosic” biofuels and there is no technology in place or in the horizon to produce them. The mandate in the bill is no different than mandating that all children born in the United States from now on should grow to be 6 ft tall, because it would be better for them as adults. Some yet unknown technology may be able to do that.

Second, let’s address the “energy independence” issue. According to the Energy Information Administration forecast before this bill was signed, by 2022, the demand for conventional transportation fuels (gasoline, diesel and jet fuel) will increase by more than 40 billion gallons from today, about twice as much as the mirage of cellulosic biofuels. America will still need to find oil supplies and if no drilling in ANWAR or offshore is allowed, importing is the only answer. So it may be that instead of importing 256 billion gallons, we will be importing 250 because of all the extra corn-based ethanol.

But then there is a third important issue and as usual, few have thought about it, China. I can understand environmentalists and ideologues ignoring this but where are the pragmatic geopoliticians?

By amazing coincidence, as the Energy Bill was signed, China’s CNPC think tank released their forecast for that country’s demand in all things energy (only until 2015, but enough for our purpose) and from there I gleaned their transportation fuel demand. Extrapolating to 2022 here is how it looks:

China’s transportation fuel demand will grow from about 60 billion today to at least, 130 billion by 2022, a 70 billion gallon increase, almost twice the US increase.

Paying all that money to produce more corn-based ethanol and even more money to chase the elusive cellulosic biofuels is not just a subsidy to special agribusiness interests in the United States. It amounts to a subsidy for China, because it will allow that emerging superpower to seek oil resources unhindered and with diminished competition from the current reigning superpower.

Oil and energy resources in general have defined national power for more than a century with both World Wars and many regional conflicts having a direct link to them. The United States is poised to relinquish a large swath of power by giving China a buy-in the world of superpower competition. Such a voluntary giveaway is unprecedented in modern history.

And with all the above, consider this fact: 21 billion gallons of biofuels that are unlikely to ever materialize are equivalent to 1.4 million barrels of oil per day, well within the most conservative estimates that the US can produce from ANWAR and a very modest increase in offshore oil leases within its own waters.

There are solutions to America’s transportation predicament, such as long-term electrification, but biofuels are not even close to being the answer.

Prof. Michael J. Economides, University of Houston and also Editor-in-Chief Energy Tribune Houston, TX