Will Congress Continue to Push Inefficient and Uneconomic Biofuels?

instituteforenergyresearch.org – With expiration of the current Farm Bill looming at the end of this year, Congress is working on a new version that will lay the groundwork for the next five years of U.S. agricultural policy.  However, those hopeful that the new measure will reflect Congress’ newfound interest in fiscal restraint will be disappointed.  Just like previous Farm Bills, the Senate version of the bill contains plenty of handouts for the ultimate agricultural special interest group: biofuel producers.

In 2005 and 2007, Congress created a guaranteed market for billions of gallons of biofuel a year. Yet despite having already provided biofuel producers with a mandate that people use their product, Congress is looking to sweeten the deal with even greater amounts of taxpayer-funded subsidies. According to the Congressional Budget Office, under the Senate version of the Farm Bill, “spending on the energy programs covered in the legislation would total $1.5 billion—an increase of $780 million over the 2013-2022 period above estimated expenses for those programs under the baseline.”  Unsurprisingly, much of this increased spending will be for programs related to biofuels, and the majority of biofuel spending would be mandatory.  This means that Congress would not have to include these amounts in the annual appropriations bills.  These programs include:

• $216 million for the Biorefinery Assistance Program, which provides grants and loans for the development of demonstration and commercial-scale bio-refineries
• $174 million for the Biomass Crop Assistance Program, which encourages producers to grow biomass crops and subsidizes a portion of their cost to transport biomass crops for processing
• $130 million for Biomass Research and Development, which will fund efforts by the Secretaries of Agriculture and Energy to coordinate policies that promote research and development for biofuels and bio-based products

Continuing these subsidies would ultimately mean millions and millions more taxpayer dollars of pure waste. After all, biofuel is not new technology. Many of the automobiles made in the 1800s ran on ethanol, and there was cellulosic ethanol production in the United States during World War I. Furthermore, the United States has vast oil resources and is in no danger of running out of oil for at least the next century.

Moreover, biofuels are simply not efficient enough to power a modern industrial economy. After all, if biofuels were efficient, they would not need subsidies and mandates to compete with other sources of energy.  But even with subsidies and mandates, such as the Renewable Fuels Standard, biomass currently provides for only 4.5 percent of U.S. energy consumption. Moreover, biofuel blends like E85 (which is 15 percent ethanol) provide about 30 percent less power than gasoline, meaning cars drive fewer miles for the same amount of fuel.

Another problem with Congress’ plan for ethanol lies in the diversion of corn crops from food to fuel.  During 2005, the year that Congress enacted the original RFS ethanol mandate, the average price of corn on the commodities market was $1.96; in 2011, it was $6.01, which is an increase of over 200 percent.  To remedy the problem of rapidly escalating corn prices, Congress created a mandate in 2007 for cellulosic ethanol—which is biofuel made from non-food sources—and required refiners to blend cellulosic ethanol in fuel. But in classic fashion, Congress created another problem in its attempts to fix the old one.  Cellulosic ethanol is inefficient and expensive, and despite the mandate to blend 250 million gallons of cellulosic ethanol last year into our fuel supply, late in the year the Energy Information Administration still couldn’t determine if any was even produced.

Even though cellulosic biofuels don’t exist commercially, refiners were fined $6.8 million by EPA last year for not using this phantom fuel. This is a perfect example of how federal policy with seemingly good intentions can go horribly wrong.  And of course, farmland used for producing cellulosic ethanol might be reallocated from food crops, which would still pose the problem of increasing food prices.

Cellulosic biofuels are a boondoggle for Americans any way you look at it, and the 2012 Farm Bill has the potential to further the charade that is subsidized and mandated ethanol.