Common Tragedies

Thoughts on Environmental Economics

One Step Forward, Two Steps Back

Posted by jab12004 on May 5, 2009

Today was a curious day in biofuels land, where it seems that the corn ethanol industry both lost and won on the same day.  Here’s some background and what happened.
The Energy Independence and Security Act of 2007 stipulated that 15 billion gallons of conventional biofuels must be produced in 2015 under the Renewable Fuel Standards.  These 15 billion gallons need to have 20 percent less lifecycle emissions than gasoline, as judged by the EPA.  When the bill was written, the conventional biofuel was assumed to be corn ethanol.  However, a proposed ruling released today shocked many people by declaring that currently corn ethanol was only 16% better.
Much of this low estimate results from indirect land use statistics.  These account for previously uncultivated land being brought into production to produce biofuels (or displaced food).  This is a good development since these effects have the potential to be sizeable.
This could be a giant thwack on the head for the already ailing biofuels industry.  If strictly enforced, this means that all current corn ethanol production does not satisfy the 10.5 billion gallon ethanol requirement for 2009.  However, a statement from Lisa Jackson, the EPA administrator, illustrates how this will most likely play out
“There are things that could be done to make corn-based ethanol more sustainable” (http://www.eenews.net/Greenwire/2009/05/05/2 sub required)
Basically, the ethanol industry just needs to clean up their act…a little bit.  This most likely can be accomplished by using more sustainable land management (conservation tillage techniques) or switching to cleaner fuels (natural gas instead of coal) for the distillation process.
If the corn ethanol industry is able to clean up its act (and I would bet my corn futures on them being able to without much work) then this ruling might actually be of little consequence.    The flip side of the coin is that ruling also included a nice juicy carrot to the ethanol industry.  The new “Biofuels Interagency Working Group” will provide around billion for ethanol companies with difficulties.
So in the end, it seems that a potential attack on the corn ethanol industry might just end up as a way to hand them a fat wad of cash.  This isn’t how Environmental Capital sees it, in their post   Out of LUC: Team Obama Prepares Ethanol Smackdown. [http://blogs.wsj.com/environmentalcapital/2009/05/05/out-of-luc-team-obama-prepares-ethanol-smackdown/]  I agree with what they are saying about how this highlights how dependent the ethanol industry is on the government.  However, at the end of the day, today’s biofuels news seems more like a stealthy way to provide a handout.

Today was a curious day in biofuels land.  It seems that the corn ethanol industry both lost and won on the same day, potentially coming out on top.  Here’s some background and what happened.

The Energy Independence and Security Act of 2007 stipulates that 15 billion gallons of conventional biofuels must be produced in 2015 under the Renewable Fuel Standards.  These 15 billion gallons need to have 20 percent less lifecycle emissions than gasoline, as judged by the EPA.  When the bill was written, the conventional biofuel was assumed to be corn ethanol.  However, a proposed ruling released today shocked many people by declaring that currently corn ethanol was only 16% better.

Much of this low estimate results from indirect land use statistics.  These account for previously uncultivated land being brought into production to produce biofuels (or displaced food).  This land, when left unused serves as a carbon sink which releases a sizable amount of carbon when cultivated.

This could be a giant thwack on the head for the already ailing biofuels industry.  If strictly enforced, this means that all current corn ethanol production does not satisfy the 10.5 billion gallon ethanol requirement for 2009.  However, a statement from Lisa Jackson, the EPA administrator, illustrates how this will most likely play out

“There are things that could be done to make corn-based ethanol more sustainable” (sub required)

Basically, the ethanol industry just needs to clean up their act…a little bit.  My guess is that this can be accomplished by using more sustainable land management (conservation tillage techniques) or switching to cleaner fuels (natural gas instead of coal) for the distillation process.

If the corn ethanol industry is able to clean up its act (and I would bet my corn futures on them being able to without too much work) then this ruling might actually be of little consequence.    The flip side of the coin is that Obama included a nice juicy carrot to the ethanol industry.  The new “Biofuels Interagency Working Group” will provide around $1.8 billion for ethanol companies.

So in the end, it seems that a potential attack on the corn ethanol industry might just end up as a way to hand them a fat wad of cash.   Environmental Capital takes a different perspective it in their post   Out of LUC: Team Obama Prepares Ethanol Smackdown.  I agree with what they are saying about how this highlights how dependent the ethanol industry is on the government.  However, at the end of the day, today’s biofuels news seems more like a stealthy way to provide a handout than a smackdown.

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