Cellulosic Ethanol and Unicorns

The 2007 energy bill vastly increased the volume of corn ethanol that must be blended into gasoline, though it also included mandates for cellulosic ethanol. These are the second-generation fuels made from stocks like switchgrass or the wood chips that George W. Bush invoked in his 2006 State of the Union. At the time, no such fuels were being produced on a commercial scale, but cellulosic producers and the green lobby assured Congress they were just about to turn the corner, and both the Bush and Obama Administration furnished handsome subsidies.

The EPA set the 2011 standard at six million gallons. Reality hasn’t cooperated. Zero gallons have been produced in the last six months and the corner isn’t visible over the next six months either. The EPA has only approved a single plant to sell the stuff, operated by Range Fuels near Soperton, Georgia. The company used to be a press corps favorite and has been lauded by the last two Presidents, but it shut down its cellulosic operations earlier this year to work through technical snafus.

In its wisdom, Congress decided that some companies should be penalized if the targets aren’t met. But they’re not the companies that importuned the government for mandates and corporate welfare. They’re the U.S. oil refiners that make gasoline, which will end up buying six million cellulosic waivers by year’s end at $1.13 a pop. That’s $6.78 million in higher costs at the pump, in return for nothing.

That might not be much in the scheme of things, though late last month the EPA proposed a 2012 mandate that will fall somewhere between 3.55 million and 15.7 million gallons. Barring a miracle, cellulosic producers won’t hit even the lower end, refiners and the driving public will continue to pay for the mistake, and the mandate will continue to ratchet up annually. Perhaps the EPA can also find someone to tax for the lack of unicorns.