Fuel for Thought

posted by Josh Goodman

The most discussed provision of the new federal energy legislation, just signed by President Bush, is that vehicle fuel economy standards will go up for the first time in 32 years. I'm just as interested, however, in the law's ethanol provisions. Consider two statistics:

1) The law mandates that the United States produce 21 billion gallons of cellulosic ethanol a year by 2022.

2) Currently, rounding to the nearest billion, the U.S. produces 0 billion gallons of cellulosic ethanol a year.

For quite a while, many experts have regarded cellulosic ethanol as a preferable alternative to corn-based ethanol. Cellulosic ethanol can be made from any plant product, be it switchgrass, wood chips or waste from sugar production. As a result, cellulosic ethanol has the potential to be a much more significant fuel source than corn-based ethanol (which, obviously, can only come from land suitable for corn), without driving up food prices.

Over the past couple of years, state governments have become active in promoting cellulosic ethanol, but the scale of their efforts suggests how difficult the 21 billion gallon mandate will be to meet. When I spoke with state officials earlier this year, they were excited about subsidizing facilities that could produce 5 million gallons of cellulosic ethanol a year.

States could simply build 4,200 plants of that size and, voila, the federal mandate will be met. Currently, the nation's 134 corn-based ethanol plants can produce a little more than 7 billion gallons of fuel per year.

So, you can see why skeptics think that Congress' commitment to cellulosic ethanol is premature. However, Washington seems to have taken a lesson in regulation from Field of Dreams: If you mandate it, they will come. 

Comments

[Tim Goodman]

Hi, Josh.

I'm trying to understand how this sort of thing works. Perhaps that's common knowledge for the average Governing reader, but not for those of us who just use your website to keep tabs on our favorite Governing staff writer. (Governing.com -- the Facebook of the Goodman family)

My question is: What happens if the mandate isn't met? Someone pays a fine? And if so, who pays? Gas companies?

I tried to answer my own question by looking at the law, but it just says something like "Paragraph such-and-such of the Clean Air Act is amended to read: 'The Administrator shall revise the regulations under this paragraph to ensure that fuel sold in the U.S. contains such-and-such volume of biodiesel.'" Meaning: Congress is telling the EPA to make some unspecified regulations that would cause this much cellulostic ethanol to be produced? How much of an effect does this sort of "mandate" actually have?

[Josh Goodman]

Far from being common knowledge, I'm skeptical the authors of the legislation even know for sure how the mandate will be enforced. Here's what the Associated Press reported: "The bill does not specify who would be punished if ethanol-production mandates aren't met."
That doesn't necessarily mean that the mandate is meaningless, but rather that federal bureaucrats will probably have a good deal of say as to how cellulosic ethanol production is encouraged (the feds are already spending tens of millions of dollars to research cellulosic ethanol and will spend tens of millions more under the legislation).
It's also worth noting that the requirement has a waiver provision. So, if the mandate proves impossible to meet, the mandate will suddenly cease to exist.