Delusional Thinking

I read a story this morning on California’s new low-carbon fuel standard, and there were some bits in there that either amount to delusional thinking, or worse to purposely misleading people:

California’s low-carbon fuel standard has oil companies anxious

Here are the bits that raised my eyebrows:

The petroleum industry and some economists say the new standard adopted by the state Air Resources Board on Thursday will cost motorists billions, because blending gasoline will become considerably more complicated.

But state officials and environmentalists say the “low-carbon fuel standard” will actually save Californians money by reducing oil consumption and ushering in a competitive new era of biofuels and electric vehicles.

A big problem, she [Dorothy Rothrock] said, is that the air board’s standards will limit the use of corn-based ethanol in gasoline – leaving refiners with a major hurdle.

Yet the Air Resources Board, in approving the low carbon standard Thursday, dismissed forecasts of higher costs. The board’s staff contends that when the standard is fully operational, in 2020, Californians will save about $11 billion a year.

“It’s the reduction in the use of petroleum,” said board spokesman Dimitri Stanich.

We could argue about whether the new standard is a good idea, but that’s not the purpose of this essay. What should be beyond dispute is that it will cost consumers more money. It may in fact reduce oil consumption and usher “in a competitive new era of biofuels and electric vehicles.” But it will do so not by mandating new technology that is magically more cost-effective than the status quo, but instead by making fuel more expensive.

Where are gasoline blenders supposed to get these low carbon fuels, given that corn ethanol has been declared taboo with the new standards? Why, it’s the old reliable ethanol from switchgrass:

Refiners and entrepreneurs will have plenty of time – and economic incentive – to make inexpensive biofuels, hydrogen-based fuels, even ethanol from such “cellulosic” materials as switchgrass.

Plenty of time? They have until 2020 before the rules are fully phased in. And economic incentive? How does that work, given that the new rules are supposed to save consumers money? Where does the incentive come from, if not higher prices for the new, ‘low carbon’ biofuels?

Of course I knew that we have been trying to commercialize cellulosic ethanol for decades, but Robert Bryce recently pointed out that this was in fact known technology as far back as 1921:

Consider this claim: “From our cellulose waste products on the farm such as straw, corn-stalks, corn cobs and all similar sorts of material we throw away, we can get, by present known methods, enough alcohol to run our automotive equipment in the United States.”

That sounds like something you’ve heard recently, right? Well, fasten your seatbelt because that claim was made way back in 1921. That’s when American inventor Thomas Midgley proclaimed the wonders of cellulosic ethanol to the Society of Automotive Engineers in Indianapolis. And while Midgley was excited about the prospect of cellulosic ethanol, he admitted that there was a significant hurdle to his concept: producing the fuel would cost about $2 per gallon. That’s about $20 per gallon in current money.

So, what we have failed to achieve in the past 90 years will be easily achieved in the next 10? Keep in mind that we knew how to convert switchgrass into ethanol not long after the Wright Brothers made their first flight. Since that time, airline travel has become a major commercial enterprise, and we have even managed to put a man on the moon. Cellulosic ethanol still toils away in the lab or at very small scale demonstration plants. The reasons are fundamental, and even if commercialization occurs, it will only be very marginally commercial for those fundamental reasons. And we all know what happens to marginally commercial ventures in the cyclical energy business: Volatility wipes them out.

Having said that, there are some possible bright spots in the new standard. Corn ethanol producers will have a strong incentive to reduce fossil fuel inputs to improve their greenhouse gas score. Sugarcane ethanol production in the U.S. will now have more attractive economics (it gets a better score than corn ethanol with the new standard). But the reason for both is that these fuels will now command a premium, as gasoline blenders search for something to replace corn ethanol. Costs will absolutely, positively go up. Not that there is anything wrong with that, as I think higher costs will lead to some of the intended benefits. But let’s not lie to people about the costs.

16 thoughts on “Delusional Thinking”

  1. If the Cal Air Resources Board is correct that their new regulations will produce savings, then the new regulations are unnecessary. Normal economics will lead companies & consumers to do whatever the regulations demand (and more) to save money.

    But we will wait in vain for CARB to repeal their new regulation — which makes the point that they know it really raises costs to the consumer, and are lying about it. Maybe Californians should get angry about their paid servants lying to them?

    It is worth remembering that Enron prospered by gaming the very complex system that California lawyers set up for electric supply. Some of the major oil companies have no problems with CARB's new regulation. Will history repeat itself — once again at the expense of the poor California consumer?

  2. The oil producers don’t like it because they have to use ethanol.

    The ethanol producers are all in a “tizzy” because they can’t use as much nat gas, and coal in their operations.

    Everybody’s mad.

    Maybe, it’s an OK reg.

  3. “…Where are gasoline blenders supposed to get these low carbon fuels…”Good question. Here is one possibility. I realize that you have discussed this potential before.

    And have you seen this study yet where the researchers say that corn ethanol is close to reaching the hypothetical performance of cellulosic biofuels?

    By far the most efficient and cost effective way to reduce GHG is to reduce liquid fuel use, which can be accomplished in a number of ways, including higher mileage vehicles and natural gas vehicles. Our garbage and recycling trucks run on natural gas here in Seattle.

    Efficiency means you don’t subsidize blenders, farmers, build bio-refineries. You also don’t pay for fuel you don’t use.

    It seems to me that this supply side goal of replacing fossil fuels with plant based fuels is a dead end strategy and California is just building a house of cards on top of a house of cards.

  4. “The oil producers don’t like it because they have to use ethanol.”

    No, that’s not it. They already had to use ethanol. What the new standard says is that they have to meet the standard, but can’t use as much corn ethanol. They are mandating fuels that don’t currently exist in commercial quantities. It ties the hands of the refiners, which is why they aren’t happy.


  5. I’m winging it on numbers here, so I will definitely be off a bit; but, isn’t the immediate goal that they will have to use somewhere around 1.5 billion gallons of “approved” ethanol in 2011, or 2012?

    If I’m in the right ballpark, then I don’t think it will be all that hard to do. California ethanol qualifies. That will be in the neighborhood of 350 Million gallons.

    That leaves 1.2, or so, to come from “qualified” sources. I assume that a refinery like Poet’s Chancellors, Ia refinery (it uses wood waste, and landfill gas for process heat) would qualify.

    If, say, Valero was to modify all of their new refineries to use biomass, either from ag/forestry waste, or thin stillage, plus some DDGS that would just about do the trick.

    I’ve got a hunch the market will adapt.

  6. This is hopeless.
    You want consumers and businesses to use less gasoline? Tax it.
    No rules, no government agencies, etc. A simple tax.
    Cleaner air? Then tax cars at time of sale, by how much pollution they produce, and tax gasoline.
    Eventually, people will switch to low pollution, high mpg cars.
    Next problem.

  7. “California ethanol qualifies. That will be in the neighborhood of 350 Million gallons.”

    Why does California ethanol qualify? Shipping corn to California to convert to ethanol will definitely have a worse carbon footprint than producing the ethanol in Iowa and shipping the finished product.

    Also, you presume there will be any ethanol plants there. Pacific Ethanol is on the brink of bankruptcy.


  8. Politicians just are not all that bright. Look what happened with the zero emissions mandate which spawned the “Who Killed the electric Car” documentary.

    Battery technology just wasn’t ready for a cost effective car (still isn’t). Consumers would not pay $40K for a two seat lead sled.

    They changed the law. They will do it again. Same thing will happen at the federal level as blending walls hit and no cost effective alternative to corn ethanol exists.

    The problem with fuel mandates is that the consumer doesn’t get into the act. I can’t buy fuel that does not have ethanol in it. How is the market going to find solutions without consumers in the loop?

    It may all be a huge waste of time and money as the market brings on unanticipated solutions that may make the fuel mandates obsolete and unnecessary …money under the bridge.

  9. I don’t know. I just got the opinion, somewhere, that California refiners were, somehow, going to be ok. I could be wrong.

    Pacific? Someone will buy them out. Chevron?

  10. They changed the law. They will do it again.That hits the nail squarely on the head. This is why our energy policy is so dysfunctional. It takes years to do a project, but politicians are changing the laws every year or so. This makes it very difficult for energy companies to plan long term.

    In this particular case, sugar producers might fare well under the low-carbon standard. But are you going to risk putting in an ethanol plant when they could decide they made a mistake and rolled the law back? A sugar producer who had just invested $200 million into an ethanol plant would see the value of that investment plummet.

    This is why Alaska doesn’t have a gas pipeline. It is why the wind industry has struggled at times. Give a credit, take it away. Oops, let’s give it back. New administration comes in and says take it away. When you are trying to plan projects that take 5 years or more, it becomes very difficult to do project economics.


  11. You got it, Robert. Can democracy survive complexity? Not as presently organized I’m afraid.

    What we need is public internet debate complete with comment fields for every piece of legislation. This would create a public record and help hold accountable those politicians who screw up.

    The debates that rage across the internet after the fact should have happened before the fact as part of the legislative process. Our politicians can’t handle the complexity.

    The internet could save us if we would just put it to use.

  12. More good thoughtful stuff on perhaps the key motor fuel issue of all time. Of course, it’s not just California. Many other states are watching the LCFS. Northeastern states (NESCAUM) are also likely to collaborate on a regional LCFS, and so are most of the states in the upper Midwest (Midwest Gov. Assoc.). And a national LCFS is part of at least some of the energy bills in our clueless Congress. So we will have to get used to LCFS – it will be everywhere very soon. At least the LCFS approach is better than the irresponsible and irrational volumetric mandates Congress keeps dreaming up. Energy policies are evolving, and maybe someday they will finally get it right. But it looks like it will be a painful path.

  13. “Our garbage and recycling trucks run on natural gas here in Seattle.”

    The City of Seattle has a budget to reduce ghg. Just big enough for a public relations campaign.

    When I talked about places where garbage is shipped long distances with high tipping fees, Seattle is one of those places. Russ’s garbage is shipped about 300 miles to another state. Very Green!!

    Here is how it works. It is called green washing. For example, Seattle does not get any electricity from coal or so they say. One of the largest coal plants in the US is just down the road for Seattle. Sure the city of Seattle no longer owns part of the plant but the coal plant is still running using as much coal as always.

    When you at policies to reduce AGW, there are two conclusions. Either these folks are not serious or they are stupid.

  14. “Either these folks are not serious or they are stupid.”
    There is a third option — they are using anthropogenic global warming as a vehicle to advance a different agenda.

    Notice that, whatever the problem du jour, the answer is always the same — Joe Public should pay more taxes, give up liberties, and do what his betters tell him to.

  15. You got it, Robert. Can democracy survive complexity? Not as presently organized I’m afraid.You may find it useful to distinguish between democracy and the American system which includes several undemocratic elements, including, but not limited to:
    1. The electoral college: a good way to keep third parties out, even those with strong popular support. Which third party is going to develop enough support in four years to win several states – the bare minimum to have its voice heard?
    2. The idiotic system of winner-takes-all in a particular state: nice way to ignore all Republican voters in CA and NY, and all Democratic voters in TX (they don’t deserve democracy, do they?). Not to mention having a couple of hundred confused retirees from FL decide the presidency…
    3. Gerrymandering (also related to #1 in that it is only feasible in a two party system): I’ll allow you to be safe, and you’ll allow me to be safe. That way no politician has to worry about the comfortable status quo getting shaken up by those pesky new-comers. See CA legislature for the ultimate application of this.

    Our politicians can’t handle the complexity.
    Nope. People get the leadership they deserve, or more precisely, the leadership they accept. Your problem is ignorant voters. There are several reasons for that: many voters are simply overworked (somebody has to earn the money that will pad the CEO’s nest egg/golden parachute), others are one issue voters (sadly abused by politicians who have no intention of acting on said issue) and others rely on the MSM for their infotainment (many overworked, and hence not interested in in-depth analysis after hours).

    Unfortunately, their is no incentive for our leaders to fix this…

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