The consumer deserves the whole truth on corn ethanol

Billy DeFrain’s outrageously inaccurate press release on behalf of the Nebraska Ethanol Board released June 10 is just another example of the corn-lobby-governmental disinformation campaign regarding the consumer costs of ethanol-diluted gasoline.

The corn ethanol advocates argue that the two most important points in favor of corn ethanol production are (1) energy independence and (2) fuel switching. Supply and demand microeconomics tell us that adding a new energy supply should reduce prices consumers pay at the pump. A look at the facts reveals something else.

First, it is imperative to understand that if we use corn to produce ethanol, less of it is available to feed the animals that we like to eat which increases pork, beef and chicken prices. Consumers do not win, farmers and ethanol producers do. While that may play in some parts of mid-America, it doesn’t reduce consumer cost, net. And net is what matters to those of us who buy food for our families and gasoline to get them.

Second, the North Carolina Cooperative Extension Service periodical AG-687, hardly the bastion of “big oil”, states, “A gallon of ethanol does not contain as much energy as a gallon of gasoline.” This means that ethanol is not as energy productive as unleaded gasoline (76,000 BTUs per gallon versus 114,000 BTUs).

According to Mr.DeFrain, public information officer for the Nebraska Ethanol Board, in the aforementioned press release, June 10, “If all the fuel sold in Nebraska in the past five years was E-85, Nebraskans would have saved $2.6 billion.” This outrageous, fantasy proclamation, flies in the face of scientific fact: E-85 causes a noticeable drop in fuel economy, meaning that the consumer’s vehicles must use more of it to travel the same distance than when burning 100% unleaded gasoline. The North Carolina Cooperative Extension Service estimates this drop to be in the 20-30% range, “depending upon the vehicle make and model.” Again, this is the result of the fact that E-85 contains 28% less energy than a gallon of regular gasoline.

A comparison of unleaded gasoline versus E-85 fuel economy values for all flex-fueled vehicles can be found at: http://www.fueleconomy.gov/. Check my argument out for yourself. I suspect that you will find the data enlightening.

In conclusion, our economy is suffering because too many of us trusted what we were told about mortgages for our homes from the vested interests who financially benefited from the hype and the government officials, at all levels, touting “affordable housing for all.” Now, the Nebraska Corn Ethanol Board and others would have us believe that corn ethanol will provide affordable energy for all. I, for one, will not be fooled twice!!!

The (Long) Road to Copenhagen

All negotiations begin with some positioning at the outset as parties try to gain early leverage to ultimately get as much of what they want as possible. There is positioning and then there is absurdity, which is the only word to describe China’s opening position in the run-up to Copenhagen where a new international climate treaty will be negotiated in December.

China believes “developed” countries should reduce emissions by 40 percent from 1990 levels by 2020. As for “developing” countries, they would be allowed to balance efforts to combat climate change with the need to develop. On top of that, China thinks “developed” countries should fork over 0.5 to 1 percent of their annual gross domestic product to help other nations cope with global warming and reduce greenhouse gas emissions.

First, let’s realistically deal with the idea of “developed” and “developing” countries. China is not Ethiopia. They are flush with cash and buying major foreign assets like oil and mining companies around the globe. They have accumulated over $1.5 trillion in U.S. currency reserves. This is not your father’s “developing” country.

Testimony before the Senate Foreign Relations Committee on June 4 makes it clear that not including China will render any international agreement meaningless because it won’t make a dent in global greenhouse gas emissions. These two snippets of testimony say it all.

“In 2006, China added 90 gigawatts of coal fired power capacity—enough to emit over 500 million tons of CO2 per year for 40 years; by comparison, the European Union’s entire Kyoto reduction commitment is 300 million tons of CO2.”

- Elizabeth Economy, Director for Asia Studies, Council on Foreign Relations

“[T]he current pace of migration of about 15 million people per year moving into cities is likely to continue for another 15-20 years. The resulting requirements for new power generation, building construction, transportation, education, health services, etc., means that, effectively, China has to build urban infrastructure and create urban jobs for a new, relatively poor city of 1.25 million people every month, and that will likely continue for the better part of the next two decades.”

- Kenneth Lieberthal, Visiting Fellow in Foreign Policy, Brookings Institution

I hope the Obama Administration does not appease China and holds a firm line in making sure everyone is accountable for making emission reductions. Otherwise, Copenhagen will simply be Kyoto II.

Prediction--No Climate Bill in 2009: Blame Game Obscures Lessons

It may be premature to predict the demise of federal climate legislation for the year, but I’ll take the risk and do so anyway: the overwhelmingly Democratic Congress will not pass climate legislation this year. This prediction seems to fly in the face of President Obama’s desires, words of congressional leaders, the deceptive “progress” in the U.S. House of Representatives, and candidly, my personal desires.

This makes the blame game for the defeat the next big thing.

Obviously, the Democratic leaders will blame Republicans, business interests who didn’t agree with them, and conservative anti-climate naysayers. Some of this will be accurately placed, but most will simply be political blame game trash-talk. Unfortunately, this blame game and political posturing will obscure the real reasons of the failure and the lessons that could be learned that would result in a bill in 2010 or more likely 2011.

Real reason #1 of congressional failure on climate is that the President’s driving motivation for pursuing climate legislation is to raise revenue. His secondary motive appears to appease his environmental constituencies. The next motivation seems to be to have something, (anything?) for when the world’s climate negotiators meet in Copenhagen in December. Achieving significant GHGs in a low cost way is a distant fourth. These mixed up priorities doomed climate legislation from the beginning.

Real reason #2 of congressional failure on climate is that dealing with GHGs if done wrong can be very, very, very expensive. And, wrong and expensive is how the U.S. House bill seems to be going. Thus, while some banks may be too big to fail, some legislation is too big to not fail. It tries too much, too quickly at too great an expense.

Real reason #3 of congressional failure on climate is that GHGs are a global problem that requires a global solution. An international solution is needed before national solutions will be environmentally effective. Just as it is unwise for a single state or region to unilaterally address their GHGs, no nation (even one as big as the USA) can tackle this issue by itself.

Real reason #4 of congressional failure on climate is that successfully tackling the issue is very, very hard and needs the Congress’ undivided attention. And, that’s just not happening. Besides energy and climate issues, the President is asking the Congress to deal with health care, banking, education, the closing of Gitmo, budget bills, and of course, the nomination of Judge Sotomayer to the Supreme Court. These issues will distract the Congress, preventing it from focusing on the climate.

Real reason #4 of congressional failure on climate is that there are just too many substantive and political balances that need to be achieved. For example, Congressmen Peterson and Walz have already expressed their concerns with the House climate bill because of how it treats ethanol and agriculture. Then there are the balances between the House and Senate.

These are the real reasons that there will be no climate bill this year. Political gamesmanship and special interests may exacerbate these fissures, but they do not cause them. And, there are some lessons to be learned from them:

Lesson #1. The climate bill has to be about reducing GHGs in the easiest, cheapest manner. It cannot be about revenue-raising, appeasing constituents, or “punishing” emitters.

Lesson #2. The Congress should consider taking a deliberative and iterative approach to GHG reductions. First, promote more efficiency; then increase the use of renewables. Third, set a reduction goal; and then building upon these actions take the time to develop the lowest cost, simplest ways to achieve that reduction goal.

Lesson #3. Instead of rushing (and failing) to put together Potemkin climate legislation in advance of the Copenhagen meetings, our national leaders should focus on getting an effective international agreement that includes all the countries of the world. Once that is done, the USA will know what it needs to do and know that other countries will be doing what is necessary.

Lesson #4. If President Obama and the Congress need to recognize that they cannot and ought not do everything at once. They need to set priorities.

I could be wrong. The Congress could still pass climate legislation this year. In which taking credit (instead of blame) becomes the main game. But I doubt it.

Supporters of Corn-Ethanol Reeling...

When it comes to the core of environmentalism, there are no sacred cows. After years of support for corn ethanol, many environmentalists have "turned tail" on the corn farmers over land-use impacts.

Supporters of corn-based ethanol are reeling in response to federal climate change legislation that will punish carbon emitters, including the agriculture industry. They worry that policies like cap and trade and low carbon fuel will destroy their tenuous, taxpayer-subsidized market and lead to the corn ethanol industry being permanently put out to pasture. Most scientific data suggest they are well justified in their concerns... There are many outstanding, credible, scientific studies of the benefits of cellulosic ethanol over corn ethanol.

Here are a few more high-quality scientific studies:

http://www.sciencemag.org/cgi/content/abstract/319/5867/1238

Originally published in Science Express on 7 February 2008 Science 29 February 2008: Vol. 319. no. 5867, pp. 1238 - 1240 DOI: 10.1126/science.1151861 Reports Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change Timothy Searchinger, 1* Ralph Heimlich, 2 R. A. Houghton, 3 Fengxia Dong, 4 Amani Elobeid, 4 Jacinto Fabiosa, 4 Simla Tokgoz, 4 Dermot Hayes, 4 Tun-Hsiang Yu 4

Most prior studies have found that substituting biofuels for gasoline will reduce greenhouse gases because biofuels sequester carbon through the growth of the feedstock. These analyses have failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert forest and grassland to new cropland to replace the grain (or cropland) diverted to biofuels. By using a worldwide agricultural model to estimate emissions from land-use change, we found that corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50%. This result raises concerns about large biofuel mandates and highlights the value of using waste products.

1 Woodrow Wilson School, Princeton University, Princeton, NJ 08544, USA. German Marshall Fund of the United States, Washington, DC 20009, USA. Georgetown Environmental Law and Policy Institute, Washington, DC 20001, USA.2 Agricultural Conservation Economics, Laurel, MD 20723, USA.3 Woods Hole Research Center, Falmouth, MA 02540–1644, USA.4 Center for Agricultural and Rural Development, Iowa State University, Ames, IA 50011, USA.

Corn-Based Ethanol Flunks Key Test
http://www.sciencemag.org/cgi/reprint/324/5927/587.pdf

Biofuel Researchers Prepare To Reap a New Harvest
http://www.sciencemag.org/cgi/reprint/315/5818/1488.pdf

Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change
http://www.sciencemag.org/cgi/reprint/319/5867/1238.pdf

On a macro level, the genesis of this government subsidy and preferential treatment program is but one of multi-thousands of examples of how government interference in the private market place has externalities rarely thought through at the time of group-euphoria and enactment. Regardless of what the lead California and Massachusetts politicians and their following say, cap and trade will have huge financial impacts on consumers and producers.

Your thoughtful, reasoned reactions are always welcome.

Three MGA Surprises and the Achilles Heel

A couple weeks ago the Midwestern Greenhouse Gas Reduction Accord Advisory Group wrapped up its face-to-face meetings and submitted their cap and trade final draft design recommendations to the governors.

Candidly, this wrap-up surprised me in three ways. My first surprise was that they reached an agreement at all. It was only several months ago that I blogged that I didn’t think agreement was possible…so not only was I surprised but I was wrong. The Advisory Group did reach agreement. Five things forged this agreement: 1) creative compromises; 2) papering over differences of opinions by not forcing advisory group members to vote on the package or any of its sub-issues; 3) good facilitation; 4) belief from group members that “something should or will be done” about GHGs; and 5) most importantly, nearly everyone’s explicit understanding that the recommendations were more conceptual than a concrete implementation plan since their primary purpose was to influence the ongoing federal discussions.

My second surprise is that the agreement is not nearly as bad as it could have been. In fact, it offers some useful ideas, including:
1) More realistic GHGs reduction goals and timetables;
2) 90% of credits allocated to electric generators and 95% to industrial emitters at only a modest fee, with the fee and auction percentage phased in over the next 18 years;
3) Important cost containment mechanisms such as credit banking, early action crediting, and a mechanism to address credit price extremes and volatility; and
4) Use of carbon credit offsets.

These are very significant improvements over what the group had been discussing.

The very, very poor treatment of transportation fuels is my third surprise and a major disappointment. First, the Advisory Group recommends inclusion of transportation fuels under the cap despite evidence from their own modeling results showing such inclusion will do little to reduce greenhouse gas emissions.

The Advisory Group further recommends that the point where transportation fuels will be regulated under the cap program is “where the fuels enter the market in the participating jurisdictions; generally at the terminal rack, final blender, or distributor.” The problem with using this as the point-of-regulation is that nearly all of the greenhouse gas emissions from transportation fuels occur when the fuel is combusted in the consumers’ cars and trucks, not at the terminal rack, final blender, or distributor. Thus, and perhaps more to the point, the operator of the terminal rack, final blender, or distributor has no way to reduce the fuel’s greenhouse gas emissions, other than to reduce the amount sold. This means either fuel gets rationed or the cost of buying the emissions credits is directly passed through to consumers with no reduction in emissions.

But the unkindest cut is that the Advisory Group recommends that those who it deems responsible for greenhouse gas emissions from transportation fuels must obtain emission credits for 100% of their emissions through an auction. As I just mentioned, this is very different from how the group deals with the electricity sector.

Treating transportation fuels like this is unfair, unreasonable and inappropriate and worse will not reduce greenhouse gas emissions while increasing the costs to consumers. For example, economic analysis provided to the Advisory Group by their facilitators concludes that “the price of gasoline and diesel are expected to increase by 9 and 10 cents per gallon, respectively, for each $10 per metric ton of CO2e increase in the carbon price, assuming 100 percent cost pass through.” (See page 13 of Insights from Prior Climate Policy Modeling Analyses, dated May 4, 2009.) Such cost increases for little or no gain cannot be what the Governors want and should be rejected. It is the recommendations’ Achilles heel.

The "Money" in Cap and Trade

I apologize, in advance, for being so stuck on "the money" generated by the favored solution to greenhouse gas amelioration---cap and trade. But being both a curmudgeon and having a strong intellectual proclivity against what the sheep think, climate change legislation will generate "green jobs." The problem is the majority of those jobs will be on Wall Street in the next bogus derivative market---carbon credits. Not only will this "solution" create many more public financial problems than the bogus housing finance scheme the market invented in the 1990s, but it will not reduce greenhouse gases.

If, and this is a big "IF", the House passes the Waxman-Markey cap and trade bill and the Senate passes something and they are able to reconcile their differences in conference committee, I predict that there will be so many free credits to favored industries (to get the votes), that the end result will be lots of rich investors (big corporations, a plethora of Congress-people, environmentalists, and of course, Wall Street). What a collection of characters! It inspires fear and reasons for Americans to strongly oppose cap and trade.

Did I mention that since the petroleum industry is not a favored industry, look for higher and higher gas prices at the pump! That is certain to help Minnesota families, generally, during this terrible recession and the recreation market in greater Minnesota more specifically. Have a great summer (sarcasm added)!

POINT CARBON
Carbon market doubled in 2008: World Bank http://www.pointcarbon.com/news/1.1126224
Published: 27 May 2009 10:26 CET
"The value of the carbon market doubled in 2008 to $126 billion (€86bn), the World Bank said.
The total volume of trade rose 61 percent to 4.8 billion tonnes of carbon dioxide equivalent (CO2e), compared to 3.0 billion tonnes in 2007, a report by the bank revealed today."

With near unanimity, United States Supreme Court strikes down government’s attempt to broaden CERCLA liability

Generally speaking, an entity who “arrange[s] for disposal” of a hazardous substance at a contaminated facility can be held liable for cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). It has long been understood that this provision clearly (a) covers an entity who enters into a transaction to solely discard a used and no longer useful hazardous substance, and (b) does not cover an entity who enters into a transaction solely to sell a new and useful hazardous substance that may later be disposed of by a third party. But in a recent case, EPA argued that Shell Oil should be subject to “arranger” liability for its sale of a hazardous chemical to a distributor because Shell had knowledge of leaking and spilling during the transaction, which EPA argued fell within the statutory definition of “disposal.”

In what seems like a rare showing of consensus these days at the Supreme Court, an 8-justice majority in Burlington Northern & Santa Fe Ry. Co. v. United States rejected this broad reading as beyond the bounds of the statutory language (the decision also addresses the named railroads were properly held to be joint and several liability; the Court ruled they were not). Specifically, the Court, applying an ordinary meaning of “arrange for,” ruled that there can be no liability as an “arrange[r] for disposal” unless it was the entity’s intent that the transaction involve, at least in part, the disposal (spilling and leaking in this case) of the substance. Thus, while Shell was aware that leaks and spills occurred when its chemicals were being transferred from the common carrier to the buyer, more was needed to impose “arranger” liability under CERCLA.

In contrast to a finding of intent, Shell encouraged the distributor to reduce spills by providing safety manuals, offering a discount for improvements in safety procedures, and requiring inspections by engineers. Although minor spills continued to incur, the Court held that such evidence showed that Shell intended to reduce spills and not intended for them to occur. Without that conscious desire that the useful substance be spilled or leaked during transport, it was beyond the common understanding of “arrange for disposal” to impose liability on Shell.

In reality, the Supreme Court’s decision is remarkable only for its common sense. The decision is based on a straightforward, ordinary understanding of what it means to arrange to dispose of a product. Of course, intent is still a subjective determination that is fact intensive. But at least we now know that if you, like Shell, take active steps to avoid spilling and leaking of a substance you are trying to sell, you are not arranging for disposal of the very chemical you are selling.


Submitted by Michael J. Mergens and Julie Nagorski

Michael J. Mergens is an attorney at Larkin Hoffman Daly & Lindgren in Minneapolis. His practice includes a broad range of real estate matters, such as environmental permitting and litigation, land use approvals and disputes, and general real estate disputes. He has devoted much of his practice to the regulation of greenhouse gas emissions, which has begun to arise in the environmental permitting processes of various state and federal regulatory bodies. He also tracks the potential for regulations under the Clean Air Act.

Julie Nagorski is an associate attorney at Larkin Hoffman and practices in the areas of real estate and land use law. In her practice, Julie combines knowledge of the related disciplines of land use and real estate with expertise in litigation, dispute resolution, and appellate advocacy.