Tuesday, October 6, 2009

Biofuels Update: GAO Dips Its Pinky Toe Into The Pool Of Unintended Consequences; Sen. Grassley Screams "Everybody Out!"

The Government Accounting Office released a new report on ethanol subsidies, and its fiscal findings are only surprising to those not paying attention.   Oil  & Gas Journal has the report's highlowlights:
A federal tax credit of 45¢/gal established to help the domestic ethanol industry probably won’t stimulate production beyond levels that new renewable fuels standards specify for this year unless oil prices climb significantly, the Government Accountability Office said.

The Volumetric Ethanol Excise Tax Credit also may no longer be needed to stimulate US corn-based ethanol production because the industry has matured, its processing is well understood, and its production capacity is already near the effective RFS limit of 15 billion gal/year, GAO said in a report issued on Oct. 2....
In other words, the GAO has concluded that in the current energy market, millions of dollars of taxpayer funds used to support ethanol production are being completely wasted (unless of course, you're the guy receiving that money!).  Shocking, I know.  More interesting than the fiscal findings, however, are GAO's conclusions regarding the long-term environmental impact of US biofuels production:
GAO said for agriculture, many experts believe biofuel production has contributed to crop increases as well as higher prices for livestock, poultry, and, to a lesser extent, food. “They believe that this trend may continue as the RFS expands,” it said.

“For the environment, many experts believe that increase biofuels production could impair water quality by increasing fertilizer runoff, and also reduce water availability, degrade air and soil quality, and adversely affect wildlife habitat,” the report said.

“However, the extent of these effects is uncertain and could be mitigated by such factors as improved crop yields, feedstock selection, use of conservation, and improvements in biorefinery processing,” it added.

GAO said except for greenhouse gas emissions, EPA currently is not required by law to assess environmental effects to determine which biofuels are eligible for inclusion in the RFS.

GAO said many researchers interviewed for the report suggested there is general agreement on the approach for measuring biofuels production’s direct effects on lifecycle GHG emissions but disagreement about how to estimate the indirect effects on global land use change, which EPA is required to assess in determining RFS compliance.

“In particular, researchers disagree about what nonagricultural lands will be converted to sustain world food production to replace land used to grow biofuels crops,” it said....

The report recommended that in addition to the GHG emissions analysis required under EISA, Congress may want to consider requiring the EPA administrator to develop a strategy assessing the effects of increased biofuels environment on all stages of the lifecycle (cultivation, harvest, transportation, conversion, storage, and use) and to use this assessment to determine which biofuels are eligible for consideration under the RFS. “This would ensure that all relevant environmental effects are considered concurrently with lifecycle [GHG] emissions,” GAO said.
In other words, the GAO is recognizing that biofuels production might have significant, unintended consequences that could outweigh its direct environmental benefits.  Pretty cool, huh?  Even cooler: if the EPA were to follow the GAO's recommendations, it would for the first time assess "all relevant environmental effects" of ethanol production during all stages of production and use.  That would be great news, and it's about time, considering many experts have been screaming about ethanol's environmental problems for years.

Unfortunately, the US ethanol industry and its very powerful friends in Congress are going to bury this GAO report faster than you can say "corn."  For example, here's a press release from the office of Senate Finance Ranking Member Charles Grassley (R-IA) on the GAO Report:
Senator Chuck Grassley today released the following comment after a Government Accountability Office report suggested that the ethanol production tax credit should be revisited. Grassley has long been one of the most outspoken advocates in Congress for developing domestically produced alternative, renewable energy such as ethanol. Grassley is the ranking member of the Senate Finance Committee, which has jurisdiction over federal tax policy, and one of two working family farmers in the United States Senate.

“Home-grown ethanol is the shining star in our efforts to reduce our dependence on dirty, imported fossil fuels. It would be short-sighted to shoot ourselves in the foot and end a tax credit that helps ensure that the Renewable Fuels Standard we in Congress enacted is a floor and not a ceiling for ethanol use. This tax credit helps ethanol producers increase efficiencies and production methods as they move toward the development of the next generation of biofuels. Ethanol remains relatively new, especially when you compare it to the oil industry, which has been around for 100 years and still receives extensive government support.”

Grassley, of course, is from Iowa, which has both the highest ethanol capacity and production in the country.  My not-so-bold prediction is that Senator Grassley will have plenty of company in Congress, and that most every politician from the top-producing ethanol states (see link above) will loudly protest the GAO report and its recommendations.

Ain't politics grand?

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