February 23, 2010

Cornell Profs Say EPA Uses Flawed Fuel Standard

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Although the U.S. Environmental Protection Agency states that it aims to protect human health and the environment, Profs. Harry de Gorter and David Just, applied economics and management, say the agency may not be living up to its mission. According to de Gorter and Just, the EPA’s latest announcement about corn-based ethanol includes a “flawed” emission reduction standard that fails to take into account other sources of pollution.

On Feb. 3, the EPA announced that corn-based ethanol, a biofuel used predominantly in the U.S., reduces greenhouse gases by 21 percent when compared to gasoline. Even when international indirect land use change is included, the difference meets the minimum 20 percent reduction required by a law enacted in 2007. This announcement was part of the EPA Renewable Fuel Standard Program, which will be used to qualify ethanol for government subsidies and minimum fuel blend requirements, according to a Feb. 10 University press release.

However, in their article, “The Social Costs and Benefits of Biofuels: The Intersection of Environmental, Energy, and Agricultural Policy,” de Gorter and Just assert that the Environmental Protection Agency’s gas emissions reduction standard for corn-based ethanol is “illogical, ineffective, impossible to measure, inconsistent, illegal under the WTO and ignores more important issues.”

This standard is flawed for two main reasons, according to de Gorter. First, he explained, the estimated life-cycle savings in emissions from a gallon of ethanol assumes ethanol replaces an energy equivalent gallon of gasoline.

This gallon-for-gallon estimate is inaccurate, they argue, because it incorrectly assumes that the addition of one gallon of ethanol means that one gallon of gasoline disappears. In fact, de Gorter explained, “Fuel prices decline as a result of more fuel on the market due to the supply of ethanol. Total fuel consumption increases, representing displacement of gasoline.”

“Some gas that would have been used in the U.S. is now shipped to China and used in more inefficient cars and produces more pollution,” Just said. “For every mile of ethanol that we put into the market in the U.S., about half of that pollution shows up elsewhere in the economy where the gas is substituted somewhere else.”

Just and de Gorter also found that the EPA emissions reduction standard for US corn-ethanol is ineffective because existing production facilities and those under construction are not required to meet the standard. Therefore, the use of corn-ethanol continues to produce significant pollution.

“New ethanol production facilities will use ‘clean’ inputs like natural gas while allowing other industries to use the ‘dirty’ inputs like coal: the standard simply encourages the ‘shuffling’ of inputs between industries,” de Gorter stated in an email.

The standard is also illegal according to the WTO because it is based on the “arbitrary” 20 percent calculation rather than sound economic principles.

Moreover, political concerns such as reducing dependence on oil, improving the environment and increasing agricultural incomes motivate U.S. biofuel policy, according to the article.

“We are protectionist in the way we go about ethanol,” Just said. “Brazil is a major producer of sugarcane-based ethanol and it emits less carbon dioxide per miles of travel. They produce it cheaper [than the US produces ethanol] so we could be importing this stuff at lower costs, but we’ve set up tariffs to prevent that from happening.”

“With some real protectionism,” he added, “we’ve got to question our motives.”

The economists also criticize the corn-ethanol subsidy and mandate program — which subsidizes ethanol and mandates its consumption — because it increases the global fuel supply and supports oil consumption.

Although these policies may look “appealing,” they actually represent “the conflict of a whole bunch of interests,” Just said. These interests include “environmental lobbies that may not completely understand what they’re pushing for, a constituency that may not have a full understanding of what the policies do, and the farm lobby that likes the subsidies to the corn sector.”

“Their heart may be in the right place, but the policies don’t work well together,” Just added.

Is there a biofuel policy that makes more sense?

De Gorter and Just’s article concludes that directly taxing carbon dioxide emissions would be more beneficial. Invoking comedian Stephen Colbert, the article states, “The ultimate sacrifice is sacrificing the idea of sacrifice itself.”

The authors explain that directly taxing carbon dioxide would represent a sacrifice in productivity. The increase in carbon dioxide levels coupled with the inefficiencies of renewable energy policies represents a sacrifice that is ultimately more harmful than a carbon tax.

However, Just said, “if [the gas tax] is off the table because it’s not politically feasible, and we have this mandate, let’s leave it alone without a tax credit.”

Just and de Gorter’s article will be published in the inaugural March 2010 issue of the peer-reviewed journal Applied Economics Perspectives and Policy.

Original Author: Elizabeth Krevsky