Oil Companies Fined for Not Buying Nonexistent Cellulosic Ethanol

By:  Michael Tennant
01/11/2012
       
Oil Companies Fined for Not Buying Nonexistent Cellulosic Ethanol

In 2007, Congress passed and President George W. Bush signed the Energy Independence and Security Act (EISA). In keeping with Bush’s 2006 State of the Union pledge to make ethanol “not just from corn but from wood chips and stalks of switch grass … practical and competitive within six years,” the law included subsidies for ethanol production and mandates for its use. By 2011, oil companies were required to blend 250 million gallons of this cellulosic ethanol into their gasoline. The mandate doubled for 2012, and by 2022 it will be 16 billion gallons.

 

In 2007, Congress passed and President George W. Bush signed the Energy Independence and Security Act (EISA). In keeping with Bush’s 2006 State of the Union pledge to make ethanol “not just from corn but from wood chips and stalks of switch grass … practical and competitive within six years,” the law included subsidies for ethanol production and mandates for its use. By 2011, oil companies were required to blend 250 million gallons of this cellulosic ethanol into their gasoline. The mandate doubled for 2012, and by 2022 it will be 16 billion gallons.

There’s just one problem: “Outside a handful of laboratories and workshops,” the New York Times reports, cellulosic ethanol “does not exist.”

This has not, however, prevented the Environmental Protection Agency from levying penalties on petroleum companies for failing to purchase this nonexistent fuel. The EPA engages in verbal sleight of hand. Instead of being fined for failing to make the agency’s pipe dreams come true, “refiners are required to purchase ‘credits’ from the EPA,” explains Brian McGraw of the Competitive Enterprise Institute. “Essentially, the EPA is requiring them to send them money in lieu of meeting the cellulosic ethanol mandate. The product they are required to use does not exist, and rather than giving them a pass, the EPA requires that they pay for phantom credits, despite not getting anything out of it.”

These fines — er, credit purchases — are, of course, passed on to consumers in the form of higher gas prices; and when gas prices go up, so do the prices of most other products.

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