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.