In light of the massive oil spill in the Gulf of Mexico, there’s a rising urgency to the search for alternative fuels. Among the most prominent prospects are biofuels manufactured from renewable feedstocks. But while the first phase of substituting biofuels for gasoline has been successful, further progress will require solutions to daunting challenges.

Ethanol, the most common of the biofuels, has now replaced almost 7 percent of the country’s gasoline consumption. But nearly all of this ethanol is made from corn, which raises a couple of important concerns. The first is that the enormous new demand for corn is having an impact on world food and feed markets — tolerable so far, perhaps, but not a trend that wise public policy would push much further. Second, the process of making and consuming corn ethanol produces volumes of climate changing greenhouse gases that, per unit of energy, are not much lower than those generated

by gasoline.

Congress has worked for years to advance biofuels, with the enthusiastic support of the farm lobbies. Responding to the objections about the increasing use of corn ethanol, Congress, in the Energy Independence and Security Act (EISA) of 2007, imposed an intricate set of mandates intended to force the ethanol industry to shift to sources that would not threaten food price increases and would produce

less greenhouse gas emissions.

Under these mandates, refiners are required to blend 12.95 billion gallons of biofuel into the gasoline supply in 2010. (Current consumption of gasoline plus ethanol is running around 136 billion gallons a year.) Ethanol production is currently approaching 13 billion gallons a year. So far, so good.

But the EISA also mandates a proportion of ethanol, rising rapidly over the years, to be made from sources other than corn. That’s where the trouble arises. The mandate for 2010 originally required 950 million gallons of “advanced” renewable fuel — that is, not made from corn and resulting in much lower greenhouse emissions — of which 100 million gallons was to be, specifically, cellulosic. Production of
advanced renewables is rising, but earlier this year the U.S. Environmental Protection Agency reduced the mandate for cellulosic fuel from 100 million gallons to 6.5 million gallons because there was no way to meet the original requirement. For 2011, the statute calls for 250 million gallons of cellulosic fuel but in July, the agency proposed to lower the figure to somewhere between 5 million and 17.1 million gallons, depending on what the market appears capable of producing later in the year.

In a survey of the prospects for biofuels published last May, the U.S. Department of Agriculture’s Economic Research Service estimated that production capacity for cellulosic biofuel will rise to about 200 million gallons by 2012, although actual production will be lower because some of the plants will be experimental or demonstration facilities not designed for continuous production. The statutory mandate
for 2012 is 500 million gallons.

Congress has previously used mandates in environmental legislation to force technology forward, and the tactic has had some notable successes. But in the case of cellulosic biofuels, once seen as the solution to the threat to the food supply, the technology of large-scale production is coming along a good deal less rapidly than its proponents had hoped.

A Chicken-and-Egg Dilemma

The shift to greater reliance on biofuels is also inhibited by a separate challenge that the industry calls the “blend wall.” Ethanol is more corrosive than gasoline, and most American cars are not designed to use fuel that contains more than a small fraction of ethanol. Currently, most American gasoline contains 10 percent ethanol, as the signs on the pumps tell us.Whether our cars can handle higher percentages is a matter of some controversy and may become an issue in the months ahead. But at present, unless you have one of the small minority of flex-fuel vehicles, you will risk voiding the warranty on your car if you use fuel that is more than one-tenth ethanol.

It’s another example of the chicken-and-egg dilemmas that bedevil the shift away from fossil fuels. Until there are more flex-fuel cars on the road, refiners have no reason to produce high-ethanol fuels. And until the fuels are widely available, car buyers have little incentive to buy flex-fuel cars. Because it involves consumers’ habits and the inertia of America’s vast highway transportation system, the blend
wall may be harder to overcome than the engineering difficulties of biofuels production. To encourage the transition to biofuels, Congress has constructed over the years a substantial structure of subsidies and protection. The most important of the subsidies is a tax credit of 45 cents a gallon of ethanol blended with gasoline.

You may wonder why Congress is subsidizing a product the consumption of which it has mandated by law. That subsidy currently costs more than $5 billion a year and, if the ethanol program stays on schedule, the cost will triple over the next 12 years—a conspicuous target in a time of severe budget-cutting.

Domestic producers are also protected by a tariff of 54 cents per gallon of ethanol, plus an ad valorem tax of 2.5 percent. That’s to keep out, primarily, Brazilian ethanol made from sugarcane. It is much cheaper to produce than American corn-based ethanol, yields more power per acre of crop, and generates much less greenhouse gas emissions in the cycle of production and consumption.

And beyond the subsidy and tariff issues lie broader questions about the value of the whole ethanol program. Let’s make the optimistic assumption that, by vigorous public action such as tightening vehicle fuel standards, the United States can hold automobile fuel consumption to its present level despite growth of the population and the economy. In 2022, the mandated 36 billion gallons a year of ethanol
would represent about a quarter of automobile fuel consumption by volume. Because a gallon
of ethanol contains only two-thirds as much energy as a gallon of gasoline, it would replace about 18 percent of petroleum-based gasoline consumption compared with nearly 7 percent today.

That raises the question whether that modest reduction in oil consumption is worth the effort of adapting the highway fuel system to ethanol over the next 12 years. The larger question is whether Congress is wise to try to predict technological breakthroughs, and to steer markets toward them.

What about the tariff and the subsidy? The debate over those will come to a resolution later this year, for under present law they will expire on December 31. The case for them is weak. Energy security is improved by diversifying supply, not by economic isolationism. And the cost of the shift to ethanol is most fairly carried by the people who drive cars, not by the taxpayers.

J.W. Anderson is Resources For the Future’s journalist in residence.