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By Robert Rapier on Jan 29, 2013 with 23 responses

Why I Don’t Ride a Unicorn to Work

The Unicorn Analogy

unicornThere is a reason I don’t ride a unicorn to work.

It isn’t because it’s too far to work. Nor is it because it rains here in Hawaii nearly every day and I might get wet. It isn’t because the powerful automobile lobby has convinced me that driving a car to work is a better option for me. No, it’s a bit more fundamental than that.

I don’t ride a unicorn to work because unicorns don’t exist.

But imagine the following scenario. A number of companies claim that they are developing unicorns, and in 3 years they will be commercially available. The government thinks “Hey, this is a great idea. It would be a more environmentally friendly method of transport. Let’s force automakers to start selling these unicorns in 3 years. We will base our projections on how many unicorns these unicorn companies say they will produce. After that we will increase the number the automakers must sell in each subsequent year, and then force the automakers to pay up if they don’t meet these quotas.”

The automakers naturally cry foul and point out that the unicorn industry is hypothetical, and that there is no evidence that they can deliver on their claims. In response, the unicorn companies say “Of course the automakers would say that. They are afraid that we are going to put them out of business.” The government agrees and starts giving taxpayer money to the unicorn companies in order to turn the hypothetical into reality. The unicorn companies start hiring people and issuing press releases indicating just how awesome they are going to be.

Now imagine that the unicorn companies fail to produce the unicorns, and instead of waiving the unicorn mandate the Environmental Protection Agency (EPA), which was charged with implementing the mandates, merely reduces the number of unicorns that the automakers must sell. The unicorn companies that over-promised get a free pass on their inflated claims, while the automakers are still penalized for not selling enough non-existent unicorns.

Cellulosic Ethanol Mandate

Consumers are at least scientifically literate enough to recognize the absurdity of this scenario. Even if they hate the auto industry, they understand that since unicorns don’t exist it would be unfair to punish the auto industry for not selling them. But replace the auto industry in this scenario with the oil industry, and unicorns with cellulosic ethanol — and this is an accurate description of what the EPA did.

I explained this situation in a 2011 column — Cellulosic Ethanol Targets: Mandating the Nonexistent. In 2007 Congress expanded the Renewable Fuel Standard (RFS) to include cellulosic ethanol. They mandated that starting in 2010 gasoline blenders must put increasing volumes of cellulosic ethanol into the fuel supply. The EPA was charged with implementing the RFS, and they based the mandated volumes on what potential cellulosic ethanol producers claimed they would be able to produce. Producers had incentives to overstate their claims in order to drive more financial support toward their industry.

But if producers failed to deliver on their overstated claims, it wasn’t the producers who would be punished for their failure to deliver. As in the unicorn/auto industry example, the gasoline blenders were fined for failing to sell fuel which wasn’t commercially available because producers didn’t deliver on their claims.

Burden of Responsibility

For example, in 2010 the EPA was counting on 100 million gallons of cellulosic fuels based on claims primarily from two companies: Range Fuels and Cello Energy. They then assumed that this industry — which didn’t exist when the mandate was put in place — would rapidly grow. The EPA tallied up the various claims from people like Vinod Khosla — the outspoken backer of Range Fuels and an investor in Cello Energy — and they put some aggressive mandates in place. The first three years of the mandates, starting in 2010, required oil companies to blend 100 million, 250 million, and then 500 million gallons of cellulosic ethanol into the fuel supply.

In 2010, both Range Fuels and Cello failed to delivery any cellulosic ethanol, nor did they ever produce any qualifying cellulosic ethanol. Qualifying production for 2010 and 2011 was zero gallons across the cellulosic ethanol “industry” (Source). In 2012 the first qualifying batch of cellulosic ethanol was produced — 20,069 gallons by Blue Sugars Corporation. The ethanol was produced in April 2012, and no more was produced for the rest of the year.

Thus, in the first three years of the cellulosic ethanol mandate, the percentage of qualifying fuel that was produced was 0%, 0%, and finally 0.004% in 2012 of the originally mandated volumes.

The EPA did roll back the mandated volumes as the cellulosic industry failed to materialize. They subsequently reduced the 2010 mandate to 6.5 million gallons — but still required gasoline blenders to go buy this fuel that didn’t commercially exist.

The American Petroleum Institute (API) thought it somewhat unfair that gasoline blenders would be fined for the failure on the part of producers, so they sued. Last week, the United States Court of Appeals for the District of Columbia agreed, stating that the EPA’s quotas were based on wishful thinking.

API responded to the decision:

“We are glad the court has put a stop to EPA’s pattern of setting impossible mandates for a biofuel that does not even exist,” said API Group Downstream Director Bob Greco. “This absurd mandate acts as a stealth tax on gasoline with no environmental benefit that could have ultimately burdened consumers.”

The Clean Air Act requires EPA to determine the mandated volume of cellulosic biofuels each year at “the projected volume available.” There was no commercial supply of the fuel in 2012, according to EPA’s own records. EPA’s mandate would have required refiners and importers of gasoline and diesel to pay over $8 million for credits to cover the 2012 mandate of 8.65 million gallons of the nonexistent biofuels. The court said that EPA is not allowed “to let its aspirations for a self-fulfilling prophecy divert it from a neutral methodology.” The court also pointed out the fundamental flaw with the overall biofuel mandates when it summarized this part of the program as, “[d]o a good job, cellulosic fuel producers. If you fail, we’ll fine your customers.”

API favors an approach in which mandated volumes for future years are tied to production volumes in the current year.

As I noted in my 2011 article, those who advocated for these inflated volumes are the ones who should be held accountable for failure to deliver. If there are credits to be bought, then the various ethanol lobbies — who thought this was a swell idea — can put up the money when companies fail to deliver.

In any case, the courts have now agreed with me that requiring gasoline blenders to blend cellulosic ethanol makes about as much sense as requiring automakers to sell unicorns.

Link to Original Article: Why I Don’t Ride a Unicorn to Work

By Robert Rapier

  1. By Ed_Reid on January 29, 2013 at 9:37 am

    The “Deep Pockets Theory” rides again!

    Had the cellulosic ethanol “industry” been required to pay the penalties, we would very likely have had three more “green industry” bankruptcies. That, certainly, would not have been an acceptable result.

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  2. By Marlowe Johnson on January 29, 2013 at 12:48 pm

    ‘unicorns don’t exist’

    au contraire mon frere. they’re just fat and grey. around here we call them rhinos :)

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    • By Robert Rapier on January 29, 2013 at 1:02 pm

      There would be an entirely different set of reasons that I don’t ride a rhino to work. But how awesome would that be? LOL.

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      • By Tom G. on January 30, 2013 at 11:37 am

        Very well written piece Robert. Would have made an excellent weekly video. Speaking of weekly videos; are you still looking for questions?

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        • By Robert Rapier on January 31, 2013 at 2:26 pm

          Hi Tom,

          We are in the process of upgrading the videos into something that is a bit more professional than me sitting in my office answering questions. We will still be taking questions, and hope to be doing the new videos soon.

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    • By Edward Kerr on January 30, 2013 at 11:40 am

      Good to see a little humor injected into what isn’t a very funny situation. I’m not sure what the EPA protects but it certainly isn’t the environment. If it weren’t so perverse it would be funny.

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  3. By Takchess on January 29, 2013 at 3:49 pm

    That’s why CAFE Standards are so awesome. It let’s you roll your own gas saving technology.

    Regards,
    Jim

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    • By Ed_Reid on January 29, 2013 at 5:59 pm

      Yeah, man. I’m gonna ride my Segway to work on the freeway between two Peterbilts. Awesome, man! That is gonna be soooo groovy.

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      • By Takchess on January 30, 2013 at 4:25 am

        Ed you can but a car at 100 Mpge might be a better choice

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        • By Ed_Reid on January 30, 2013 at 8:41 am

          Ah, the cockamamie Mpge unit rears its ugly head. ;-)

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          • By Tom G. on January 30, 2013 at 11:31 am

            Hey Ed – let’s car pool, I mean Segway pool. I thought your comment was really funny and a good way to start the day.

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            • By Ed_Reid on January 30, 2013 at 5:29 pm

              Thank you. I try. Sometimes I am more trying than others. :-)

              I envision the Segway with an umbrella and a surround curtain as the commuter vehicle of the threatened future.

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  4. By MrColdWaterOfRealityMan on January 30, 2013 at 10:21 am

    This is what happens when lawyers run a country instead of engineers. How far do you think this idea would get in a Chinese legislature (http://singularityhub.com/2011/05/17/eight-out-of-chinas-top-nine-government-officials-are-scientists/)? Is it any wonder that they’re beating the crap out of the USA economically?

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    • By Elias Hinckley on January 30, 2013 at 5:18 pm

      Not sure I’d want to hand over policy making entirely to the engineers – with that said some balance might not be a bad idea.

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  5. By TimC on January 30, 2013 at 11:14 am

    The RFA’s statement on the DC Court ruling claimed that the EPA’s volume targets were not inflated, rather the EPA “set the volume based on the best information available to it at the time.”

    Sorry RFA, but there was lots of solid information available in 2007 and earlier indicating that Range, Cello et al were not likely to produce the volumes that they were promising. The EPA chose to ignore that information, because it didn’t fit their rosy scanario for the bio-economy rollout.

    I’m afraid that the EPA is likely to use the same due diligence, based on the same “best information available,” in setting future mandates.

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  6. By Sam Geckler on January 31, 2013 at 12:04 pm

    Robert, Are we going to see the movie “Who killed the Unicorn?”

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    • By Robert Rapier on January 31, 2013 at 2:27 pm

      I would never do that. I am just biding my time and waiting for government funds to become available, and then I will start building my unicorn factory. So it’s not dead; just in need of more funding.

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  7. By Bob Neufeld on January 31, 2013 at 4:02 pm

    Without relieving EPA of any responsibility, the law requiring the cellulosic and other renewable fuel mandates was passed by Congress, not EPA, at the 11th hour — in December of 2007, just 3 or 4 months ahead of the 2008 presidential election year Iowa caucuses. Was this timing merely coincidental or a pure political pander to corn? EPA personnel, however, are to be truly faulted for using (some would say abusing) their official authority to impose personal biases on the petroleum industry and its consumers, i.e., all of us. The Court of Appeals’ opinion is full of criticism for EPA’s lack of objectivity in setting the cellulosic volume mandate. I believe EPA displayed a severe lack of professionalism. An old saw instructs, “If wishes were horses, beggars would ride.” Well, this law is truly more wish than horse. Congressmen and Senators certainly can hope the laws of physics and of supply and demand will fall into line with their wishes, but they sometimes surpass arrogance when that hope is codified into law. All too often, the wished-for horse never materializes. Passing a law will not make things appear out of thin air no matter how fervent the wish.

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    • By Ed_Reid on February 1, 2013 at 9:49 am

      “Oh ye of little faith.” How could you possibly suggest that our congresscritters could not amend any law they choose, whether of physics, economics, or even God. ;-)

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      • By Bob Neufeld on February 1, 2013 at 12:44 pm

        It appears I am destined to be burned at the stake as a heretic before the alter of government omnipotence. Perhaps, I can seek a law to make me impervious to flame, but I am not counting on it as Congress will likely have an unshakeable belief in the legislation’s effectiveness and, thus, decline to help this sinner. :)

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  8. By lifematters on February 1, 2013 at 8:37 am

    Pharaoh says: Make your bricks without straw!
    Today I believe they just “re”-doubled the ethanol mandate for the year – and AFTER the ruling. Retaliation appears to be a theme with this EPA.

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  9. By Russ Finley on February 2, 2013 at 11:12 am

    Unicorn ads now showing up in the side bar …there is no hope.

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    • By Robert Rapier on February 2, 2013 at 12:35 pm

      I am sorry, but that made me laugh. I block ads so I never even know when something is popping up unless someone calls it to my attention.

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