The 7 Flying Reindeer: Renewable Fuel Myths that continue to defy gravity

December 22, 2015 |

BD-TS-122315-7Myths-cover-smFood vs Fuel, biofuels causing corn planting to skyrocket, low oil prices killing off renewable fuels, the subsidy myth, the emissions myth, the “people won’t buy the fuels” myth, and the RINsanity myth.

Ahem, here’s the hard data.

It’s Christmas Week, and somewhere around the world this Thursday night some skeptical 9-year old is going to install out a set of cameras and microphones all over the house, aiming to discover if a fat man in a red suit can really climb down a chimney. Who really eats the cookies and milk left for Santa and the carrots left for flying reindeer? In the morning, he or she will present the hard data to an irritated set of parents.

The parents will explain that “it’s not that seeing is believing, believing is seeing,” and that the absence of hard data doesn’t prove anything about Santa Claus. They’ll add, at the end of the day, what matters about a society is not the cruel truths with which we must contend, but our cherished beliefs. And then, out comes the egg nog.

But not all beliefs are created equal, and some beliefs are better off less cherished. For example, the cherished belief that Adam Sandler will one day make better movies, or that the children of the world will one day prefer broccoli to Cheetos, or that it doesn’t rain as much in Seattle as people think.

In the world of renewable fuels, there are 7 widely held societal beliefs that have no more grounding in hard data than the Official NORAD tracking of Santa Claus’ annual journey. And, they are considerably less enchanting.  Like the fruitcake and the re-gifted gift that hang around and despoil the holiday season — they deserve the dustbin of history. But, like the enchanting story of Rudolph and his flying reindeer pals, they just go on and on.

So, let’s dump them off Santa’s Sleigh.

Myth #1. Biofuels cause corn planting to skyrocket to historic levels.

We see this one a lot. Most recently, a report out of the University of Vermont that correlates a drop in wild bee populations with habitat destruction caused by “the expansion of corn for ethanol”.

US corn plantings are up, no doubt about it. In fact, since the mid-1980s, when ethanol first appeared om the horizon, they’re up 5%.

Whoops. 5%. Surely that’s a typo? ‘Fraid not. In fact, overall US grain acreage is down substantially from its historical highs. And in the case of the wild bees, it’s cultivated grain acreage that we need to look at, not just one crop, as bees would be just as affected, wouldn’t they, by a massive expansion of barley if it destroyed habitat, right?)

Here’s the hard data. US grain production hit its peak, at 185 million acres, in 1932-33. One of the reasons that the farm sector went into a tremendous downward price spiral that year. Today, US grain acreage is down to 103 million acres. almost 45% off the historic high.

Corn itself? 1932-33 was the high, 113 million acres. Today? 88 million, or 22% off the historic high.

Here’s a chart to illustrate (on the left axis, US planting in millions of acres):

grain-plantings US

Myth #2. Renewable fuels are heavily subsidized.

Myth. Ethanol only makes money for its producers because they get a whole bunch of money from RINs — renewable fuel credits — and that’s a hidden form of subsidy.

Reality? Actually, ethanol producers don’t see a dime from RINs. When ethanol is sold by a producer, the customer receives a free RIN with each gallon.  If RINs have any price at all, it’s only because of a demand for them in lieu of renewable fuels production. So, they are a penalty applied to the production of gasoline or fossil diesel. Were no one to produce fossil fuels, RINs would have no value. A penalty on one behavior is not a subsidy for another. For example, a fine for stock fraud is not a subsidy paid to ethical stock traders.

There are real reasons that RINs have value. Gasoline marketers are smart advertisers and they have successfully sparked demand for ethanol-free gasoline, which they sell for roughly 20 cents more per gallon than E10. For that reason, they can easily afford to pay $1.00 for a RIN to avoid blending gasoline. You see how that works? They pay the $1.00 for the RIN, create 10 gallons of ethanol-free gasoline (remember, that ethanol was blended at 10%, so a one-gallon RIN goes a long ways), and they sell those 10 gallons of ethanol-free gasoline for $0.20 extra each, or a $2 premium. More on gasoline and ethanol prices at the pump, here.

Myth #3. People only buy renewable fuels if they have to.

Reality. This year, Propel Fuels reported a 15X jump in per-outlet sales of renewable fuel for diesel engines, based on a 3X increase in gallons sold of its new Diesel HPR fuel and 5X increase in renewable content for Diesel HPR (100% renewable content, vs the 20 percent renewable content in B20 biodiesel, which Propel formerly sold).

Screen Shot 2015-12-22 at 5.38.00 PM

With the news, Propel is expanding distribution to Southern California, adding 13 new locations in Los Angeles/Orange County (Fullerton, Harbor City, La Mirada, Lakewood, Norwalk, Torrance and Wilmington), San Diego (Chula Vista and Kearny Mesa), and the Inland Empire (Arcadia, Claremont, Hemet and Ontario). Propel debuted Diesel HPR at 18 locations in Northern California in March.

Diesel HPR is a low-carbon, renewable diesel fuel that meets petroleum diesel specifications and can be used in any diesel engine. Utilizing Neste’s (neste.us) NEXBTL renewable diesel, Diesel HPR is designated as ASTM D-975, the standard for all ultra-low sulfur diesel fuel in the U.S., and is recognized as “CARB diesel” by the California Air Resources Board even though it contains no petroleum.

What’s the secret? It’s the price. The US Energy Information Administration is reporting an average retail diesel price of $2.96 in the state of California, for the week of August 10. The average retail price for Propel Fuels Diesel HPR, for 12 of its new locations in Southern California is $2.55 per gallon (Propel’s Torrance location is reporting a $3.89 per gallon price, a real outlier).

By the way, Propel’s 100-octane E85 is averaging $3.07 per gallon in Southern California, compared to $3.56 for 87-octane regular and $3.81 for 91-octane premium — a discount of 14 percent to regular and 19 percent to premium, not a compelling discount given the fuel economy differential.

Screen Shot 2015-12-22 at 5.38.09 PM

Myth #4. Low oil prices will kill off renewable fuels.

Reality? Oil prices have crashed, no doubt about it. From a high around $100 a barrel 2 years ago to around $40 today. Gasoline prices have come down considerably, though not quite as much. The theory goes, low gasoline prices will make it impossible for renewable fuels to compete.

Well, first of all, let’s refer ourselves to that Propel Fuels hard data. Not that the 15% jump in renewable fuels demand is in 2015, right in the middle of this price fall.

But let’s think about the drivers at a macro level. At $100 oil, all kinds of enhanced oil recovery technologies look very profitable, and that’s where the money goes. The dry-up of renewable fuels financing in 2009-2014 was right during a period of high oil prices, and that’s why. In fact, renewable fuels technologies were broadly repurposing towards fossil souyrces of carbon — Primus Green Energy and Coskata switched to fossil natgas as a feedstock, though neither ended up building a commercial-scale plant.

What happens with $40 oil? All those competing technologies start to fall away. Yet, the carbon, energy security and rural development benefits of renewable fuels are still there, and they are still reflected in the economics of the Renewable Fuel Standards and California’s Low Carbon Fuel Standard. At a time when low fuel prices are sparking rapid increases in fuel demand (gasoline was up 4% this year), renewables fill a niche and have the carbon pricing to help offset low oil prices, which fracking does not have.

At $10 oil, only the Kingdom of Saudi Arabia and ISIS could make money selling fossil fuels, but renewables would do well — carbon pricing mechanisms like the Cellulosic Waiver Credit would soar in value as the price of gasoline dropped. Leaving renewables in a great position.

One thing, though. Renewable chemicals, which are not protected under the Renewable Fuel Standard — they really do suffer when oil prices drop. Which to some extent answers the question from several years ago: Why make a $2 fuel when you can make a $5 chemical? Answer, you make the $2 fuel because the chemical could easily fall to 50 cents.

Myth #5. Spiking RIN prices will spike the cost of fuel.

Reality? At the Center for Agricultural and Rural Development, Bruce Babcock and Sebastien Pouliot write:

We find two direct effects of a binding ethanol mandate. The first is an increase in the wholesale price of gasoline because positive RIN prices increase the cost of producing gasoline. The second is a decrease in the ethanol price paid by blenders net of the RIN value. The net price of ethanol will decrease to induce consumers to consume enough ethanol to meet the mandate.

Because most US consumers buy E10, the lower price of ethanol in the blend offsets at least some portion of the increased gasoline price. In addition to these two direct effects on the price of E10, there exists an indirect effect that works to lower E10 prices.

To meet mandates beyond E10 requires an increase in E85 consumption, which results in a decrease in E10 consumption because some owners of flex vehicles switch fuels. The effect of substituting E85 for E10 is a net decrease in gasoline demand, which results in some reduction in wholesale gasoline prices. Whether the net effect of these three market forces results in a net increase or decrease in E10 pump prices requires the development of an economic model to sort out.

We developed and calibrated such a model with the purpose of showing how feasible increases in ethanol blending mandates will affect the price of E10 under a range of possible conditions. We find that feasible increases in the ethanol mandate in 2014 will cause a small decline in the price of E10. That is, even though increased mandates increase gasoline prices, the offsetting effects from a decline in ethanol price and movement by motorists to E85 from E10 are enough to result in a net decrease in the price of E10.

Myth #6. Food vs fuel.

The world’s poorest people are starving to death, and a great deal of blame should be placed on the conversion of corn starch into ethanol, instead of food products.

Reality? As these charts from the FAO demonstrate, people around the world aren’t getting fewer calories, they’re getting more and more. You might not know it, but the average caloric intake in the poorest region of the world, Sub-Saharan Africa, is higher now in 2015 than the average global daily intake of calories in 1965, fifty years ago.

global calorie intake

Globally, the availability of food calorie intake, per capita, is up more than 20% globally and more than 30% in the developing world, compared to 50 years ago.

developing world calorie sources

Specific to corn starch, it’s also worth pointing out that the developing world derives only about 10% of its calories from “other cereals” a catch all category excluding rice and wheat and including corn starch, sorghum and barley.

The world, generally speaking, is not suffering from a food availability crisis, but a food distribution crisis — and we would be well advised a a society in search of healthier lifestyles to “lay off” some of the carbs anyway — eat less sugars and starches and more veggies.

global-calorie-distribution

Myth #7. Corn starch ethanol creates more net carbon emissions than gasoline.

Reality. Not so, and beware of outdates or skewed studies on this topic, they’re everywhere. Even the initial 2008 assessment by the California Air Resources Board showed that any midwestern corn starch plant could deliver 10% reductions compared to baseline RBOB gasoline.

According to a white paper released this week:

“Since 2008, innovation in energy use and conversion technology at ethanol production facilities, innovation in enhanced efficiency fertilizers and in corn production management, and improved accuracy of GHG modeling assumptions have reduced current corn ethanol fuel CI by more than 50%.”

corn-starch-ethanol-lifecycle
The white paper adds that:

“Argonne National Laboratory, Agricultural Scientists, Environmental Scientists, and Ethanol Production Companies have documented significant reductions in corn ethanol fuel CI since 2008. ANL Scientists recently determined (GREET version 2.0, 2013) that average ethanol mfg. energy use has decreased 25%, corn farming energy use decreased 24%, corn fertilizer and chemical use decreased by 3%, and that ethanol manufactures are extracting 3% more ethanol from each bushel of corn.

“ANL affiliated scientists have also updated their Land Use Change calculations (Dunn et al. 2013)1 with recent data and now estimate that soil carbon emissions from LUC are 7.6 grams CI, a 75% reduction from the widely used estimate of 30 grams CI.”

One reason for the confusion over emissions? The white paper contends:

“Low carbon fuel market regulators, such as the U.S. EPA and the California Air Resource Board (CARB) have yet to acknowledge these improvements and update their models with this new science. Because fossil fuel CI is trending higher and corn ethanol fuel CI is trending lower, failure to account for and acknowledge these trends erodes public support for biofuels and unfairly penalizes biofuels in low carbon fuel markets.”

The white paper can be downloaded here.

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