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The Biofuel Boondoggle Continues

On Friday, a court struck down a production quota for an advanced biofuel. Cellulosic biofuel is produced by breaking down plant matter, and has gotten a lot of hype lately: it passes every green test, can be harvested from marginal land, and has relatively high yields. Some see it as a potential replacement for corn-based biofuel, which has come under fire recently for being both inefficient and bad for the environment. But to-date, there has been almost no commercial production of the second-generation biofuel, despite EPA quotas mandating the production of 20 million gallons since 2010. The New York Times has more:

…[P]roduction of the “cellulosic” fuel, made from woody material, has been slow to start up, making it virtually impossible to come by. That has presented the refiners, the ones required to buy the cellulosic fuel, with a quandary.

From 2010 through 2012, the E.P.A. has required gradually higher levels of cellulosic fuel to be incorporated into motor fuel each year, for a total of 20 million gallons to date.

But actual production has been near zero…

It is intended to force an industry to develop new technology to meet environmental goals, but in this case, the regulated industry was the refiner, not the producer, the court said.

“Apart from their role as captive consumers, the refiners are in no position to ensure, or even contribute to, growth in the cellulosic biofuel industry,” the judges wrote.

The greens made two big policy mistakes here. First, they chose the wrong enforcement mechanism. As the court said, regulating refiners while ignoring producers effectively punished customers for their inability to buy nonexistent fuels while letting producers off the hook for their own failure to produce.

Second, they set the quota too high, blind to the reality that the infrastructure for this nascent industry simply isn’t there yet. Wishful thinking won’t develop green technology, and it carries an opportunity cost: The time, effort and political capital used to push this ill-conceived quota system through could have gone towards research and development.

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