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corn-tank

EPA delays decision on whether to reduce ethanol in gas

The federal government’s new threshold for the amount of ethanol blended into America’s gasoline supply was already 10 months overdue. So officials have gone ahead and delayed the decision further, into 2015.

The Environmental Protection Agency announced Friday that it would defer an announcement on the renewable fuel standard (RFS), which stipulates that ethanol should make up 10 percent of gasoline.

(The Des Moines Register has some of the day’s best reporting on this issue. Agriculture.com also has a good explanation of the granular details.)

The standard, first established under a 2005 law, calls for the amount of renewable fuels in gasoline to progressively increase each year. But the law was written at a time when demand for gasoline was expected to keep going up. Slackened demand around the world, combined with stepped-up U.S. production, has dropped domestic prices below $3 a gallon.

Based on that reality, the EPA recommended, in November 2013, that the amount of corn ethanol in the should be reduced, from 14.4 billion gallons a year to 13.01 billion gallons.

This upset the corn growers and ethanol producers, most of them clustered in the Midwest and Great Plains. They said the delays deterred investment in biofuels, and even the oil companies complained that the regulatory vacuum created too much uncertainty in the fuels market.

The EPA’s recommendations had not been finalized. They had been sent to the White House Office of Budget and Management for review, but that office “ran out the 90-day clock to review the agency’s proposed standards, which for the first time signaled a retreat by the EPA on the percentage of biofuels that must be blended,” The Hill reported.

Since the EPA was already so late in setting the 2014 guidelines, the agency “intends to get back on track next year, though details on how it would do that weren’t available Friday,” The Wall Street Journal wrote. The EPA statement said: “Looking forward, one of EPA’s objectives is to get back on the annual statutory timeline by addressing 2014, 2015, and 2016 standards in the next calendar year.”

The reaction among the affected parties was mixed Friday. The WSJ tries to untangle the various interests:

The debate over the biofuels mandate triggers strange bedfellows, with trade groups representing the oil and refining companies, car manufacturers, livestock and even some environmental interests all opposed to the policy for different reasons. Proponents of the standard include the corn industry, which is the most common way ethanol is produced, and producers of ethanol.

The EPA’s announcement gave cautious hope to ethanol-industry leaders that the agency will fundamentally rethink how it proposes the annual biofuels levels. The draft 2014 biofuels levels, which the agency proposed almost a year ago, were much lower than the ethanol industry lobbied for.

“I am truly pleased that they’re pulling away from a rule that was so bad,” said Bob Dinneen, president and CEO of the Renewable Fuels Association, a trade group representing biofuels companies. “But I recognize as well we have to work with the agency to try to figure out a path forward that everybody can live with.”

Executives in the oil-refining industry criticized the delay, and said it was evidence the renewable-fuel standard was itself inherently flawed and should be repealed.

“Each year is dependent upon the previous year, and to some extent dependent upon the following year,” said Charlie Drevna, president of the American Fuel & Petrochemical Manufacturers, a trade association representing the nation’s refining industry. “The problem is, every year EPA is late in getting this out, it exacerbates it. They’re never going to be able to catch up.”

 

Religion, structural changes in the oil Industry and the price of oil and gasoline

Oil barrelAmericans — in light of the decline in oil and gas prices — don’t take happy selfies just yet! Clearly, the recent movement of oil prices per barrel below $80 and the cost of gasoline at the pump below $3 a gallon lend cause for, at least strategically, repressed joy among particularly low-income consumers, many of whose budgets for holiday shopping have been expanded near 10 percent. Retail stores are expressing their commitment to the holiday by beginning Christmas sales pre-Thanksgiving. Sure, sales profits were involved in their decisions, once it appeared to them that lower gas prices were here to stay, at least for a while. But don’t be cynical; I am sure the spirit moved them to play carols as background music and to see if in-store decorations made it easier for shoppers to get by headlines of war, climate change and other negative stuff and into, well yes, a buying mood. If retail sales exceed last year’s and GNP is positively affected, it will provide testimony and reaffirm belief that God is on America and the free market’s side, or at least the side of shopping malls and maybe even downtowns. Religious conversions might be up this year…all because of lower costs of gasoline at the pump. The power of the pump!

But, holy Moses (I am ecumenical), we really haven’t been taken across the newly replenished figurative Red Sea yet. There are road signs suggesting we won’t get there, partly because of the historical and current behavior of the oil industry. Why do I say this?

If history is prologue, EIA’s recent projections related to the continued decline of oil and gasoline prices will undergo revisions relatively soon, maybe in 6 months to a year or so. I suspect they will reflect the agency’s long-held view that prices will escalate higher during this and the next decade. Tension in the Middle East, a Saudi/OPEC change of heart on keeping oil prices low, a healthier U.S. economy, continued demand from Asia (particularly China), slower U.S. oil shale well development as well as higher drilling costs and the relatively short productive life span of tight oil wells, and more rigorous state environmental as well as fracking policies, will likely generate a hike in oil and gasoline prices. Owners, who were recently motivated to buy gas-guzzling vehicles because of low gas prices, once again, may soon find it increasingly expensive to travel on highways built by earthlings.

Forget the alternative; that is, like Moses, going to the Promised Land on a highway created by a power greater than your friendly contractor and with access to cheap gas to boot. Moses was lucky he got through in time and his costs were marginal. He was probably pushed by favorable tides and friendly winds. The wonderful Godly thing! He and his colleagues secured low costs and quick trips through the parting waters.

Added to the by-now conventional litany concerning variables affecting the short- and long-term cost and price of gasoline and oil (described in the preceding paragraph), will likely be the possible structural changes that might take place in the oil industry. If they occur, it will lead to higher costs and prices. Indeed, some are already occurring. Halliburton, one of the sinners in Iraq concerning overpricing services and other borderline practices (motivated by the fear of lower gas prices), has succeeded in taking over Baker Hughes for near $35 billion. If approved by U.S. regulators, the combined company will control approximately 30 percent of the oil and gas services market. According to experts, the new entity could capture near 40 percent relatively quickly. Sounds like a perfect case for anti-trust folks or, if not, higher oil and gas costs for consumers.

Several experts believe that if low gas prices continue, oil companies will examine other profit-making, competition-limiting and price-raising activities, including further mergers and acquisitions. Some bright iconoclasts among them even suggest that companies may try to develop and produce alternative fuels.

Amen! Nirvana! Perhaps someday oil companies will push for an Open Fuels Law, conversion of cars to flex-fuel vehicles and competition at the pump…if they can make a buck or two. Maybe they will repent for past monopolistic practices. But don’t hold your breath! Opportunity costing for oil companies is complex and unlikely to quickly breed such public-interest related decisions. Happy Thanksgiving!

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10 reasons why falling oil prices is good for the U.S. and replacement fuels

While they might not make the Late Show with David Letterman, here are ten reasons why the fall in oil and gas prices, if it is sustained for a while, is, on balance, good for the U.S. and replacement fuels.

  1. U.S. consumers are getting a price break. While the numbers differ by researchers, most indicate that on average they have saved near $80 billion. According to The Wall Street Journal, every one cent drop in gasoline adds approximately a billion dollars to nationwide household consumption.
  2. Low- and moderate-income households will have extra money for basic goods and services, including housing, health care and transportation to work.
  3. Increased consumer spending will be good for the economy and overall job growth. Because of the slowdown in production and the loss of jobs in the oil shale areas and Alaska, the net positive impact on GNP will be relatively small, higher at first as consumers make larger purchases, and then lower as oil field economic declines are reflected in GNP.
  4. Low prices for oil and gas will impede drilling in tight oil areas and give the nation time to develop much-needed regulations to protect environmentally sensitive areas. Oil is now under $80 a barrel. The price is getting close to the cost of drilling. Comments from producers and oil experts seem to suggest that $70-75 per barrel would begin to generate negative risk analyses.
  5. Low prices for oil and gas will make it tough on Russia to avoid the impact of U.S. and EU sanctions. Russia needs to export oil and gas to secure revenue to meet budget constraints. Its drilling and distribution costs will remain higher than current low global and U.S. prices.
  6. Low prices of oil and gas will reduce U.S. need to import oil and help improve U.S. balance of payments. Imports now are about 30 percent of oil used in the nation.
  7. Low prices of oil and gas will further reduce dependence on Middle East oil and enhance U.S. security as well as reduce the need to rely on military intervention. While the Saudis and allies in OPEC may try to undercut the price of oil per barrel in the U.S., it is not likely that they can sustain a lower cost and meet domestic budget needs.
  8. Low prices of oil and gas will create tension within OPEC. Some nations desiring to improve market share may desire to keep oil prices low to sustain market share, others may want to increase prices and production to sustain, if not increase, revenue.
  9. Low prices of oil and gas will spur growth in developing economies.
  10. Low prices for oil and gas will likely secure oil company interests in alternative fuels. It may also compel coalitions of environmentalists and others concerned with emissions and other pollutants to push for open fuel markets and natural gas based ethanol, methanol and cellulosic-based fuels as well as a range of renewable fuels.

We haven’t reached fuel Nirvana. The differential between gasoline and corn-based E85 has lessened in most areas of the nation and now appears less than the 20-23 percent needed to get consumers to think about switching to alternative fuels like E85. But cheaper replacement fuels appear on the horizon (e.g., natural gas-based ethanol) and competition in the supply chain likely will reduce their prices. Significantly, in terms of alternative replacement fuels, oil and gas prices are likely to increase relatively soon, because of: continuing tensions in the Middle East, a change of heart on the part of the Saudis concerning maintaining low prices, the increased cost of drilling for tight oil and slow improvements in the U.S. economy resulting in increased demand. The recent decline in hybrid, plug-in and electric car sales in the U.S. follows historical patterns. Cheap gas or perceived cheap gas causes some Americans to switch to larger vehicles (e.g., SUVs) and, understandably, for some, to temporarily forget environmental objectives. But, paraphrasing and editing Gov. Schwarzenegger’s admonition or warning in one of his films, unfortunately high gas prices “will be back…” and early responders to the decline of gasoline prices may end up with hard-to-sell, older, gas-guzzling dinosaurs — unless, of course, they are flex-fuel vehicles.

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The decline of oil and gas prices, replacement fuels and Nostradamus

“It’s a puzzlement,” said the King to Anna in “The King and I,” one of my favorite musicals, particularly when Yul Brynner was the King. It is reasonable to assume, in light of the lack of agreement among experts, that the Chief Economic Adviser to President Obama and the head of the Federal Reserve Bank could well copy the King’s frustrated words when asked by the president to interpret the impact that the fall in oil and gasoline prices has on “weaning the nation from oil” and on the U.S. economy. It certainly is a puzzlement!

What we believe now may not be what we know or think we know in even the near future. In this context, experts are sometimes those who opine about economic measurements the day after they happen. When they make predictions or guesses about the behavior and likely cause and effect relationships about the future economy, past experience suggests they risk significant errors and the loss or downgrading of their reputations. As Walter Cronkite used to say, “And that’s the way it is” and will be (my addition).

So here is the way it is and might be:

1. The GDP grew at a healthy rate of 3.5 percent in the third quarter, related in part to increased government spending (mostly military), the reduction of imports (including oil) and the growth of net exports and a modest increase in consumer spending.

2. Gasoline prices per gallon at the pump and per barrel oil prices have trended downward significantly. Gasoline now hovers just below $3 a gallon, the lowest price in four years. Oil prices average around $80 a barrel, decreasing by near 25 percent since June. The decline in prices of both gasoline and oil reflects the glut of oil worldwide, increased U.S. oil production, falling demand for gasoline and oil, and the likely desire of exporting nations (particularly in the Middle East) to protect global market share.

Okay, what do these numbers add up to? I don’t know precisely and neither do many so-called experts. Some have indicated that oil and gas prices at the pump will continue to fall to well under $80 per barrel, generating a decline in the production of new wells because of an increasingly unfavorable balance between costs of drilling and price of gasoline. They don’t see pressure on the demand side coming soon as EU nations and China’s economies either stagnate or slow down considerably and U.S. economic growth stays below 3 percent annually.

Other experts (do you get a diploma for being an expert?), indicate that gas and oil prices will increase soon. They assume increased tension in the Middle East, the continued friction between the West and Russia, the change of heart of the Saudis as well as OPEC concerning support of policies to limit production (from no support at the present time, to support) and a more robust U.S. economy combined with a relaxation of exports as well as improved consumer demand for gasoline,

Nothing, as the old adage suggests, is certain but death and taxes. Knowledge of economic trends and correlations combined with assumptions concerning cause and effect relationships rarely add up to much beyond clairvoyance with respect to predictions. Even Nostradamus had his problems.

If I had to place a bet I would tilt toward gas and oil prices rising again relatively soon, but it is only a tilt and I wouldn’t put a lot of money on the table. I do believe the Saudis and OPEC will move to put a cap on production and try to increase prices in the relatively near future. They plainly need the revenue. They will risk losing market share. Russia’s oil production will move downward because of lack of drilling materials and capital generated by western sanctions. The U.S. economy has shown resilience and growth…perhaps not as robust as we would like, but growth just the same. While current low gas prices may temporarily impede sales of electric cars and replacement fuels, the future for replacement fuels, such as ethanol, in general looks reasonable, if the gap between gas prices and E85 remains over 20 percent  a percentage that will lead to increased use of E85. Estimates of larger cost differentials between electric cars, natural gas and cellulosic-based ethanol based on technological innovations and gasoline suggest an extremely competitive fuel market with larger market shares allocated to gasoline alternatives. This outcome depends on the weakening or end of monopolistic oil company franchise agreements limiting the sale of replacement fuels, capital investment in blenders and infrastructure and cheaper production and distribution costs for replacement fuels. Competition, if my tilt is correct, will offer lower fuel prices to consumers, and probably lend a degree of stability to fuel markets as well as provide a cleaner environment with less greenhouse gas emissions. It will buy time until renewables provide a significant percentage of in-use automobiles and overall demand.

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Eyal Aronoff: on a drive for alternatives to oil

(Photo Credit: Ann Johansson, Financial Times)

By Ed Crooks, Financial Times

Eyal Aronoff’s life has been shaped by conflict in the Middle East. His father, a tank crewman in the Israel Defense Forces, was killed in the Six Day War of 1967. His stepbrother and stepbrother’s wife died in the World Trade Center in the 9/11 attacks.

Until then, he had not thought much about energy, or its implications for global security. He was a successful entrepreneur, a co-founder of Quest Software, which was sold to Dell in 2012 for $2.4bn.

Since the terror attacks of September 2001, however, he has increasingly focused on the role that oil plays in the Middle East and around the world: supporting repressive regimes and breeding violence.

“I came into the energy security space because I asked the following question: ‘What caused people to drive an aeroplane full of people into a building full of people?’” he says. “It’s not like some guy was fired and he went home and got his gun and started shooting. They trained for years for this.”

His answer is that the attackers were “the product of a system” sustained by the revenues that flow from oil.

“The governments that are creating this system can afford to do it because they don’t have to invest in their people. That was the realisation: if we can undercut the price of oil, they will be forced to invest in their people; they will be forced to invest in education; they will be forced to liberalise.”

Talking over breakfast in a New York hotel, he still looks like the archetypal tech entrepreneur: focused and somewhat intense, wearing a black polo shirt and charcoal V-neck. His plan for curbing oil’s baleful influence on the world is similarly consistent with his previous career: it involves a technological fix, principally based on managing software, and the power of competition.

He started his software business in 1991 in university housing at Princeton, where his wife was doing her chemistry PhD. He was a supplier to Oracle, now the world’s second-largest software group, and played a critical role in its growth, he says, helping to popularise it for large web databases by providing an easy way to write applications.

“As Oracle took off, my company took off with it,” he says. “They made me wealthy, and I made them successful.”

When he left Quest in 2003, he took on various new businesses and became involved in research into treatments for autism. His daughter was diagnosed as autistic when she was two, and is now going to college, having made progress that he describes as “a miracle.”

He approached the energy sector in the same can-do spirit. One of his new businesses was an online retailer of car accessories, Autoanything.com, and that was where inspiration struck, he says.

“I saw all these people doing all these things to their cars, all these modifications and products, and that you can programme a car, and I thought: ‘Wow. There must be something here.’ And I started researching into car hackingand I thought: ‘Wait a second: a car can do all this? Oh my gosh, how come nobody knows this!’”

The revelation was that cars can run on many different fuels, including petrol, ethanol and methanol, with only minimal modification. In modern cars, fuel management is governed by electronic systems that are easily changed. Converting them so they will happily accept different fuels can be achieved in minutes by plugging in a laptop and adjusting the settings.

While the incentive to switch fuels might seem to have faded, with North American crude production soaring and petrol prices tumbling, any use of oil still helps the producing countries, many of which are unfriendly to the US. Methanol, by contrast, can be produced relatively cheaply from natural gas, which is – for now at least – in abundant supply in the US.

Mr Aronoff’s guiding tenet, however, is that he does not favour one particular fuel or technology over another. He wants consumers to have more choice, including natural gas and electric vehicles, and trusts that competition will make fuel both cheaper and more secure. It is principally environmental regulations and manufacturers’ warranties that stop drivers using a wider range of fuels. Modifying cars in this way is illegal in the US.

So, along with Yossie Hollander, another Israeli software entrepreneur, Mr Aronoff decided to set up a campaign group, the Fuel Freedom Foundation, to fight for changes in regulation.

“We realised that the existing infrastructure was not really geared towards [our interests],” he says. “The environmental movement was really focused on the replacement of coal. On energy security, many people were shouting from the sidelines. But . . . they came from a national security background, so they didn’t have the capacity to create the kind of movement that it would take.”

The marketing aspect, he says, is crucial. The campaign needs a broad base of public support to make politicians pay attention. Two successive administrations, under presidents George W Bush and Barack Obama, have largely ignored flex-fuel vehicles.

“The Bush administration, instead of doing something with the oil that caused our dependence on the Middle East, decided to go there to try to fix the Middle East,” Mr Aronoff says. “They didn’t understand what they were trying to do there. It was a whack-a-mole kind of thing, and when you whack one mole, another always comes out.”

As for the reason for the Obama administration’s reluctance? “I wish I knew. I just don’t understand,” he replies.

“The Obama people are willing to work with us. We talk with them all the time. So they get it. [But] I want action, not just talk.”

To that end, he and Mr Hollander, along with some other supporters have backed a movie, Pump , a lively look at global energy trends. At its centre is a sequence showing how to hack a car to make it “flex-fuel”.

“We’re trying to do what An Inconvenient Truth has done,” Mr Aronoff says. He acknowledges that Pump is unlikely to match the massive success, for a documentary, of Al Gore’s climate change polemic, but even a small fraction of that would be very welcome. “Even if we generate modest success at the box office, the money will be immensely helpful to us in promoting the cause.”

He expects that one day the alternative fuels business will be “a very big deal”. For now, though, the campaign is trying to keep commercial interests out of it, to avoid being “tainted”.

Eventually, he hopes, the car companies and even oil companies will embrace fuel choice. He sees the barriers more as problems of corporate inertia and ignorance than of opposing interests.

“It’s not like we’re the digital camera and they’re Agfa,” he says. “All these companies that today produce fuels from petroleum can produce fuels from many different things. They have the wherewithal, and they have the financial interest to do it. They only need to wake up.”

Second opinion: The future of energy
“I can’t claim credit for every detail of Eyal Aronoff’s intellectual development,” says Robert Zubrin, early advocate of methanol and other alternative fuels. “But I do know he read my book Energy Victory and was impressed.” Mr Zubrin explains that alternative fuels face a struggle in the US: opposed on the right because of hostility to government mandates, and by regulators because of pollution concerns. But he says the next administration may have to accept the argument for transport fuel choice.

Aronoff’s CV
Born 1963, Israel
Education Graduates in 1990 from Bar Ilan University, Israel, in chemistry and computer science
Career 1991 Starts R*Tech Systems in kitchen of his apartment in Princeton, New Jersey
1996 Merges R*Tech into Quest Software
1999 Quest Software IPO
2003 Leaves Quest Software
2011 Starts Fuel Freedom Foundation
2012 Quest bought by Dell for $2.4bn

Family Married with two children
Interests Energy, particularly alternative fuels and electric cars; neuroscience, in particular therapies for autism; stock markets, particularly algorithmic trading, which he develops for fun; travel, particular Lindblad/ NetGeo expeditions.

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From Philosophy About Truth To The Wisdom Of EPA Models About Emissions

Rereading Alfred North Whitehead, one of my favorite philosophers, provides the context for the current debate over the wisdom of using the EPA’s amended transportation emissions model (Motor Vehicle Emission Simulator, or MOVES) for state-by-state analysis. He once indicated that, “There are no whole truths; all truths are half-truths. It is trying to treat them as whole truths that plays the devil.”

I am uncertain about Whitehead’s skepticism, if treated as an absolute. However, it does give pause when judging the use of an amended MOVES model, based mostly on advocacy research by the nonprofit group, the Coordinating Research Council (CRC). The CRC is funded by the oil industry, through the American Petroleum Institute (API), and auto manufacturers.

CRC was tasked by the EPA with amending MOVES and applying it to measure and determine the impact of vehicular emissions. The model and related CRC analysis was subject to comments in the Federal Register but the structure of the Register mutes easy dialogue over tough, but important, methodological disagreements among experts. Apparently, no refereed panel subjected the CRC’s process or product to critique before the EPA granted both its imperator and sent it out to the states for their use.

I am concerned that if the critics are correct, premature statewide use of the amended MOVES model will mistakenly impede development and use of alternative transitional fuels to replace gasoline, particularly ethanol, and negatively influence related federal, state and local policies and programs concerning the same. If this occurs, because of apparent mistakes in the model (and the data plugged into it), the road to significant use of renewable fuels in the future will be paved with higher costs for consumers, higher levels of pollutants and higher GHG emissions.

With some exceptions, the EPA has been a strong supporter of unbiased, nonpartisan research. Gina McCarthy, its present leader, is an outstanding administrator, like many of her predecessors, like Douglas Costle (I am proud to say that Doug worked with me on urban policy, way, way back in the sixties), Russell Train, Carol Browner, William Reilly, Christine Todd Whitman, Bill Ruckelshaus and Lee Thomas. No axes to grind; no ideological or client bias…only a commitment to help improve the environment for the American people. I feel comfortable that she will listen to the critics of MOVES.

The amended MOVES may well be the best thing since the invention of Swiss cheese. It could well help the nation, its states and its citizens determine the truths or even half-truths (that acknowledge uncertainties) related to gasoline use and alternative replacement fuels. But why the hurry in making it the gold standard for emission and pollutant analysis at the state or, indeed, the federal level, in light of some of the perceived methodological and participatory problems?

Some history! Relatively recently, the EPA correctly criticized CRC because of its uneven (at best) analytical approach to reviewing the effect of E15 on car engines. Paraphrasing the EPA’s conclusions, the published CRC study reflected a bad sample as well as too small a sample. Its findings, indicating that E15 had an almost uniform negative impact on internal combustion engines didn’t comport with facts.

The CRC’s study of E15 was, pure and simple, advocacy research. CRC reports generally reflect the views of its oil and auto industry funders and results can be predicted early on before their analytical efforts are completed. Some of its reports are better than others. But overall, it is not known for independent unbiased research.

The EPA’s desire for stakeholder involvement in up grading and use of MOVES to measure emissions is laudable. However it seems that the CRC was the primary stakeholder involved on a sustained basis in the effort. No representatives of the replacement fuel industry, no nonpartisan independent nonprofit think tanks, no government-sponsored research groups and no business or environmental advocacy groups were apparently included in the effort. Given the cast of characters (or the lack thereof) in the MOVES’ update, there’s little wonder that the CRC’s approach and subsequently the EPA’s efforts to encourage states to use the amended model have been and, I bet, will be heavily criticized in the months ahead.

Two major, well-respected national energy and environmental organizations, Energy Future Coalition (EFC) and Urban Air Initiative, have asked the EPA to immediately suspend the use of the MOVES with respect to ethanol blends. Both want the CRC/MOVES study and model to be peer reviewed by experts at Oak Ridge National Lab (ORNL), and the National Renewable Energy Lab (NREL). I would add the Argonne National Laboratory because of its role in administering GREET, The Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model. Further, both implicitly argue that Congress should not use the CRC study and MOVES until the data and methodological issues are fixed. Indeed, before policy concerning the use of alternative replacement fuels is debated by the administration, Congress and the states both appear to want to be certain that MOVES is able to provide reasonably accurate estimates of emissions and market-related measurements, particularly with respect to ethanol and, as Whitehead would probably say, at least provide half-truths, or, as Dragnet’s Detective Jack Webb often said, “Just the facts, ma’am,” or at least just the half-truths, nothing but at least the half-truths.

What are the key issues upsetting the critics like the EFC and the Urban Air Initiative? Apart from the pedigree of the CRC and the de minimis roles granted other stakeholders than the oil industry, the CRC/MOVES model, reflects match blending instead of splash blending to develop ethanol/gasoline blends. Sounds like two different recipes with different products — and it is. Splash blending is used in most vehicles in the U.S. and generally is perceived as producing less pollution.

Let’s skip the precise formula. It’s complicated and more than you want to know. Just know that according to the letter sent to the EPA by the EFC and Urban Air Quality on Oct. 20th, the use of match blending requires higher boiling points for distillation, and these points, in turn are generally the worst polluting aromatic parts of gasoline. It noted that match blending, as prescribed by the MOVES, results in blaming ethanol for increased emissions rather than the base fuel. There is no regulatory, mechanical or health justification for adding high boiling point hydrocarbons to test fuels for purposes of measuring changes in vehicle tailpipe emissions, when ethanol is part of the fuel mixture. Independent investigations by automakers and other fuel experts confirm that the use of match blending in the study mistakenly attributed increased emission levels to ethanol rather than to the addition of aromatics and other high boiling hydrocarbons, thereby significantly distorting the model’s emission results. A peer-reviewed analysis, which will be published shortly, found that the degradation of emissions which can result is primarily due to the added hydrocarbons, but has often been incorrectly attributed to the ethanol.

The policy issues involved due to the methodological errors are significant. If states and other government entities, as well as fuel supply chain participants, use the model in its present form, they will mistakenly believe that ethanol’s emissions and pollutants are higher than reported in study after study over the past decade. The reported results will be just plain wrong. They will not even be half-truths, but zero truths. Distortions in decision making concerning the wisdom of alternative transitional replacement fuels, particularly ethanol, will occur and generate weaker ethanol markets and opportunities to build a strategic path to renewables. The EPA, rather than encourage use of the study and the model, should pull both back and suggest waiting until refereed review panels finish their work.

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Yet more evidence that air pollution harms health

Research announced this week at the University of Pittsburgh is only the latest to suggest a link between air pollution and a higher risk of children developing autism.

Motor vehicles – cars, trucks and SUVs – account for about half the air pollution in the United States, the EPA says, with much of the rest coming from industrial sources and coal-fired power plants.

Smog levels are much worse in urban areas than rural ones: According to the American Lung Association’s State of the Air 2014 report, 47 percent of the nation — 147.6 million people — live in places where pollution levels make it dangerous to breathe.

Air toxics, as they’re called, can contribute to asthma and other respiratory problems; heart disease. Experts think that these toxics can have a particularly devastating impact on babies when they’re in the womb, and when the children are very young.

Although much of the science on these effects has only been conducted in the past decade, a 2008 report at UCLA’s Institute of the Environment and Sustainability says: “Recently this research has begun to focus on one specific source of modern-day air pollution – traffic exhaust.”

The study, led by Dr. Beate Ritz, goes on:

“These studies largely focused on potential mortality impacts of airborne particulate matter small enough to penetrate into the human respiratory tract, referred to as PM10 (particulate matter less than 10 microns in aerodynamic diameter) and more recently have examined PM2.5, even smaller size particles which can penetrate deep into the lung. Most findings from this research indicated infants living in areas with high levels of these types of particulate matter had a greater risk of mortality during the first year of life, particularly from respiratory causes.”

Autism Spectrum Disorder (ASD), a neurological disorder whose symptoms can range from having trouble fitting in with peers to repetitive behaviors to a complete lack of communication and even seizures, now affects an estimated 1 in every 68 U.S. children, a 30 percent increase since 2012. Little is still known about the causes, but many experts believe genetics or environmental exposures, or a combination, are to blame.

The University of Pittsburgh report, led by a health professor of epidemiology named Evelyn Talbott, found that children who were somewhere on the autism spectrum were 1.4 to 2 times as likely to have been exposed to air pollution during their mothers’ pregnancies, compared with children who did not have an ASD. The affected children showed higher levels of styrene, cyanide and chromium.

Irva Hertz-Picciotto, a UC Davis researcher not affiliated with the Pitt study, told the Pittsburgh Post-Gazette that this and other studies like it “do suggest some kind of a link where a family who has children with autism were living usually closer to areas with higher [air toxic] measurements.”

In Utah, where some regions have very poor air quality in wintertime, the incidence of autism is 1 in 47 children, far higher than the national average. Earlier this year, a Harvard study showed that “exposure in the womb to diesel, lead, manganese, mercury, methylene chloride and an overall measure of metals was ‘significantly associated with autism spectrum disorder,’ with the highest association from exposure to diesel exhaust,” according to a story in the Provo Herald Extra.

Given the significant adverse health effects that result from gasoline when it’s combusted inside engines, it makes sense to incorporate cleaner-burning fuels into the nation’s fleet of vehicles. The EPA says as much, saying replacement fuels, including “natural gas, propane, methanol, ethanol, electricity, and biodiesel” can be ” cleaner than gasoline or diesel and can reduce emissions of harmful pollutants.”

(Photo: Los Angeles air, via Shutterstock)

Bond_-_Sean_Connery_-_Profile

James Bond, low oil prices, the Russians and OPEC

Calling Miss Moneypenny…we need you to get to James Bond quickly. Urgently! According to respected sources, there is a conspiracy in place on the part of the U.S. government and the West to both foster the increased production of shale gas and to drive down demand for gasoline in order to decrease Middle Eastern and Russian oil prices to levels well below production and distribution costs. The effort is aimed at breaking up OPEC, keeping the Saudis in line regarding present levels of production and hurting Russia until it comes to its senses concerning Ukraine. Can you put me in touch with Bond? He could be helpful in determining whether there is manipulation of the market? He’s just the best!

Paranoia has set in on the part of some in the media. The “glut” of oil on the market and low demand has made new drilling an “iffy” thing. The production costs of oil per barrel have not kept pace with revenue from sales. Prices at the pump for gasoline have decreased significantly.

How can we explain the phenomena, except by the presence of manipulation? Indeed, it’s enlightening to see (assumedly) planned, tough, provocative statements from so-called experts that often make headlines followed by weak “No it cannot be true” statements by the same experts to protect their credentials. Being bipolar is, in these instances, seemingly a characteristic.

Thanks to CNBC, here are some summary comments.

Patrick Legland, head of global research at Société Générale, recently said that it was an interesting coincidence that the two events — a drop in oil prices and lower demand — suggests that the U.S. could be deliberately manipulating the market to hurt Russia. Is it lower demand or is the U.S. clearly maneuvering? Legland goes on to indicate lack of in-depth knowledge. Timothy Ash, head of emerging markets research at Standard Bank suggested the U.S. would obviously deny any accusations of manipulation and there is no evidence to suggest that this is the case. “It’s very had to prove. I have heard such suggestions before. It is clearly useful for the West as it adds pressure on Russia” (and, I would add, on OPEC).

Oh, there is more, Jim Rickerts, managing director at Tangent, in a courageous and clear-cut example of ambiguity, stated that manipulation is plausible, although we have no evidence.

Clearly, the manipulation assertions, even though there is little evidence, sell more papers, build a bigger audience for cable news and provide fodder for Twitter and politicians. To the tune of “Politics and Polka,” sing with me, “apparent correlation is not causation, correlation is not causation.”

Oil prices are on a downward spiral, while production and distribution costs are going up in the U.S. and much of the West. It is implausible that the government is behind these trends. Consumer demand is down, even with lower prices at the pump, because of the economy. The government has relatively few tools, except the public and private bully pulpit in the short term, to leverage prices. The current boom in oil shale and resulting surpluses result from decisions made by an extended group of people often years ago — for example, oil companies who recognized that the era of easy-to-drill and cheap oil was coming to an end, speculators who led the market in trumping the benefits in investing long in oil shale and waiting for assumed value to catch up, consumers who seemed to be on a high concerning use of gasoline and technological breakthroughs that made oil from shale seem more amendable to cost benefit calculations.

While there are examples of government manipulating prices of goods (e.g., price controls), most have led to unpredictable and often negative results. The U.S. government, whether controlled by Republicans or Democrats, has not shown itself adept at price setting and manipulation. Nor is it good at keeping things secret — something necessary if it engaged in international manipulation. The New York Times would already have a leaked copy of the strategy and unsigned emails would have been given to the Washington Post. Public discussion of the strategy probably would risk sometimes fake, sometimes real approbation-depending who gets hurt or will get hurt. The U.S. would face copycats, as they have in the past, like the Saudis and OPEC and, maybe someday, Russia. They would say, “well, if the U.S. can do it, why can’t we?” The U.S. would calmly respond, No we are not manipulating oil markets. You give us too much credit and assume to many skills. Also, remember, the U.S and the oil companies believe in free markets. Don’t they? Well maybe, but clearly, not all the time with respect to the government and almost none of the time with respect to the oil companies? (Try getting replacement fuels at the pump of an oil-company franchised “gas” station.)

Okay, Miss Moneypenny, I changed my mind. We don’t need James Bond nor do we want to pay for the Bond girls. (Besides, the last Bond looked like President Putin when his shirt was unbuttoned and Sean Connery is on Medicare.) What we need is prayer and penitence for the experts for travailing in rumors. It is not terribly helpful when trying to sort out complicated issues related to oil prices and demand. If the government is somehow manipulating the market, many, even very pro-market advocates, will give it credit for a strategy that, should it be successful, might limit Russia’s desires concerning Ukraine and OPEC’s efforts at price fixing in the past. While the word has an evil sound, perhaps legitimately, manipulation would likely be judged better than war. But before credit is offered, look at the data and well-reviewed studies. Don’t fret, there is very little evidence that government manipulation has occurred in the recent past or is occurring at the present time.

methanol-plant

“Methanol Mania” Hits The Gulf Coast

Lane Kelley of ICIS Chemical Business calls it “methanol mania” and he probably wasn’t exaggerating. Last week Texas and Louisiana underwent an explosion of activity, promising to turn the region into a world center for methanol.

Earlier this month, Louisiana Gov. Bobby Jindal announced that Castleton Commodities International LLC (CCI), a Connecticut firm, will be building a $1.2 billion methanol manufacturing plant on the Mississippi River in Plaquemines Parish. The plant is expected to produce $1.8 million tons of methanol a year.

“This plant will help our children stay in Louisiana instead of leaving the state to find jobs,” said Jindal. “My number one priority it to make Louisiana a business friendly place.”

But that’s not even half of it. The Environmental Protection Administration (EPA) just gave its final approval to a $1 billion methanol plant to be built near Beaumont, Texas. The facility will be operated by Natgasoline LLC, a subsidiary of a Netherlands-based company that already employs 72,000 people in 35 countries. It will employ thousands of construction workers and carry a $20 million payroll when it begins operating in of 2016.

Does that sound like a lot? Well, don’t forget Methanex Corporation, the country’s largest manufacturer of methanol, is in the process of moving two plants back from Chile to Louisiana. One plant is scheduled to open in a few months. And ZEEP (Zero Emissions Energy Plants), an Austin-based company, has just raised $1 million for a proposed plant in St. James Parish, La.

Does that sound like a full plate? Well, it’s still just the beginning. The Connell Group, a government-supported operation, announced long-range plans for what would be the largest methanol plant in the world — even if only half it gets built. The first unit, located in either Texas or Louisiana, would produce 3.6 million tons a year, twice the current world record holder in Trinidad. Together, the two units would produce more than the current U.S. demand, 6.3 million tons a year. The term “Gigafactory” soon may be standard vocabulary.

So what’s going on? Well, the plan is for nearly all this Texas and Louisiana methanol production to be exported to China. The widening of the Panama Canal for supertankers, scheduled to be completed in early 2016, will be a bit part of the puzzle. Believe it or not, China also has plans to build three more plants in Oregon and Washington. But they run into trouble there, of the West Coast’s dislike of fossil fuels.

So China is planning to use American natural gas as a substitute for its own coal, in producing large amounts of methanol. It’s no different from the Chinese buying up farmland in Brazil and Ukraine in order to grow crops.

But the Chinese have other things in mind as well. Zhejiang Geely Holding Group Co., Ltd, Chery International, Shanghai Maple Guorun Automobile Co., Ltd. and Shanghai Automotive Industry Corp. all produce methanol-adaptive cars, which now accounts for eight percent of China’s fuel consumption. Israel is also experimenting with methanol from natural gas as a substitute for imported oil.

Methanol produces only 50 percent of the energy of gasoline, but its higher octane rating brings it up into the 65 percent range. It produces 40 percent less carbon dioxide and other pollutants and would go a long way toward helping China improve its pollution problems. As far as methanol production is concerned, China sees only see an upside.

So what’s going on in this country? Well, so far we have the world’s largest reserves of natural gas, we are on the verge of becoming a world center methanol manufacturer — yet we still have a set of rules and regulations and sheer inertia that prevent us from powering our cars with methanol. For some strange reason, the United States is about to become a world center for the production of methanol, yet we still haven’t figured out how to put it to one of its best uses.

Sounds like an opportunity for somebody.

Falling-Oil-Prices-Charty

Life is becoming tough for oil companies and oil nations

Wow. Over the last few days, the nation has seen the possibilities inherent in a transportation-related energy and environmental policy. No, Washington has not become more functional. It’s still a mess! Happily, Congress is out! (They weren’t doing much.) While they’re still being paid, we can at least turn down the thermostat in both the Senate and House Chambers. No new holidays have been created, and no new articles are being put in the Quarterly that cater to requests from constituents. Leaving town is consistent with one part of the Hippocratic Oath that guides doctors and at least vacations for congressman and women … do no harm!

The light in the energy-policy tunnel, or the canary in the policy mineshaft, results from the seeming collapse of the oil market. The price of Brent crude oil has fallen more than 20 percent since June, and on Friday it rose a little to $86.16 a barrel. The four-month drop in oil prices, caused mostly by an oil glut, falling demand and speculation related to both, likely will continue the recent trend toward lower gas prices at the pump, at least for the next few months. The U.S. average is now near $3.16 a gallon, reflecting a drop of about 15 percent since early summer.

The unseen hand of the marketplace — in this case, the actually relatively transparent hand of the marketplace — may provide a substitute for Congressional inaction concerning the presently complicated and sometimes weak policies that ostensibly protect sensitive global and U.S. land and water from harm. At $82 a barrel, oil producers and their investor colleagues have little incentive to invest heavily in tight shale oil. It just costs too much to get to and take out of the ground (or water). If the negative “opportunity costing” concerning decisions about future exploration and rig development become tougher, folks concerned with the environmental well-being of the Arctic Circle and the Monterrey Shale, etc. may end up smiling. They will see less drilling, fewer rigs, less GHG emissions and less non-GHG pollutants!

Apart from environmental benefits, falling oil prices will cause not-so-friendly and even sometimes-friendly Middle East nations to make difficult choices. They are reflected in the current dialogue within OPEC. Should OPEC and its member states sanction the production of more oil and contribute to the global surplus or lessen oil production targets to secure higher prices?

Both decisions, once made, have high risks. Raising prices by lowering production could lead to less market share and ultimately less revenue. Keeping prices low (and lower if the surplus continues to grow and demand continues to fall) could also mean less revenue and an earlier arrival of the time when production costs are near to, or exceed, returns for hard-to-get-at oil. Some Middle Eastern nations may not have a choice. Easy-to-drill oil is becoming increasingly hard to find, even in the once-productive oil-rich desert, and production costs are increasing, as they are around the world. It will be difficult to keep prices low. Yet if countries raise prices, they lose market share. Perhaps another compelling fact of life that Middle Eastern nations must look at is the increase in domestic needs brought about by the Arab Spring and the yearning for a better life among their citizens. Indeed, in this context, both lower prices and higher prices may limit their competitive abilities and result in declining revenue for national budgets. It will present them with a conundrum. Translated into political realities, countries in the Middle East may have less to spend on social welfare programs, exacerbating tension that already exists in the Middle East.

Low prices for oil, resulting from market variables, could well also provide another important international impact: Russia, already hit by sanctions, faces increased budget constraints because of the fall in oil prices. According to The Wall Street Journal, “Economists say falling oil prices could kill off Russia’s flagging economic growth, forecast at no more than 0.5% this year.” Apparently, some Russian economists see $90 as their economic tipping point.

Short-term projections of U.S. oil production suggest a continued (but more modest) decline of oil imports and dependency. But will U.S. oil surpluses and lower costs transfer into oil independence? No! The oil industry is pushing hard for, and is likely to secure, an increased capacity to expand crude oil exports from the federal government. However, trafficking in oil is, and will remain, a two-way street. Price, as well as profits, will be the determining variable. Imports now contribute about one-third of the oil used in the country. The number will hover around 30 percent at least for the near future.

Who knows? We might wake up one morning to find out from public television that we are selling oil to the oil-needy Chinese, while still buying it from countries in the Middle East and maybe even Russia.

There is another possible scenario (we cannot say probable yet) at least to consider in thinking about oil’s future. Because of the likelihood of increasing economic tension between objectives related to drilling for hard-to-get-at oil and its cost, we may go to sleep one night in the not-too-distant future, after hearing again on public television (of course) that oil companies are moving in a big way into the replacement fuel business and lessening their focus on oil. Assets will be sold and bought, followed by media attention suggesting that a major structural shift is occurring in the oil industry. Let’s anticipate what oil CEOs might say: “It’s tough to make the balance sheets work. Drilling for tight oil, really most of the oil left, is just too damn expensive in light of the uncertainty of prices and demand. While still only a small percentage of the overall fuel market, replacement fuels, including natural gas-based ethanol and renewable fuels, seem to be catching on. Detroit, our earlier partner in crime (not literally, of course) in restricting consumer choices to gasoline, hasn’t helped either, recently. It is producing more and more flex-fuel vehicles. Besides continuing to make money, we would like to get off the most disliked industry lists in America.”

Stranger things have happened!