Al Gore is half right on ethanol

Now that this year’s federal budget has been worked out, biofuels policy will move its way back up the agenda in the 112th Congress. Late in 2010, biofuels policy briefly became a marquee topic when none other than Al Gore opined that “it is not a good policy to have these massive subsidies for first-generation ethanol,” referring to a whole suite of subsidies and mandates for corn-based ethanol. History will note the first statute to mandate the use of ethanol as an additive to certain reformulated gasoline blends passed the U.S. Senate in 1994 by then-Vice President Gore’s tie-breaking vote.

The 111th Congress renewed the tax credit — but lawmakers and industry officials agreed that a more thorough debate should be had in 2011. Many of the themes Mr. Gore cited will guide that debate. He noted the energy conversion ratios, the cost to the Treasury, and the resulting food price inflation.

The effect of ethanol subsidies on food prices — especially meat prices — is of particular concern. Beef prices increased 1.9 percent in February and are 10.8 percent above last February’s prices, with steak prices up 11.2 percent and ground beef prices up 9.9 percent. Pork prices increased 1 percent in February and are 8.9 percent above last February’s level.

Kudos to Mr. Gore, the Academy Award-winning Nobel Laureate and now reflective politician. It takes a big man to admit his mistakes — and he did, citing political pressure from his home state farm lobby and presidential ambitions as his reasons for supporting ethanol subsidies.

Sadly, in the same set of remarks, the former vice president reiterated his support for “second- and third-generation biofuels,” including “cellulosic ethanol.” That’s where he squandered his minutes-old credibility.

Cellulosic ethanol has never come close to meeting its promises. Indeed, Bill Brady, CEO of Mascoma Corporation, a major player in the development of cellulosic biofuels, admitted candidly in a recent Senate Energy Committee hearing that, “quite frankly, the rate of technological advancement was a bit oversold.”

In fact, for all intents and purposes, cellulosic ethanol does not exist commercially. The Environmental Protection Agency (EPA) had to — for the second year in a row — reduce the amount of cellulosic ethanol mandated under the so-called Renewable Fuel Standard (RFS). The RFS is an annual schedule of the minimum amount of biofuels that must be used in the national fuel supply. It prescribes a minimum of 36 billion gallons of biofuels by 2022 — more than half is second-generation fuels like cellulosic ethanol.

The RFS caps corn-based ethanol at 15 billion gallons in 2015, and it mandates 250 million gallons of cellulosic ethanol for 2011. According to the EPA, which implements the RFS, the total commercial supply of cellulosic ethanol this year will be only 25 million gallons at most. Similarly, last year, cellulosic ethanol use was to be set at 100 million gallons; EPA cut the mandate to 6.5 million gallons to match the commercial supply.

It is worth mentioning that in addition to the legal mandate, cellulosic ethanol receives what the Congressional Budget Office calculates as a $3-per-gallon subsidy — much more than corn ethanol. Yet a commercial supply is still not in the offing. Nor does it appear forthcoming. A report from the USDA’s own internal research advisory committee included this bearish outlook: “After two decades of research without a sustainable technical breakthrough to make cellulosic ethanol competitive, it appears that it is time to reevaluate the research.”

So why is Mr. Gore, once known as a detail-oriented policy wonk, so bullish on cellulosic ethanol despite its obvious failures? Probably because he has switched hats from green policy guru to capitalist. Gore’s current financial interests include cellulosic biofuel technology. Business trumps politics.