Gas taxes will reduce fuel consumption
The best way to get more MPG out of cars is to tax fuel, according to researchers at the Massachusetts Institute of Technology. They published a study in the journal Energy Economics (Volume 36, March 2013, Pages 322–333) that showed that fuel economy standards (such as the ones now in force in the U.S. ) cost at least six times as much (and up to 14 times as much) to reduce gasoline use as would a tax on the fuel. They added that a fuel economy standard is an expensive mechanism to reduce greenhouse gas emissions (GHG) and raises the cost of a cap-and-trade policy, such as the one just starting in California.
The MIT researchers (from the Joint Program on the Science and Policy of Global Change) used their own model to test different policy impacts on fuel use and came to some clear-cut conclusions – “this analysis underscores the potentially large costs of a fuel economy standard relative to alternative policies aiming at reducing petroleum use and GHG emissions. It further emphasizes the need to consider sensitivity to vehicle technology and alternative fuel availability and costs as well as economy-wide responses when forecasting the energy, environmental, and economic outcomes of policy combinations.” The goal was to generate a 20% reduction in gasoline use using different policies.
The study also found that with a cap-and-trade policy, the key to its effectiveness is the availability of cost-competitive, low-carbon biofuels that would help deliver GHG reductions.
While many in the environmental community have lauded the fuel economy standards passed by EPA to reduce GHG and increase fuel efficiency through 2025, the MIT researchers found that the broader costs to the economy were not taken into consideration. Of course, the political fallout from a rise in the gas tax remains to be seen. Conventional wisdom says that a gas tax hike, however small, is the third rail of politics – attempt it only at the risk of your career as a politician. The logic behind that is that this is a tax that hits almost every voter and voters will be reminded of it every time they fill up.
With increased fuel economy standards, consumers get positive reinforcement as their new vehicles deliver better MPG than their old ones. But that requires a substantial financial outlay to purchase the latest technology and the vehicle in which it is encapsulated, which keeps many in the economy out of the range of fuel economy that fits their budget.
The researchers found that with their model it took longer to reduce GHG emission with vehicle efficiency standards. One logical finding they had: with more efficient vehicles, it costs less to drive, so Americans tend to drive more. This is born out in the ever-increasing VMT (vehicle miles traveled) numbers recording by the Department of Transportation.
Prius hybrid – now one of the Top 10 best-selling vehicles
My view is that is a classic case of political reality out of sync with changing reality. While taxes in general and gasoline taxes in particular may be a hot topic of discussion, this is a country that has dealt with rapid and extreme price fluctuations during the past decade. Check out this graph from the government Energy Information Administration. I believe the experience of the past decade had created a different type of consumers; the ones who now value fuel efficiency more than other factors when purchasing a car. The ones that have changed the landscape of automobile size and shape during the past decade. The ones that have made the Toyota Prius hybrid one of the top 10 best-selling cars in the country. These are consumers buying hybrids, clean diesel, plug-in cars and high-mileage gasoline cars in ever-increasing numbers. These are consumers choosing to “right-size” their fleet to maximize efficiency and fuel economy. Consumers that see 10 to 50 cent daily fluctuations in gasoline prices are beyond knee-jerk reactions to a nickel- or dime-a-year taxes on fuel. That’s not to say it couldn’t become a potent political issue, but properly presented, with a clean explanation of where and how the money raised will be used (for infrastructure maintenance and upgrades and support for those struggling to afford new, higher-mileage vehicles, for example) should make it more palatable.
Of course, skeptics might look at the same data and say that fluctuating prices have dulled consumers to the real impact of what the proposed tax increases might have. The same attitude that would lead drivers to ignore small increases might lead them to not change behavior, whether it’s buying more fuel efficient vehicles or driving less.
What do you think?
Americans are screaming for lower gasoline prices. In São Paulo, Brazil, the price of gasoline is R$2.43/liter, ethanol is only R$1.48/liter, disclosed Brazil’s National Petroleum Agency. Brazil has reduced its petroleum dependency by 40% with sugarcane ethanol.
The United States and Brazil together produce about 90 percent of global fuel ethanol. In the United States the current benefits of ethanol are far behind Brazil.
“Thanks in large part to the Renewable Fuels Standard (RFS)—a legislative mandate for increased renewable fuels use that passed as part of the Energy Policy Act of 2005—the corn ethanol industry is expanding at an unprecedented rate in the United States. The 115 ethanol plants operating in April 2007 have the capacity to produce 5.75 billion gallons per year (BGY) of ethanol, and an estimated 86 plants under construction are expected to produce an additional 6.34 BGY of capacity within the next 18 months (RFA, 2007). The cumulative total capacity—more than 12 BGY by 2009—far exceeds the RFS blending mandate of 7.5 BGY by 2012, and has been the driving force behind skyrocketing corn prices in the last 12 months.” – World Resources Institute
In the United States, ethanol has reduced our petroleum dependency by about 5%. That amount is rapidly increasing. Many states require ethanol as an oxygenating agent in gasoline, replacing MTBE and tetraethyl lead. A growing number of states are requiring that gasoline be sold with a blend of 10% ethanol (E10).
There is a heated debate about whether ethanol helps the environment. If you live in Brazil, the answer is “yes.” In Brazil, ethanol is processed from sugarcane, which produces over eight times more energy than the fossil energy used in its production. In the United States, ethanol is currently produced from corn. Brazil can achieve yields of 2,500 gallons of ethanol per acre. The U.S.; 300 to 500 gallons per acre.
The United States could immediately lower gasoline prices, reduce our need for foreign oil, and lower emissions by importing sugarcane ethanol from Brazil. Instead, we impose a 54 cent per gallon tariff and generally make importation difficult. Instead we subsidize corn ethanol.
There is only a 20% reduction in greenhouse gases, source-to-wheels with corn ethanol in blends of up to E10, because the process of making corn ethanol uses diesel farm equipment, fertilizer from fossil fuel, coal produced electricity, and diesel fuel rail and delivery trucks. Since E10 is 90% gasoline, the blended fuel’s reduction of greenhouse gases is about 2%.
Corn ethanol is controversial. Corn farmers and others betting on high corn prices love it. Enthusiasts of energy independence support it. Some scientists show a net energy gain; some, a loss.
“Abusing our precious croplands to grow corn for an energy-inefficient process that yields low-grade automobile fuel amounts to unsustainable, subsidized food burning,” says the Cornell professor Dr. Pimentel, who chaired a U.S. Department of Energy panel that investigated the economic and environmental impact of ethanol production.
To analyze corn ethanol, one needs to look at corn-to-tank and tank-to-wheels. The real problem is in the tank-to-wheels use in U.S. flex-fuel vehicles (FFV).
If E85 (85% ethanol, 15% gasoline) corn ethanol is used is any of the 6 million GM and Ford flex fuel vehicles on U.S. streets, then greenhouse emissions increase. Most FFVs are fuel guzzlers; fueled with E85, they are corn guzzlers. In 2007 the best rated car running on E85 was the Chevrolet Impala, with a United States EPA mileage rating of 16 miles per gallon in the city and 23 on the highway when fueled with E85. For a typical U.S. year of driving, the annual fuel cost would be at $1,657 and 6 tons of CO2 would be emitted by this FFV when running on E85.
By contrast, the EPA rating for a Toyota (TM) Prius running on gasoline was 60 miles per gallon in the city and 51 on the highway. The Prius would have an annual fuel cost of $833 and only emit 3.4 tons of CO2.
A big problem is that ethanol cuts miles per gallon by about 27%. The energy content of E85 is 83,000 BTU/gallon, instead of 114,000 BTU/gallon for gasoline. To make matters worse, Dr. Pintel calculates that it takes 131,000 BTU to create a gallon of ethanol. Even by 2030, the U.S. Energy Information Administration (EIA) projects that only 1.4% of ethanol use will be E85. The vast majority will be for blending to 10% with gasoline.
The EIA forecasts that ethanol use will grow from 4 billion gallons in 2005 to 14.6 billion gallons in 2030, but only 0.2 billion gallons will be E85 by 2030.
To save gas and help save the planet, pump E10 into a gasoline miser. Don’t pump E85 into a corn guzzler. Although Dr. Pintel’s 2001 finds would also show E10 as a bad idea, U.S. agriculture has improved yields from 300 gallons of corn ethanol per acre to closer to 500 gallons in some areas, in part by using more fertilizer. The problem is now the vehicles, not the ethanol.
U.S. agriculture will be a big winner without any need to spend more tax dollars funding E85 stations, subsidizing corn ethanol, nor by blocking Brazilian ethanol and keeping gasoline prices high. Agriculture will be a bigger winner by growing cellulosic corps with much higher yields per acre than corn.
Large-scale reliance on ethanol fuel will require new conversion technologies and feedstock. Much attention has been focused on enzymes that convert plant cellulose into ethanol. Because cellulose derived ethanol is made from the non-food portions of plants, it greatly expands the potential fuel supply without cutting our precious food supplies. According to a joint study by the U.S. Departments of Agriculture and Energy, the nation has enough biomass resources to sustainably meet well over one-third of current U.S. petroleum needs if cellulosic technologies and resources are employed.”
In the heart of Silicon Valley, Khosla Ventures is funding innovative solutions for clean transportation and other major global problems. Led by Vinod Khosla, they are involved in a number of companies creating cleaner fuels with cellulosic ethanol, biomass gasification and synthetic biology.
Samir Kaul, General Partner with Khosla Ventures, was a keynote speaker at the GreenVest 2007 Conference. Leading venture capitalists were captivated by his thoughts about creating an innovation ecosystem and building a portfolio of cleantech and biotech companies. Samir was a biochemist at Venter’s Institute for Genomic Research (TIGR). Samir Kaul is also a Harvard MBA who successfully founded and built several bioscience companies. With Vinod Khosla, he founded Khosla Ventures.
Samir Kaul sees cellulosic ethanol potential yields of 2,500 gallons per acre. One of Khosla Venture’s portfolio companies is Mascoma, which is innovating in enzymes, organisms and ethanol production processes.
Another Khosla Ventures portfolio company is Range Fuels which sees fuel potential from timber harvesting residues, corn stover (stalks that remain after the corn has been harvested), sawdust, paper pulp, hog manure, municipal garbage, and more that can be converted into cellulosic ethanol. In the labs, Range Fuels has successfully converted almost 30 types of biomass into ethanol. While competitors are focused on developing new enzymes to convert cellulose to sugar, Range Fuels’ technology eliminates enzymes which have been an expensive component of cellulosic ethanol production. Range Fuels’ thermo-chemical conversion process uses a two step process to convert the biomass to synthesis gas, and then converts the gas to ethanol. The U.S. Department of Energy is negotiating with Range Fuels research funding of up to $76 million.
Range Fuels was awarded a construction permit from the state of Georgia to build the first commercial-scale cellulosic ethanol plant in the United States. Ground breaking will take place this summer for a 100-million-gallon-per-year cellulosic ethanol plant that will use wood waste from Georgia’s forests as its feedstock. Phase 1 of the plant is scheduled to complete construction in 2008 with a production capacity of 20 million gallons a year.
Ethanol is not the only bio-game in town. Many European cars and most U.S. heavy vehicles use diesel not gasoline. New generations of biodiesel, biobutanol, and synthetic fuels are being developed that could be blended with diesel or replace it. Some of these fuels could also be blended with gasoline and jet fuel. BP and Dupont have teamed to produce biobutanol.
Amyris and SunEthanol plan to use synthetic biology to develop microorganisms that produce biofuels. Khosla Ventures backed LS9 Inc. is in the early stage of using synthetic biology to engineer bacteria that can make hydrocarbons for gasoline, diesel, and jet fuel. LS9’s acting CEO, Douglas Cameron, is former director of biotechnology research at Cargill and chief scientific officer at Khosla Ventures.
The more that global customers recognize the value of green fuels, the faster will be their replacement of petroleum fuels. Carbon emissions cap-and-trade agreements are being implemented in a growing number of nations and U.S. states. The carbon market is expected to reach $40 billion by 2010. Leading investors and major corporations will convene at the Carbon Finance World 2007 this September 18-20, 2007, in Chicago to look at the opportunities.
Future vehicles will get improved mileage and use an increased mix of biofuels and fuels from synthetic biology. Expect to see a high growth of cleaner fuels from woods and waste, not food and haste. Look forward to true source-to-wheels solutions to energy independence and reduction of greenhouse gas emissions.