The Biofuel Scam Is Worse Than Solyndra

By Robert Bryce National Review Online January 25, 2016

Forget Solyndra. When it comes to misguided federal energy policy, the real scandal involves the hundreds of millions of taxpayer dollars that are being wasted on biofuels.

Sure, the corn-ethanol scam — which endures largely because of the Iowa caucuses, which will be held on February 1 — is part of this scandal. (More on Iowa in a moment.) But the most egregious biofuel foolishness is happening at the Department of Defense. The latest example came last Wednesday, when the U.S. Navy announced the deployment of what it’s calling the “Great Green Fleet.” On hand in San Diego for the event were Navy Secretary Ray Mabus and Agriculture Secretary Tom Vilsack, a former Iowa governor. The two officials flew out to sea in a helicopter so they could watch the USS William P. Lawrence, a guided-missile destroyer, get refueled with a blend of diesel fuel and biofuel.

Mabus declared that biofuels give “us an edge tactically” and “an edge strategically.” And then came the money line, the words that have been used to justify the biofuel madness for more than a decade: Biofuels, claimed Mabus, prevent “fuel from being used as a weapon against us.”

Ah, yes. How very 1970s. It’s a wonder Mabus didn’t warn us about the dangers of OPEC. The idea that oil can be used as a weapon against the United States is the same tired canard that the ethanol boosters have been using in Iowa and elsewhere for decades. They continue to use it even though there is not a single example of any military machine (or any American consumer) ever being short of oil because of any coordinated actions by oil-producing countries.

Furthermore, Mabus made his specious claim on a day when oil prices were at, or near, twelve-year lows. Indeed, oil prices are now under $30 per barrel, and given that both Iran and Iraq are talking about major increases in output, it appears prices could stay depressed for many months, or even years, to come.

The San Diego sideshow is just the latest example of how biofuel boosters have used the military to get their hands on taxpayer money. On Earth Day 2010, the Navy flew an F/A-18 using a mixture of conventional jet fuel and biofuel derived from camelina, a plant in the mustard family. After the flight, Mabus declared that the Navy and Marine Corps were committed to “reducing dependence on foreign oil as well safeguarding our environment.” The cost of that fuel: about $67 per gallon.

In 2012, the Navy paid $424 per gallon for biofuel derived from algae. That same year, in another much-hyped example of the Great Green Fleet, it spent about $27 per gallon for 450,000 gallons of biofuel.

One of the companies that got a lucrative biofuel contract from the military was the San Francisco–based Solazyme Inc. According to the Congressional Research Service, in 2009, Solazyme got a $223,000 contract for 1,500 gallons of algae-based motor fuel. That works out to $149 per gallon. Perhaps it’s a coincidence, but Solazyme has also been a big donor to Democratic causes, giving some $300,000 to Democratic candidates and committees. The company has also donated between $100,000 and $250,000 to the Bill, Hillary, and Chelsea Clinton Foundation.

The Solyndra fiasco involved a $535 million loan that was supposed to help the company produce solar panels. Instead, in 2011, the company went bust. But the Solyndra loan represents only about half of the more than $1 billion that the Department of Energy has provided to various companies to research and develop cellulosic biofuels. That money has been spent despite research showing that production of cellulosic biofuels likely results in carbon-dioxide emissions that are higher than those from conventional gasoline.

The DOE money is only part of the madness. Also last Wednesday, Reuters reporter David Alexander noted that the Navy has “awarded $210 million to help three firms build refineries to make biofuels using woody biomass, municipal waste, and used cooking grease and oil.” Alexander adds that the Department of Agriculture is “providing an additional $161 million in crop supports.” That’s $371 million in additional taxpayer money being thrown at a bad idea.

Last month, Fortune reporter Katie Fehrenbacher wrote an excellent piece about the spate of failed cellulosic-biofuel companies that have been backed by Silicon Valley promoter Vinod Khosla. In 2006, Khosla claimed that we “can replace most of our gasoline needs in 25 years with biomass.” One of Khosla’s investments was in Range Fuels, the failure of which I wrote about on NRO back in 2011. Range Fuels got a $76 million grant from the Department of Energy as well as an $80 million loan that was guaranteed by the federal government. Despite the failure of Range, Khosla plunged forward with a company called KiOR, which claimed it could profitably produce liquid fuels from the wood of pine trees. The company got tens of millions of dollars in government money, but its process never worked as promised, and it filed for bankruptcy in 2014. The state of Mississippi, which provided the company with a $75 million loan, is now suing Khosla, as well as several KiOR executives, claiming the state was deceived about the company’s technology.

As Fehrenbacher notes in her article, not a single biofuel startup has “managed to produce a next-generation biofuel at commercial scale in the U.S.” Despite these failures, or perhaps because of them, biofuel boosters are looking at the military’s enormous budget and seeing it as the perfect slush fund. Last August, Hillary Clinton — who voted against ethanol 17 times as a U.S. senator, but now is among the fuel’s biggest champions — went to Iowa for one of her first campaign stops. During a speech at Morningside College in Sioux City, she promoted the use of biofuel by the military, saying that the Department of Defense could be “a huge potential customer” for biofuels. “Just think of what it would mean for rural America, and Iowa in particular, if we could build demand, number one, and then build the processing in order to provide advanced biofuels for aviation, both civil and military.”

What makes the military-biofuel story even more remarkable is that active-duty military personnel are pointing out the myriad problems with biofuels. In 2014, John Gay, a commander in the U.S. Navy, wrote an article for Joint Force Quarterly, one of the U.S. military’s most prestigious journals, in which he said that paying above-market rates for military fuel “puts our national security at risk. Biofuel mandates divert scarce military resources away from critical programs such as weapons modernization, maintenance, training, and readiness.” Gay also wrote that a critical analysis of the “military application and feasibility of biofuels indicate[s] that they will not be cost competitive or available in necessary quantities and will put Service members at greater risk rather than improve energy security.”

The bottom line here is obvious: American voters and taxpayers have been had. Despite decades of hype, as well as years of mandates and subsidies, biofuels have never made a significant dent in our need for oil. And given the repeated failures of various biofuel companies, it’s unlikely they ever will.

I’ll close with a comparison that shows how the marketplace is trumping government mandates and subsidies. Today, ethanol distilleries are consuming about 40 percent of all domestic corn output in order to produce fuel equivalent of about 600,000 barrels of oil per day. (Total U.S. consumption in 2014 averaged about 19 million barrels per day.) And it took roughly four decades of mandates and subsidies for the corn-ethanol industry to grow to that size.

Let’s compare that result with what has happened in the oil patch. Since 2006, thanks to the shale revolution, domestic oil production has increased by more than 3.6 million barrels per day. Thus, in just this past decade, the oil sector has increased production by six times the total output of every ethanol distillery in America. That increased oil production didn’t happen because of congressional mandates or subsidies. It happened because privately owned companies risked billions of dollars, and in doing so they innovated in everything from drill bits to mud pumps. The result: dramatic decreases in oil and natural-gas prices, which are now saving American consumers billions of dollars per year.

Despite these facts, the biofuel lobby continues to have its way in Washington and even, unfortunately, at the Pentagon. Such is the utter foolishness of modern American energy policy.