Try out the Abogo tool for yourself and discover how transportation impacts the affordability and sustainability of where you live.

The latest in the snazzy series of useful tools and research on housing and transportation published by the Center for Neighborhood Technology is called Abogo.  It works like Walk Score: you enter an address and the site produces a GIS-coded map and data for that address, including the average amount of monthly spending per household for transportation in the address’s neighborhood and the average monthly amount of carbon emissions per household, in both cases compared to regional averages.

For example, the location of NRDC’s Washington office (marked on the Google Earth image above in green) has a very high degree of regional accessibility, being located right in the center of the DC metro area, where walkability is high, transit plentiful, and average driving distances relatively short.  We would expect it to perform well compared to regional averages and other locations.  My house (blue), in a residential neighborhood northwest of downtown, is still walkable and relatively centrally located.  We would expect it to perform well, too, compared to the regional average, though not quite as well as a downtown office.  But my sister-in-law lives in an outer suburb (red), far from the regional center.  We would expect her location to perform poorly compared to the regional average (she has to spend an insane amount of time in her car, shuttling her kids around) and to the two locations in DC.

Abogo indicates that, according to the data, all of our expectations are confirmed.  Here is NRDC’s office and its scores:

Note that a household residing in NRDC’s neighborhood would generate only about a third the transportation emissions of an average household in the region.  Now here’s my house:

At the risk of being self-congratulatory, I note that our emissions and transportation costs are well below those of the region as a whole.  But look at my sister-in-law’s location:

Unfortunately, she and her neighbors average over a thousand dollars per month in spending for transportation, and generate a whopping 40 percent more carbon for transportation than the regional average, and over four times the amount that an average household in NRDC’s neighborhood generates.  Why?  Longer distances to drive to do most anything, little to no transit, few destinations within comfortable walking distance.

CNT explains its methodology here including, in part, the following:

“We estimate total transportation costs for an average household from your region living in your neighborhood, including commuting, errands, and all the other trips around town. We count money spent on car ownership and use, as well as public transit use.  For CO2 emissions, we count car use only.  We use data from the Housing + Transportation Affordability Index, a project of the Center for Neighborhood Technology.”

Much more on the site, of course.  Well done.  Go here to try it out for yourself and for more information on Abogo.

But, notwithstanding their efforts, I find myself using DC’s Metro less and less these days, in no small part because it just doesn’t work as consistently well as I need it to in order to meet my needs.  Although our Metrorail system has never been perfect, it has always been a marvel of architectural beauty and engineering achievement, and once was the envy of the nation for its cleanliness, comfort and efficiency.

Sadly, that is no longer the case.  Today, access to the system is made difficult by broken escalators and elevators all over the system; service can be slow and unpredictable; cars are dirty and crowded; air conditioning systems sometimes provide mediocre cooling in DC’s sweltering summer heat.

I used to take Metro all the time for commuting and frequently for other trips as well.  But, while I still use the system several times per week, frequently to shuttle around downtown for meetings, more often than not I now drive to work, shelling out $20 for parking each day and putting up with traffic hassles when I do.  Part of this, I’m sure, is not just Metro’s age but my own.  Now in my (low!) 60s, I am less tolerant of hassles than I was in, say, my 20s and 30s when I didn’t particularly care if I got a seat or not or whether there was decently working a/c.  These things matter more than they used to.  If I am going to walk the half-mile to the station in the heat and humidity, I want comfort, efficiency and reliability when I get there.  Unfortunately, those are the things that Metro riders can no longer count on.

Perhaps the most aggravating problem is the constant disrepair of the system’s many escalators, some among the longest in the world, necessary to access or exit the platforms.  The subject of an article in yesterday’s Washington Post, this is a problem that has plagued Metro from the very beginning but seems to be getting worse as the system ages and ridership has increased.  Metro officials say that, at any given time, about 10 percent of the system’s escalators are not working, but it sure seems like more than that on my routes.  Maybe the problem is worse in the stations in the central city, more heavily used than those in the suburbs?  (A recent major escalator failure in the inner suburb of Bethesda might suggest otherwise, though, as do breakdowns in other suburban stations.)  I can guarantee that the two escalators at the 12th & G Streets entrance to the Metro Center station – which happen to be the closest to NRDC’s office – have both been working at the same time less than half the total time since we first moved into the neighborhood fourteen years ago.

Outages caused near-riots recently at the Dupont Circle station, whose escalators are among the system’s longest and steepest but failed at rush hour.  My recently departed (and already missed) colleague Gaby Chaverria happened to be escorting her mother around town at the time, in near-100-degree heat, and managed to be caught in the resulting mess in both Dupont and Bethesda.  Gaby is a loyal city dweller who doesn’t own a car, basically trying to show her somewhat elderly mom what’s great about her city.  She was extremely discomfited and frustrated by the experience.

Here is an 16-second video of passengers struggling to walk up a broken Metro escalator at Dupont Circle:

(The video is by Twitter user @giveit2lloyd and you can view the original here.)

I get the impression that Metro and its contractors are more or less always working on the escalator issues, but the truth seems to be that their limited budget means that new breakdowns are occurring faster than repairs of old ones.  It is hard to feel confident that this problem is going away, since budgets aren’t going up and the system will only get older.  The elevators, which provide a poor alternative to the escalators in terms of capacity but are essential for disabled passengers, are constantly breaking down as well.  Every Metro passenger is familiar with the drone of announcements in Metro stations identifying elevator outages, which seem to go on and on.

The nadir of Metro’s problems has to have been the July 2009 crash of two trains that killed nine people.  That is genuine tragedy, not just inconvenience, and one’s heart goes out to the victims’ loved ones.  That crash (like other transit systems, Metro has suffered other fatalities over the years, but that was the worst single incident) prompted all sorts of investigations.  One result, unfortunately, is that service immediately got worse, as trains were slowed as a precaution and operators switched to manual braking rather than automatic.  This particularly plagued the Red Line, the system’s busiest and the one I use for commuting.  I don’t think service on the Red Line has yet fully recovered, over a year later.  Perhaps more alarmingly, the system’s safety record has gotten worse, not better, since the accident, a federal safety official citing ‘significant deficiencies in [Metro’s] safety culture.’

Slower service is one of many factors leading to overcrowding, as the system now operates at excess capacity much of the time.  That problem is only going to get worse if you prefer to sit down as you ride, since one of the ways Metro is dealing with it is to put new cars on the system that have more standing-room capacity but fewer seats. Budget shortfalls have also led to frequency and capacity of service being either stagnant or reduced (fewer cars and longer waits at some hours on some routes), when service really should be increasing to meet demand and to help reduce environmental problems caused by driving.

For some reason, Metro also seems to be plagued with door-closure problems, which cause further delay because an incident with any one door prevents the train from moving until resolved.  Usually this is the fault of a stray passenger who, because of crowding, has unknowingly gotten a strap or something caught in the doorway.  This problem seems actually to have gotten a little better over the years, since the days of the ubiquitous recorded ‘PLEASE stand clear of the doors!’ messages, supplemented occasionally by an operator announcement that ‘if you do not move clear of the doors, I am going to have to offload this train’ warnings.  But it still occurs, and I wonder why, when I never encounter the issue in other rail transit systems around the world.  And, although the immediate cause is usually an errant passenger, the underlying cause is overcrowding that forces passengers to stand pressed against the doorways.

As I have written before, one of the major shortcomings of the federal stimulus legislation is that it provided almost no assistance for transit operating expenses, the transportation area of greatest need and where jobs were (and are) being lost or endangered because of cutbacks.  There was nothing ‘shovel-ready,’ unfortunately, about operation of infrastructure that already exists.  That needs to be fixed in the next federal transportation bill.

I have lived in DC long enough to remember a time before Metro.  Although bus service was arguably a little better then than it is now (more routes, more direct service since now many bus routes feed into Metro stations where passengers must transfer), Metrorail has undeniably been a wonderfully transformative accomplishment for our city and region.  It has, without a doubt, made the city work better in many ways, and spurred some very good urban development.  It is a huge part of why the city feels more vibrant and cosmopolitan than it once did.  But, if service has deteriorated to the point where Metro can no longer claim me, a professional advocate for public transit, as a loyal customer, it has a problem.

Everyone who thinks Big Oil should get $31 billion from U.S. taxpayers, please sign on the dotted line. That’s the message of a new ad running today in Congress Daily sponsored by NRDC, the Union of Concerned Scientists, Friends of the Earth and the Clean Air Task Force. The ad highlights the wastefulness and redundancy of the Volumetric Ethanol Excise Tax Credit (VEETC), which amounts to little more than a massive government bribe to oil companies to get them to buy and blend gallons of corn ethanol they are already required to purchase under the Renewable Fuel Standard.

As I’ve discussed here and here, corn ethanol is a mature technology that has been commercially viable for decades and today provides nearly 10 percent of light-duty vehicle fuel in the United States. Though the ethanol industry argues that the VEETC is critical to its survival, the reality is that most of the VEETC value ends up in the pockets of oil companies as profit.

So why has Old Ethanol mounted a massive lobbying campaign pushing Congress to extend the VEETC?  Multiple independent analyses (see the blogs above) show that the ethanol industry will continue to grow without the tax credit, just at slightly slower rates. But corn ethanol producers have built out their industry to supply the additional gallons of ethanol oil companies purchase beyond RFS mandates as a result of the tax credit. So now this mainstream industry is asking American taxpayers to continue spending billions per year just so they can keep their market a little tighter and their profits a little higher.

And what do we tax payers get in exchange for these billions of dollars? Not much besides more greenhouse gas emissions, more of the water pollution that has caused a dead zone in the Gulf of Mexico as large as the BP oil spill, higher prices for the corn soil in our stores and fed to our livestock, and more deforestation, as I discussed here. The ad drives this point home by telling taxpayers not to be fooled by the name of the subsidy: it’s not about creating new or cleaner ethanol. The VEETC almost exclusively supports ethanol from corn, which, when all direct and indirect costs are added, creates more global warming pollution than the oil it is supposed to replace!

No matter how you slice it, the VEETC is a massive giveaway to Big Oil for obeying the law that buys us little to nothing in terms of new jobs, environmental performance or even additional domestic ethanol production beyond the quantities already mandated by the RFS. And by subsidizing the best and worst gallons of ethanol, the tax credit comes at the expense of developing new and cleaner biofuels, such as those made from dedicated “energy crops” like willow and switchgrass, which I’ve talked about here.

We can and should support ethanol producers who open new plants, create new jobs, produce more advanced biofuels more efficiently and deliver real environmental benefits—but not by continuing to use scarce taxpayer dollars to pay for every single gallon of ethanol produced at decade-old plants. We can do better by supporting emerging and more competitive energy technologies in non-polluting wind, solar, geothermal and advanced biofuels that create many more times the green jobs we need and far less pollution. Now is the time for Congress to stop subsidizing Big Oil and Old Ethanol and allow the corn ethanol tax credit and tariff to expire at year-end.

The number of walking trips taken by Americans has more than doubled in the last 20 years, from 18 billion in 1990 to 42.5 billion in 2009, according to a new report.  The number of bicycling trips has also more than doubled, from 1.7 billion to 4 billion.  Perhaps even more significant, the share claimed by walking and bicycling of all trips taken by Americans (below left) has climbed by 50 percent, from a combined 7.9 percent to 11.9 percent.

On June 16, federal transportation secretary Ray LaHood announced the findings of The National Biking and Walking Study: a 15-year Status Report, undertaken by DOT’s Federal Highway Administration.

On his blog, LaHood hailed the results and promised additional efforts to increase walking and bicycling in the US:

“I think the news is pretty good.  First and foremost, Americans are hitting the sidewalks and streets on foot and by pedal in record numbers . . .

“Americans want and need safe alternatives to driving. And by making biking and walking safer and more accessible, we’ll be able to provide Americans with more choices and help foster more active, more sustainable, and–yes–more livable communities.

“That’s why we recently announced a policy change that encourages transportation agencies to go beyond minimum standards and provide safe and convenient facilities for pedestrians and bicyclists.”

In addition to presenting survey data, the report examines a range of efforts to increase bicycling and walking in the US.  Included in the review are programs at the federal, state, and local levels, along with case studies on best practices, and the report makes recommendations for research, policy, and other measures that can be taken to meet increase walking and bicycling for everyday transportation.  In addition, the report includes safety statistics, which also show improvement.

The new findings are consistent with a wide range of data showing that, over the last decade or so, sprawl has been declining, central cities are growing again after years of decline, per capita rates of driving have slowed, and transit share has increased, among other trends.  We must keep our eyes on the prize, but we are on the right path.  The announcement also underscores the commitment of Secretary LaHood who, along with HUD Secretary Donovan, has become a true leader for sustainability in the current administration.

In the previous essay, I discussed some of the challenges that next-generation biofuels face according to a recently released USDA report:

Next-Generation Biofuels: Near-Term Challenges and Implications for Agriculture

Here are five positive notes from the report:

1. Renewable Diesel Plant Capacity

“Next-generation U.S. biofuel capacity should reach about 88 million gallons in 2010…” This is primarily a result of the expected start-up of a next-generation renewable diesel plant. I have reported on this technology before, as well as the efforts of first-generation biodiesel producers to slow it down and protect their own interests. My guess is that unlike the ConocoPhillips project that was killed after Congress voted to deny them the full tax credit, this project will receive the same tax credit as a conventional biodiesel producer. On a level playing field, I believe the hydrocracking approach is superior to first generation biodiesel, but our political leaders will need to stop playing games with the tax credits in order for next generation diesel to realize its potential. (For a complete explanation of the different kinds of renewable diesel, see my Renewable Diesel Primer).

2. Competitive Race

Companies are taking a number of different approaches to coming up with next-generation solutions, increasing the chances that a dark horse will arise as a contender: “There are about 30 next-generation companies in the United States developing biochemical, thermochemical, and other approaches, and experimenting with a variety of feedstocks, some of which are directly linked to agriculture..”

3. Open for Business

The first next-generation plants are expected to come online in 2010: “Range Fuels and Dynamic Fuels are expected to complete the first commercial next-generation biofuel plants in 2010.” I have certainly given Range Fuels a hard time over their public statements – especially in light of recent reports which this USDA report also flagged: “According to the EPA, however, the plant’s initial capacity has been reduced from 10 million to 4 million gallons per year and initial output will be methanol.” However, readers should not mistake my position as hoping that they fail. To the contrary, I hope they succeed, because we are going to need a lot of successes. I am just skeptical that they will achieve commercial (unsubsidized) success, and unhappy that they sucked up a lot of taxpayer funds based on their initial promises that clearly did not materialize.

I would further note, however, that Range Fuels and Dynamic Fuels may be the first U.S. plants that could be classified as next-generation commercial plants (although as I have pointed out, we had commercial cellulosic ethanol plants in the U.S. by 1920), but such plants do already exist overseas. Neste Oil, in fact, has built several plants based on the same sort of technology that Dynamic Fuels is employing. There are also other overseas companies doing gasification (the Range approach) that are further along than Range is.

4. Algae Research

Just as there are many different approaches to next-generation fuels, there are many companies taking many different approaches to producing fuel from algae: “More than 30 U.S. companies currently are experimenting with different approaches to producing algae-based fuels.” Some of these approaches are unconventional: “Although the majority of algae-to-biofuel companies are focusing on producing algae oil for traditional biodiesel production, some companies are using algae to produce ethanol (Algenol), or petroleum-equivalent fuels (UOP and Sapphire).” The challenge of course will be to drastically reduce production costs, but the potential is too great to ignore.

5. Production Costs Decrease

Both production and capital costs for cellulosic ethanol are falling. The report noted “POET recently reported it had lowered production costs for cellulosic ethanol, including capital expenses, from $4.13 to $2.35 per gallon in a year as of November 2009 at its South Dakota pilot plant.” The report further notes that estimates for a 100 million gallon cellulosic ethanol facility have fallen from the $650 million to $900 million range (2004 estimate) to $320 million (2009 estimate). However, the report notes that these estimates should still be considered speculative, since “there are no actual cost data for commercial operations since none are yet operational.”

As a body of work, I highly recommend you read the USDA report if you are interested in the status of next generation biofuel facilities. It is a sober, objective assessment of the challenges and opportunities that lie ahead as next generation fuel technologies continue to develop.

The U.S. Department of Agriculture (USDA) has just issued a report detailing the outlook and challenges of next generation biofuels. I provided some input during the drafting of the report, which hopefully was of some use. Here I select five pessimistic projections from the report. In the next essay I selected five optimistic projections.

The report is:

Next-Generation Biofuels: Near-Term Challenges and Implications for Agriculture

Here are five findings from the report that promise to strongly influence the country’s direction on next generation fuels.

1. Production and Capital Costs

“Estimated production and capital costs for next-generation biofuel production are significantly higher than for first-generation biofuels.” The report quotes costs for a 100 million gallon biochemical conversion plant (e.g., cellulosic ethanol) at $320 million, and the costs for a 100 million gallon thermochemical conversion plant (e.g., gasification and conversion to liquid fuels) at $340 million. The report states that this is “more than three or four times those for corn ethanol plants.”

2. Biomass Feedstock Costs



The report suggests that the presumed costs for purpose grown biomass have likely been underestimated. It cites POET, for instance, as assuming a $40 to $60 per ton price for corn cobs. But the report states “the range of prices may underestimate the cost of increasing biomass yields on marginal lands and the incentives required for harvesting, gathering, and delivering bulky material to the biorefinery” and “dedicated energy crops would need to compete with the lowest value crop such as hay which has had a price exceeding $100 per ton since 2007.” In a previous essay I identified this as one of the bad assumptions many biofuel producers today are making: That biomass costs will be low or even negative in the future as demand ramps up.

3. Algae Conversion Costs

The report repeats the mantra that you have heard from me many times: “Production cost estimates (net of capital costs) for growing and converting algae to fuel are significantly higher than for first- and next-generation biofuels, ranging from $9 per gallon to $35 per gallon.” As I have noted before, I think people confuse the ease of growing algae with the ease of growing it commercially and turning it into fuel.

4. Support for Cellulosic Ethanol May Be Short-Lived

The report suggests that support for cellulosic ethanol may be short-lived: “Given the limited market for ethanol as a gasoline additive (due to the E10 “blend wall”) and as a gasoline substitute (because of slow development of the E85 market), developers and investors may turn away from cellulosic ethanol in favor of production of another class of next-generation biofuels, petroleum substitute fuels. These so-called ‘drop in’ fuels can be used as gasoline or diesel substitutes in current vehicles without limit and distributed seamlessly in the existing transportation fuel infrastructure.” The report further states “There may be a shift in favored technologies underway. Several companies planning to be operational with some of the larger plants in the next several years plan to use thermochemical approaches or other processes that produce biobased petroleum-equivalent fuels.” My position on this is clear: I believe that thermochemical approaches are more scalable and less energy intensive than most biochemical approaches.

5. Scale

Fiberight is forecast to be the leading cellulosic ethanol producer for 2010 – with a production capacity of 130 barrels per day. To put that into perspective, the very small oil refinery I used to work at in Billings, Montana had a capacity of 60,000 barrels per day.

The bits I extracted are all themes that I have addressed here many times. In a nutshell, they relate to the fact that many would-be next generation fuel producers are making unrealistic assumptions about things like feedstock costs. Thus, where they project falling costs based on their optimistic projections, the USDA report forecasts that their biomass costs will be much higher than expected.

But there were some bright notes, which I address in the next essay: Five Positive Notes on Next-Generation Biofuels.

As I mentioned in last week’s Taipan Daily, How To Squeeze Gains From This Commodity Giant’s Woes, the Federal Reserve has pledged to remain vigilant for any and all signs of inflation and/or excess-specie-driven bubbles. Preservation of the value of our currency is, after all, the Federal Reserve’s primary task, as listed in its own mission statement.

Fortunately, they tell us, there is no such threat on the horizon, and point to the U.S. Bureau of Labor Statistics claim of 0.1% consumer inflation in March as proof of same. If that’s not a bald-faced lie, then it is obfuscation of the most blatant sort, intended to placate us re: the danger of the continuation of the Federal Reserve’s policy of nigh-zero interest rates.

Tell you what: The watchman is asleep at the gate, folks, and the enemy’s vanguard is already rambling about our camps.

Inflation Is Already Here!

I will say this again and again, until someone out there heeds the alarm: Inflation is already here, on both the retail and wholesale levels. And it’s only going to get worse, until eventually it collapses our recovery in the same fashion as it did in 2000 and 2007.

The Bureau of Labor Statistics’ headline claim that the Consumer Price Index for All Urban Consumers increased a mere 0.1% in March depends heavily on the usual sleights of hand, odd-weightings, seasonal and even post-facto adjustments, and exclusion of critical items.

For example, they note that “food” only rose 0.2% in March. Dig a little deeper, and you find fresh fruits and vegetables – food stuffs that cannot be warehoused, and therefore reflect more current circumstances – spiking at almost double that rate.

Down 0.8% – Or Up 44%?

They are particularly proud of the fact that clothing stores sold 1.6% more T-shirts, blue jeans, frocks et al., but charged 0.4% less for same. In a moment, I’ll show you why this has the makings of an absolute disaster.

But perhaps most strangely, Washington claims that energy costs actually went down 0.5%, with gas in particular falling 0.8% – a curious thought that particularly caught my eye, what with crude oil scratching the bottom of $90/bbl these days.

Once again, if you dig into the footnotes, you find that this is one of Washington’s infamous “adjustments.” Sans “seasonal” tinkering, the BLS concedes that fuel costs actually rose 4.5% in March – and 44% since the previous March!

The Common Threat

And therein lies the problem. Unless you are prone to wearing hand-knit underwear and dining only on homegrown rutabagas, the stuff we purchase must be shipped from farm and factory to sales floor. Indeed, much of the dross we find so essential to modern life is shipped halfway around the planet before we drop our $20 on the counter at Safeway or Walmart.

This creates a singular common cost for most all consumed goods: fuel, be it kerosene for jets, diesel for ships, trains and semis, or gasoline for local trucks. And as Washington’s buried footnotes confess, fuel costs have gone up some 40% over the past year or so.

Now keep in mind, that this was during a period when the U.S. dollar was enjoying relative popularity due to the European PIIGS crisis. But now that Europe’s failures are no longer providing convenient cover for Washington’s abuse of the dollar, the greenback is sagging again.

Indeed, the past 23 trading days have seen the U.S. dollar give up nearly 3% against a basket of similarly prominent currencies. And there are strong technical indications that this trend is only beginning to gather steam.

How to Slip the Coming Blow

Americans have felt this powerful combination punch before: As the U.S. dollar falls, it will greatly accelerate the increase in crude oil prices. We should see $100/bbl shortly, and $4 gasoline is certainly not out of the question.

This will increase cost of goods to most every retailer, be they purveyors of Legos from Denmark or Eggos from Atlanta. In turn, sellers will face the inevitable and unenviable choice of either raising prices to consumers who just paid $4/gallon to drive to the store, or eating that cost increase, and destroying their bottom line.

This is not guesswork, fancy projections or ivory tower economics. Washington cannot revise, alter or in any way “adjust” these facts (although they can – and most probably will – lie through their teeth about them, while their friends on Wall Street rake in cash).

History (and recent history at that!) tells us exactly how this story ends. You have two choices here: You can protest vigorously come the next election. And you can ride stocks – particularly energy stocks – up to their inevitable blow off top with calls against same, and down the other side via put option contracts. (A ready example of this tactic would be the Chevron calls recently recommended in my weekly WOW column, which are up some 103% as I sit to write.)

This article was republished with permission from Taipan Publishing Group.

• An overwhelming majority (82%) of Americans believe the country would benefit from improved public transportation.
• Most Americans (57% “strongly”) would like to spend less time in their cars.
• An overwhelming majority of Americans find current public transportation either not available at all (47%) or not convenient (35%) in their communities.
• A strong majority (59%) see public transportation as the best strategy for reducing traffic congestion.

There is much more.  Here is an excellent slideshow summary of the poll results:

Read more detail about the poll here, and federal transportation secretary Ray LaHood’s statement about the results here.

In yet another example of ethanol industry spin, the Renewable Fuels Association released a state-by-state version of its highly inflated jobs study. This is just another part of big ethanol’s effort to make the case for extending the Volumetric Ethanol Excise Tax Credit (VEETC)—a massive, taxpayer-funded subsidy for corn ethanol—on top of both blending mandates under the Renewable Fuels Standard (RFS) and stiff border tariffs to protect domestic ethanol producers from foreign competition. I wrote yesterday about some of the reasons why the industry’s jobs numbers are way off, but given RFA’s release, it seems worth getting into more of the details.

There are three basic points here:

1. Inflated jobs multipliers: As I discussed yesterday, big ethanol is using wildly inflated job multipliers. For every direct job created at an ethanol plant, the industry group Growth Energy is claiming 31.5 additional new jobs are created throughout the economy. For studies that try to be realistic and specific about jobs in the ethanol industry, a multiplier of about 6 is aggressive. A job multiplier of 3-4 is much more realistic, especially since big ethanol claims to have little to no impact on food and feed production or prices and therefore cannot take credit for somehow magically creating thousands of corn growing jobs that would have existed anyway.
2. Inflated economic impact: To get to their inflated jobs numbers, big ethanol is also claiming that it will take a big economic hit from the loss of the VEETC and the associated import tariff. Unfortunately, they play fast and loose with the economics. (To get close to their numbers you have to assume that the industry is wildly uneconomic.) More on this below, but adjusting their numbers for a bit of reality and the hit is half to one quarter of what they claim. Estimates from the Food and Agricultural Policy Research Institute (FAPRI) come in at about a quarter. That means the direct jobs impact is 1/4 of industry estimates even before we get to a more realistic jobs multiplier.
3. Just about any other use of $31 billion would create more jobs: If we start with a more realistic economic impact and the resulting, much smaller direct jobs impact and then use a more realistic jobs multiplier, we end up with a job impact of about two thousand. A five year extension of the VEETC will cost over $31 billion in taxpayer dollars. That means using the VEETC to keep about two thousand people employed for the next 5 years will cost of about $2.5million per job per year. I’ve written about NRDC’s proposal for a Greener Biofuels Tax Credit and obviously believe that would create more jobs, more security and more environmental benefits, but the reality is just about anything would be more cost effective than simply extending the VEETC in its current form.

So now to some of the wonky numbers behind points 2 and 3 above. The analysis in RFA’s study starts with the claim that if the VEETC and tariff expire, the price of ethanol will drop by the full $0.45 per gallon value of the VEETC. The premise here is that industry has fully internalized this incentive and so their marginal costs fully reflect it. For this to be true we have to accept the notion that corn ethanol is wildly uneconomic and needs this $0.45 simply to survive—meaning that neither the industry nor the oil companies are profiting at all at the taxpayers’ expense. While big ethanol likes to claim that its margins are razor thin, this implies that we’ll have to subsidize them forever. A more realistic assumption is that the oil companies are pocketing most if not all of the VEETC value. After all, the demand and supply have been a bit above the RFS mandated levels every year, which means the oil companies are setting the demand level and thus the price levels. Big oil gets to keep big ethanol’s prices low and keep the VEETC as profit.

This is a key assumption because the initial price hit of removing the VEETC triggers shifts in demand, which trigger further shifts in price and thus supply based on elasticities of supply and demand. The net result is a smaller change in the price and supply of ethanol.

[Since I had to remind myself, here’s a quick refresher on elasticity of demand and supply: the former refers to how demand in the market for a good changes in response to changes in price, whereas the latter refers to changes in the supply of the good as a result of price changes. When demand is perfectly inelastic, even large changes in price will not cause a decrease in demand. Perfectly inelastic supply—i.e. supply that is fixed no matter what the price—means that regardless how high a price people are willing to pay, no more supply of a specific good will be produced].

RFA notes that the elasticity of demand for ethanol, as with gasoline, is relatively inelastic, with fairly consistent published estimates (between -0.37 and -0.43, meaning a 10% decline in the price of ethanol would result in a 3.7 to 4.3% increase in demand). In the case of the elasticity of supply, however, the range of published estimates is much wider: from 0.37 on the low end to 4.0 on the high end. This large a discrepancy in estimates should prompt further discussion or perhaps the use of ranges and/or scenarios in an analysis such as RFA’s. Instead, RFA chooses the dubious route of simply averaging available supply elasticities to arrive at a magic estimate of 1.375 (meaning that a 10% decline in ethanol prices would result in a much higher 13.8% decline in production).

The results of their full calculation can be seen in this table from RFA’s study:

Combining this averaged elasticity of ethanol supply with their earlier assumption that removing the VEETC would cause a $0.45 per gal drop in the price paid to ethanol producers, RFA estimates that producers will see a net drop in ethanol prices of 37 per gal or 22.5%, forcing them to cut supply by nearly 38%.

If we repeat RFA’s calculation with more modest assumptions—a $0.225 per gal drop in the price of ethanol with the removal of the VEETC (half the VEETC value assuming that the other half goes into the pockets of the oil companies) and lower-end estimates of the elasticity of supply to changes in ethanol prices (0.37 to 0.75)—the result is ethanol prices that are only 7 to 12% lower without the VEETC and a reduction in supply of only 5 to 10%.

Tellingly, the results of the FAPRI study that I wrote about a few weeks ago fall right into this range. In the FAPRI analysis of what would happen if the VEETC and tariff both expired, domestic production of corn ethanol still increases in every year, but between now and 2015, it grows by about 10% less than the baseline. The price also drops by $0.19 per gallon or 10% from the baseline.

So, what happens if the supply only changes by about 10% rather than RFA’s hysterical 33%? Well to start, a lot less direct job loss. At 45 employees per 100 million gallon per year plant, 1.4 billion gallons would require about 630 people to produce. With a jobs multiplier of 3 to 4, that’s just 1,890 to 2,520 jobs in the entire economy that are being driven by the VEETC at a cost of about $5.5 billion per year. That’s $2.1-2.9 million per job every year just to retain those jobs!

What this demonstrates is that the VEETC is widely wasteful—by paying for every gallon, we grossly overpay for any marginal benefits. There is a huge loss incurred by U.S. taxpayers when our scarce public resources are used this inefficiently to support mature technologies instead of investing in new, better performing advanced biofuels. Given the billions of dollars at stake to support a subsidy that generates little ethanol production above and beyond quantities already mandated by the RFS, Congress needs to seriously weigh the costs and benefits of extending the VEETC and ask themselves: should we really be subsidizing corn ethanol forever? Is there a better way we could be spending scarce taxpayer resources that would help bring new, more competitive biofuels to market, create more jobs, give us more security and deliver better environmental performance? The answer, I think, is a resounding yes. NRDC’s Greener Biofuels Tax Credit would pay for environmental performance, support innovation, and speed our transition to a clean energy economy with next generation biofuels that can make a real contribution to the environment, our energy security and the U.S. economy.