The Big Guy’s Back Door Tesla Subsidy

The Big Guy’s Back Door Tesla Subsidy
[EPA finds a convoluted way to expand ethanol subsidies to boost EVs.]
By The Editorial Board of Wall Street Journal
Dec. 29, 2022

Tesla’s stock market value has plunged by some $850 billion this year amid investor worries over Elon Musk’s Twitter takeover and slumping demand for its electric vehicles. But lo, the Biden Administration is coming to Mr. Musk’s aid with a new plan to use the renewable fuel program in a way that subsidizes Teslas and other already subsidized EVs.

Congress’s ethanol mandate offers a case study in the political difficulty of weaning industries off government support—and how regulators can revamp programs to serve new political ends. Politicians of both parties rallied around the renewable fuel standard (RFS) in 2005 as a way to boost U.S. energy independence and reduce CO2 emissions. It has done the opposite.

The RFS requires refiners to blend increasing amounts of biofuels into their products. Refiners keep crashing into the so-called blend wall—the amount of ethanol U.S. vehicles and energy infrastructure can handle. Ethanol blends higher than 10% can corrode engines and gas-station tanks. As vehicles have become more fuel efficient, it has become harder for refiners to comply.

Large refiners have started producing “advanced” biofuels while smaller ones must buy credits known as Renewable Identification Numbers (RINs). Increasing compliance costs have driven several small refiners to shut down. A refining shortage, especially on the East Coast, is a major reason prices for gasoline and diesel shot up early in the summer far more than for crude.

The Biden EPA’s back-door EV subsidy will compound these problems. EPA is proposing to increase the overall RFS to 22.68 billion gallons in 2025 from 20.63 billion this year. The cellulosic ethanol component—which EPA in the past has repeatedly revised down because production has fallen far short of its ethereal mandates—will climb to 2.13 billion gallons from 630 million.

Here’s the kicker: Refiners will be allowed and by necessity required to comply with these mandates by buying “eRINs” credits from EV manufacturers. “While the production of liquid cellulosic biofuel has remained limited in recent years,” EPA says, “the inclusion of eRINs into the program affords another opportunity for dramatic growth of cellulosic biofuel.”

Not really. The proposal is one more way to boost EV margins at the likes of Tesla, which lobbied for inclusion in the RFS. As EPA explains, the new eRINs credits will “incentivize activities that can increase electrification of the fleet, which could include lowering the cost of EVs and/or increasing the availably [sic] of public access charging infrastructure.”

The details of the scheme would win a Rube Goldberg award. Electricity isn’t a renewable fuel per se, but EPA says that methane digesters from landfills and dairy farms can generate “biogas” that can generate electricity that can power EVs. EPA, however, concedes there’s no way to distinguish electricity made from cow manure and trash from coal or solar power.

So EPA proposes that auto makers submit data on their EV fleet size, typical drivers’ mileage and battery charging efficiency, among other things, for the agency to plug into an algorithm that spits out eRINs to sell to refiners. Tesla is expected to be the program’s biggest beneficiary because it has the most EVs on the road.

The more EVs that auto makers sell, the more credits they will generate. Meantime, the Administration’s rising fuel economy mandates will make it harder for refiners to comply with the increasing renewable-fuel mandates. That means refiners will have to buy more eRINs and will pass on the costs via higher gas prices.

In sum, the Administration is proposing another huge wealth transfer from folks who drive gas-powered cars to Tesla and other makers of electric vehicles.

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