The EPA’s sustainability standard is based on “life‐cycle accounting” (LCA), a “well to wheel” measure of greenhouse gas emissions in the production of gasoline and a “field to fuel tank” measure for ethanol production. While attractive in theory, LCA fails to recognize that if incentives are given for ethanol producers to use relatively “clean” inputs (e.g., natural gas and land previously used for soybean cultivation), the “dirtier” inputs (e.g., coal and land previously dedicated to rainforests) that might otherwise have been used will simply be used by other producers to make products not covered by the sustainability standard.
In short, sustainability standards reshuffle who is using what inputs with no net reduction in national emissions. LCA measures are therefore misleading and may not measure the actual greenhouse gas emissions saved by ethanol production.
Rather than try to get LCA right, the entire exercise should be scuttled altogether. The difficulties associated with a sensible calculation are simply too great.
LCA assumes, for instance, that ethanol will replace gasoline, but it may actually replace coal or other energy sources, especially since oil supply is generally thought of as “finite” while coal is considered “unlimited in supply.” This is not simply a matter of theory. In developing countries like Brazil, electricity is generated by harnessing leftover sugar cane, thereby potentially replacing coal‐based electricity. It is also possible for biofuels to replace wood currently used for home cooking and heating, both of which impose huge health and environmental costs in developing countries. The upshot is that LCA will almost certainly undercount the greenhouse gas emissions that are “saved” by ethanol as well as other problematic air emissions.
Nor is LCA any easier when we apply it to the oil sector. The direct and indirect effects of oil pollution in the Ecuadorian jungle, for instance, would have to be measured, as would the environmental impacts of site specific drilling everywhere else on the globe.
To make matters worse, the argument over sustainability standards diverts attention from the contradictory and wasteful stew of federal ethanol policies – import tariffs, tax credits, mandates and production subsidies – which exist whether ethanol is sustainable or not. Our research shows that these policies generate tens of billions of dollars per annum of economic inefficiencies. Ensuring that ethanol is “sustainable” does not make those costs disappear. To just take one example, combining a tax credit for ethanol with a binding mandate requiring a minimum level of consumption will subsidize gasoline consumption instead of ethanol consumption, resulting in an increase in CO2 emissions, traffic congestion, and dependence on foreign oil.
Sustainability standards for ethanol make no sense. If we want to tackle greenhouse gas emissions, the most efficient means of doing so it to impose a carbon tax (explicitly through the tax code or implicitly with a cap & trade emissions program) on oil and natural gas at the refinery, coal at the plant using the coal, and land at time of conversion into the production of biofuels, bourbon, shopping malls, etc. That covers all of the relevant sectors of the economy in a fair and efficient manner. “Fair” and “efficient,” however, are not words one would use to describe sustainability standards for ethanol.