Megan K.

Pitz

Alternative Sources of Fuel: Assessing Environmental and Economic Impacts

The Clean Air Act: Emissions Standards Enter the National Policy Arena

With the introduction of the Air Pollution Control Act of 1955, Congress elevated air quality
concerns to the national level (Fleming and Knorr, 1999, p.1). Less than a decade later, Congress
went a step further, setting emissions standards for industry through the Clean Air Act of 1963.
Through amendments to this act, Congress raised federal authority over air quality concerns to its
current level, and, significantly, gave the federal government the power to “set standards for auto
emissions” and perform “research on low emissions fuels and automobiles” (Fleming and Knorr,
1999, Legislation, p.1). Since the clean air legislation of the 1960s, the role of Congress with
respect to air quality and emissions standards has continued to expand. In passing the Clean Air
Acts of 1970 and 1990, Congress not only increased the stringency of emissions standards but
also set deadlines for public sector compliance (Fleming and Knorr, 1999, Legislation, p. 3).

The ‘Clean’ Fuel Consensus

Through the clean air legislation of the 1970s, Congress sought to promote the idea that economic
growth and environmental protection could be accomplished simultaneously through the use of
‘clean’ or alternative fuel sources. As Rogers observes, in passing amendments to the Clean Air
Act of 1970, “Congress signaled its firm belief that economic growth and a clean environment are
not mutually exclusive goals” (Italics added, p. 22). In furtherance of this idea, the Clean Air Act
of 1990 created “motor vehicle emissions and alternative fuels” as a new category of
environmental concern and laid down goals for the development of “clean fueled vehicles,”
advocating “low-sulfur as well as alternative fuels a means of reducing sulfur dioxide in the
atmosphere” (Fleming and Knorr, 1999, p.).

As this progression of congressional clean air legislation evidences, the issue of air quality has
gained a prominent place on the policy agenda. And as recent events show, a consensus has
emerged around the idea that our clean fuels are the answer to both environmental and economic
issues associated with traditional fuels. In 2001, the Bush Administration endorsed the use of
ethanol, the most popular of alternative fuels, and mandated their use in California, justifying his
decision with the notion that ethanol is good for our environment because it “allows gasoline to
burn more cleanly” (Alvarez and Barboza, 2001, p.1). In 2006, the Environmental Protection
Agency told the public that Governor Schwarzenegger’s decision to develop alternative fuels
would “improve California’s air quality, reduce CO2 emissions, and achieve energy
independence” (Alan C. Lloyd cited in Chevron Press Release, 2006).

Yet despite their emerging popularity, the environmental and economic benefits of ‘clean’ fuels
such as ethanol have yet to actually materialize in any conclusive way. In fact, as the balance of
research performed by scientists, policy researchers, and economists attests to, the idea that fuels
such as ethanol or hydrogen are an answer to environmental and economic problems is largely
unfounded. As this paper demonstrates, ‘clean’ fuels in fact cause more environmental damage
than benefit, all while putting a tremendous and unnecessary stain on the economy. In the first
section of this paper I examine the environmental impact of ‘clean’ fuels, paying particular
attention to their affect on air quality. Following this analysis, I assess the main economic
arguments in favor of ‘clean’ fuels, focusing in a broad sense on whether clean fuels actually help
the economy. As the body of evidence shows, clean fuels fail to measure up to popular claims
regarding their relative environmental and economic merits.

Assessing Environmental Impact: Is ‘Clean’ Energy Really Cleaner?

Environmental arguments for ‘clean’ energy and clean fuel technologies hinge on the critical
assumption that traditional energy policies are harmful in terms of air quality. Yet research
findings indicate no correlation between traditional energy sources and air pollution According
to one group of policy researchers, US utilities have a minimal impact on the environment,
producing a mere one percent of global emissions (Heritage Foundation, 2004). In fact, as
prominent policy researcher Charli Coon (2004) found, despite the drastic increases in activities
associated with air pollution which have occurred over the last 30 years, the total or “aggregate
emissions of the six principal air pollutants have been cut 48 percent” (p.1).

Despite the lack of established need for changes to traditional energy sources, by 1995 ‘experts’
were convinced that clean fuels were “the best way to reduce harmful emissions” (Fleming and
Knorr, 1999, Mobile Sources, p. 3-4). By 2000, however, scientists and traditional advocates of
clean fuel technologies were beginning to voice concern over the environmental effects of these
fuels. In 2001, the National Academy of Sciences issued a report suggesting that not only did

2
ethanol fail to “significantly reduce pollution,” the use of ethanol in fact led to an “increase in the
pollutants that cause smog” (New York Times, 2001, p. 2). Significantly, scientists have found
that ethanol leads to “increased emissions of nitrogen oxides (NOx), a main precursor of smog
pollution” (Hymel, 2002, p. 1). In stark contrast to the position taken by proponents of alternative
fuels, scientific studies show that ethanol, when blended with gasoline, results in “increased
emissions of acetaldehyde, a toxic pollutant” (Hymel, 2002, p. 1). The significance of these
finding were perhaps best illustrated when, in 2002, Senator Diane Feinstein (D-CA) stood before
Congress and announced that “reformulated gasoline with ethanol produces more smog pollution
than reformulated gas without it” (Italics added, Feinstein cited in Hymel, 2002, p.3).

In the wake of evidence negating claims of ethanol’s environmental merits, hydrogen quickly
became the new ‘clean’ fuel alternative. While ethanol is touted as a fuel which allows gasoline
to burn more cleanly, proponents of hydrogen-powered vehicles advertise “a zero emissions
future vehicle that runs effectively and cheaply on domestically produced fuel, with only water as
a by product” (Tynan, 2004, p.1). Although the idea of non-polluting cars sounds great, the
reality is not so ideal. According to one recent Reason Foundation study, hydrogen-powered cars
“have at best a marginal effect on CO2 emissions” and, if made to be as effective as gasoline-
powered cars, could actually lead to increases in these emissions. This study found that

While hydrogen fuel cell cars powered by hydrogen manufactured using hydroelectricity
resulted in the least CO2 emissions, this case was rendered impractical due to the limited
amount of electricity generated by a hydroelectric source. In California, hydrogen would
most likely be manufactured through electrolysis produced by natural gas, [a process]
which resulted in the highest CO2 emissions (Korchinski, 2004).

As this study shows, any environmental benefits derived from hydrogen are largely negated by
the pollution produced by its manufacture.

The environmental concerns with air quality which spurred the introduction of the Clean Air acts
were significant in bringing the idea of alternative sources of fuel into the public policy arena. As
Rogers (1990) notes, “the 1970 amendments [to the Clean Air Act of 1970] moved environmental
protection concerns to a prominent position on Capitol Hill, where they by and large have
remained ever since” (p.22).

3
Yet the impetus behind Congress’s encouraging of ethanol was largely economic. Indeed, as
Yacobucci (2006) reminds us, “the initial stimulus for ethanol production in the mid-1970s was
the drive to develop alternative and renewable supplies of energy in response to the oil embargoes
of 1973 and 1979” (Introduction, p.1). Recent legislation such as the Energy Policy Act of 2005
(P.L.109-58), a policy which purports to double the U.S. ethanol market within the next six years,
evidences the continued economic focus of the push for ethanol development and production.
Indeed, in the years leading up to Congress’s passage of this act in 2005, economics remained the
central concern of policy analysts’ assessments of ethanol’s efficacy.

Assessing the Economic Impact: Are ‘Clean’ Fuels better for the Economy?

Regardless of whether alternative fuels are environmentally safe, as the history of legislation with
respect to ‘clean’ fuels such as ethanol evidences, assessments of alternative sources of energy
must necessarily take into account economic impact. While there is not much room for
proponents to compare the relative economic impact of alternative fuels sources such as
hydrogen, Congress’s continued approval of federal tax incentives through acts such as the
Energy Policy Act of 2005 have effectively allowed ethanol to compete with traditional sources
of fuel such as gasoline, thus opening the door to policy debate.

Proponents of ethanol advance several economically-focused arguments in favor of its continued

use. The first of these arguments is that ethanol, as an alternative to fossil fuels, promises the
U.S. a future of energy independence or security by diminishing its need for and reliance upon
foreign oil (Yacobucci, Alvarez and Barboza, and Urbanchuk). In addition to reducing our need
for oil imports, proponents also argue that ethanol use itself has a stimulating effect on the
economy, providing jobs and benefiting consumers and government alike. Yet, as numerous
analyses of ethanol’s economic impact show, the consequences of ethanol use are exactly
opposite to the notions espoused by its proponents.

The idea of energy independence sounds good, particularly given the economic hardships created
the fuel embargoes of the 1970s and the rapidly rising and drastic fluctuations in gasoline prices
recently experienced by the U.S. economy. Ironically, studies show that increased ethanol use
actually increases reliance on foreign oil due to the processes involved in producing ethanol. As
one recent study shows, the amount of energy needed to produce ethanol is greater than the
energy which the fuel itself is able to produce, causing the U.S. to become “more fossil-fuel

4
dependent” (Pimentel cited in Hymel, 2002, p.1). While ethanol cannot produce itself, its
proponents routinely fail to take consider the negative ramifications of its production costs.

Proponents of ethanol also fail to accurately portray the more direct effects of ethanol production
on the U.S. economy. Frequently, such proponents cite what can be broadly classified as
economic stimulation arguments. Urbanchuk (2006), for instance, claims that “ethanol
production and investment spending on new plant capacity will circulate throughout the economy
several fold” and will “consequently…stimulate aggregate demand, support the creation of new
jobs, generate additional household income, and provide tax revenues for government at all levels
(p. 2). While the ethanol industry may indeed stimulate the economy through the creation of jobs
which generate additional income for citizens and government, such arguments fail to take into
account the fact that ethanol’s existence in the marketplace is made possible through government
subsidies. Although subsidies were originally necessary to give ethanol a fair shot at penetrating
the market and competing in the marketplace, in the 25 years since they were first introduced,
they have failed to do so. Indeed, while Congress considers subsidies necessary for ethanol to
compete with gasoline, Congressional Research Service (CRS) findings indicate that “ethanol
remains significantly more expensive than gasoline, even with the tax credit” (Yacobucci, 2005,
p.11). Of course, as Lieberman (2005), points out, “much of that cost is hidden from consumers
and not seen at the pump due to the preferential tax treatment that masks the true cost of ethanol
(p.2).

This last point brings up an important question with respect to the economic impacts of ethanol.
In establishing the costs of the ethanol industry – its failure to provide energy independence or
put money into the pockets of citizens and government – we are left with the question of why
ethanol is so generously supported by Congress. If the ethanol industry imposes such drastic
costs on so many, who does it benefit? In response to this question, Hymel (2002) argues that
Congress’s subsidization and support of greater ethanol use is simply another form of “corporate
welfare,” benefiting “a handful of large agribusinesses” (p. 1). Indeed, this would seem to be the
case, despite the purported purpose of this legislation to make energy affordable.

Since the 1970s, Congress has sought to promote the idea that ‘clean fuels’ could accomplish the
environmental and economic goals which they believed to be beyond the scope of traditional
sources of fuel. While traditional fuels may indeed cause environmental as well as economic
problems, alternative sources of fuel have not proven to be better alternative. With respect to the

5
environment, ‘clean’ fuels such as ethanol and hydrogen have been shown to have minimal if any
significant impact on emissions and, according to several good sources, actually may generate
more emissions than they help to eliminate. In terms of the economy, the prognosis for these
fuels appears to be even more dismal, with ethanol subsidies benefiting agricultural interests and,
ostensibly, their representatives in Congress at the expense of the general public and
governmental revenues. As these conclusions evidence, ‘clean’ fuels are not of any significant
benefit to either our economy or our environment and should therefore be rejected by Congress in
favor of more advantageous alternatives such as lifting drilling moratoriums in order to increase
utilization of our nation’s own natural resources.

6
7