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Government Penalizes Oil Companies For Failing to Deliver Fuels That Don't Yet Exist

Oh, you've got to love gub'ment. Here's a story of how the Environmental Protection Agency made companies that supply motor fuel pay fines because they failed to deliver alternative fuels.

The companies did have a good reason, which the EPA rejected, as that kind of fuel actually doesn't exist yet:

When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law.

But there was none to be had. Outside a handful of laboratories and workshops, the ingredient, cellulosic biofuel, does not exist.

In 2012, the oil companies expect to pay even higher penalties for failing to blend in the fuel, which is made from wood chips or the inedible parts of plants like corncobs. Refiners were required to blend 6.6 million gallons into gasoline and diesel in 2011 and face a quota of 8.65 million gallons this year.

“It belies logic,” Charles T. Drevna, the president of the National Petrochemicals and Refiners Association, said of the 2011 quota. And raising the quota for 2012 when there is no production makes even less sense, he said.

Matthew L. Wald of The New York Times explains: Link (Photo: David Eggen for The New York Times)


The point of the regulation was to force the oil companies to pay for the R&D to get this fuel to market, which they didn't do, preferring to pay the fine. So therefore, the fine is too low to do the job. $6.8 million is chump change to the oil industry.
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By the way, a huge part of the reason we've got an unbalanced budget? Wars started that greatly economically benefit oil companies. How about that uncanny coincidence.

Again - short-term profits. That's all a CEO cares about if he's not emotionally invested in his business' success (like Steve Jobs, for example - a man whose products I hate, but who was undeniably a great innovator), because that's what raises shareholder's profits, and that's what it's the CEO's job to do.

The government is in bed with the industry. Whether they realized it would happen or not, it's contributed to the detriment of the middle class.

Long story short: these people don't need more money for any reason. Your neighbors are STARVING or receiving food from a food bank. That's the America you want to live in?
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You all who are against this situation are missing the forest for the trees. This isn't 1920. You can't act like we need the same business rules that we did before some people had complete and utter monopolies on entire industries.

It's not in their short-term economic interests, which is what CEOs are worried about, so they aren't going to fund it. It's much easier to pay $6.8 million in fines than to spend what could potentially be billions on R&D.

The government doesn't have billions of dollars in taxpayer revenue right now to spend on incentives, do they? We can barely pay our bills as it stands now (in fact, we can't).

So it's David fighting back against Goliath, for the betterment of mankind and the advancement of science, and you're against it because it might cost a multi-billion dollar international corporation a couple billion. Phenomenal.
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First of all, the failure is on the part of the government for trying to legislate research and innovation. The whole thing amounts to another tax on the end users. The oil companies aren't going to foot the bill for these penalties, they are simply going to pass along the cost to the consumer.

If the government is going to get involved at all, why don't they offer incentives for using biofuels instead of penalties for NOT using them?
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Alex - Personally, I think it's reasonable to take one of the highest profit industries, that largely makes this money by exploiting the mineral resources of the planet which is arguably a shared resource that belongs to all humans, and force them to take some of that immense profit and use it to act in a more responsible and long-term-thinking manner.

Of course, we can take the far-right pro-corporate thinking quite far -- why should we force them to do anything for the common good? Why force them to stop polluting at all? Obviously their industry is extremely damaging to both the health of humans and the health of the planet as a whole, so we give them a set of rules they need to play by. Saying that they need to behave in a sustainable and responsible manner feels fair to me.

And of course one of the big reasons that biofuel is expensive is that it has not yet been appropriately developed to the size where it can exploit economies of scale. Since the oil industry is massively profitable as is, and biofuel is currently much lower profit, they're not about to "do the right thing" without being pushed in that direction.

This isn't a matter of saying "invent a time machine" or otherwise "do the impossible". So I think you're misrepresenting or being a little disingenuous things when you compare it to curing diseases or flying cars. That's not a fair metaphor.
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First of all, I'd like to think that Neatorama is a big enough place to accommodate different view points and is a nice enough place to allow polite discussions of controversial issues.

So, I thank all of the commenters for their input. Whether they agree with me (or with each other) or not, it's important to me that everyone feels welcome to state their opinions, especially if that opinion is not the party line of the hive mind. How else would we learn if we don't listen to the opposite side's point of view?

OK - on to the issue:

@Shannon Larratt - wood gas or syngas is a form of biofuel. The article is focusing on cellulosic biofuel, bio-diesel, and other forms of biofuels. Like you said, the technology has been available for a long time, but they're not anywhere close to being ready for commercial use (the issue is cost: a gallon of airplane biofuel runs about $17)

@Natey - Making commercially-ready biofuel is a HARD problem, actually. A lot of money (much, much more than $6.8 million) has been spent on developing biofuel. The article stated that despite a $150 million in government grants being offered, a pine chip gasifier was closed last year because it couldn't overcome technological hurdles.

@Ryan W. Radtke - I'm a big fan of Boingboing, so I'll take your confusion between the two blogs as something positive ;)

If it's okay to penalize Big Oil, is it okay to penalize other industries for failing to innovate? Can we penalize Big Pharma for the sorely lacking cure for cancer, alzheimer, and other diseases? How about if we penalize the auto industries for not delivering flying cars yet? I mean, it's 2012: where's my Jetson's car?

Kidding aside - is penalty the right way to spur innovation? Like anonymous coward said, the "stick" is very puny that it's not an economic consideration for Big Oil at all.
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My heart bleeds for the bloated fat-cat oil companies whose only motivation is profit, environment be-damned...the "gub-ment"s job in this situation is to prod these companies toward a more responsible management of resources and the little-bitty fine is a pretty wimpy attempt at doing so
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Alex - I really don't think it's a matter of innovation. As I understand it, it's a well-established technology. It's just a matter of choosing whether or not to commercialize it. This government action attempts to put financial pressure on them to start using an existing alternative fuel source. It's true that the commercial infrastructure may not be in place, but I'm quite sure that the "innovation" aspect of the issue is old news. I think they're willfully misleading you.
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I admit that I have not yet read the article, so I apologize if I'm totally wrong here, but aren't they basically asking for woodgas? As in the same fuel that was used in Germany (and Australia and many other places as well) in WWII when normal fuel supplies were cut off? I understand that it may not be on the market, but it seems to me that it's far from an impossibility for them to include it. It sounds to me like they're playing games with their excuse and are choosing to keep this product off the market in order to avoid using it...?

See: http://en.wikipedia.org/wiki/Wood_gas

I will read the article later and find out whether I made a fool of myself with this post.
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@Alex

On the contrary, some areas of research follow very specific trends and advancement in those fields is simply a matter of time and funding.

Solar cell technology is a good example; with advances falling along a predictable exponential curve. Computer processing power is another example that doesn't need explaining.

Of course, nobody can say when we'll invent warp drive or the cure for cancer, but that doesn't mean we can't chart future progress in other areas.

With respect to biofuels, varying levels of "success" can be (and are) estimated based on dollar amounts. 30% probability of success at $200 million, 75% probability of success at $2.5 billion, and so on. It's not foolproof, of course, but I imagine that's the kind of estimate lawmakers base this type of decision on.

As I said before, it's possible that their estimation was too optimistic. Or maybe the oil companies figured $6.8 million in penalties is a lot cheaper than R&D costs (that's me being cynical).

In response to your second question: "should government penalize anyone for failing to innovate?"

I suspect that you may be making broader implications with this question. I personally don't view this as a government attempt to get its hands on the wheel of American business.

Do I think a company like Apple should be punished for failing to innovate? Of course not. There are market mechanisms in place to assure that kind of innovation.

Oil companies, however, are not just anyone. In many ways, they provide the backbone of society in its present form. Market rules do not apply. We cannot afford for them to NOT innovate. But, as Ryan said, not innovating is in their own best interest.

If penalties like this provide a little motivation, then I'm all for it.

Oof, it's late. I probably stopped making sense after the first sentence, but I do love the stimulating conversation Neatorama provides sometimes.
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Oh no! It took ExxonMobil nearly two hours to earn $6.8 million in profit! They'll have to work extra hard in the remaining 8758 hours of the year to make that back.

Poor Chevron. It'll take them over three hours to earn $6.8 million in profit! And they're the ones with the advertising campaign that claims they are just like me!

Royal Dutch Shell is going to have to work for over three hours to make $6.8 million in profit! Oh the humanity! The horror!

And poor poor BP already lost 500 times that amount in 2010 trying to scrub oil off alligators and shrimp. Their oil platform blew up because they were over-regulated!

Won't somebody please think of the energy conglomerates?!?
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Alex. The answer to your question is Yes! Government should penalize oil companies for failing to innovate when it is in their fiscal interest not to innovate. Oil companies spend fortunes every year to lobby against innovation. We should absolutely hold them to deadlines.

Furthermore, your post has made me rethink my fondness for boingboing.
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@Natey - "Unless I’m mistaken, the manufacturers (in this case, oil companies) are responsible for funding the necessary research and implementing it in time to comply with the standard."

Unfortunately, research doesn't work like that. I mean, I wish you could dictate when a solution or a cure should be found. What if we change the topic slightly to: The government fined Big Pharmas for failing to deliver the cure for cancer?

$6.8 million is peanuts to oil companies, but the point remains: should government penalize anyone for failing to innovate?
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Yeah. This post is misleading for all the reasons already mentioned. Am I supposed to have sympathy for big oil? Give me a break.
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I am far from knowledgeable about this subject, but I thought this kind of thing was the norm.

"Automakers must have a fleet-wide average of X miles per gallon by X date."

"Light bulb manufacturers must increase efficiency X percent by X date."

Unless I'm mistaken, the manufacturers (in this case, oil companies) are responsible for funding the necessary research and implementing it in time to comply with the standard.

This post makes it sound like oil companies were just waiting around for someone to make this breakthrough, but were subsequently penalized when it didn't simply "emerge" from everyday sciencing.

Wouldn't it be more apt to say "Government Penalizes Oil Companies For Failing to R&D New Biofuels Within 5-year Deadline?"

It's possible that the "gub'ment" had miscalculated the feasibility of this technology... or maybe oil companies weren't as motivated by the legislation as they should have been. Either way, I doubt they'll sweat the 6.8 mil. It's hard to feel sorry for companies that literally have more money than they know what to do with.
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considering how much the big oil companies actively plays a part in hindering any development of alternative technology, its about time
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This post is misleading. As the New York Times article explains, The EPA is just following the standards set by the 2007 Energy Independence and Security Act, and if anything, they have been "lenient" by the standards.

Whether the law itself is bad or not remains debatable, as the goal was apparently to provide incentives for the development of biofuel. In hindsight we might say that Congress had been overoptimistic, but perhaps an extra $6.8 million in research spending early on would have spared them this penalty.

If anything, law is law, and unless overturned it stands above logic.
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