How a Lack of Systemic Thinking Threatens a Sustainable U.S. Energy Policy

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Even the best-laid plans can cause unintended consequences. But organizations that operate at less-than-optimal performance levels and are unable to think systematically are especially prone to surprising outcomes.

The U.S. Congress is a prime example. Consider, for instance, the impact of ethanol legislation on energy supply chains.

Supply chains are complex ecosystems that often span multiple industries and geographies. Changing the balance between supply and demand can have a profound impact on each link in the chain. Failing to appreciate these far-reaching consequences can be disastrous and very difficult to undo.

In the summer of 2005, the United States Congress passed the Energy Policy Act of 2005. President George W. Bush signed the act less than two weeks later at New Mexico’s Sandia National Laboratories under a sky-blue sign that read, “Energy Security for the 21st Century.” The act established the country’s renewable fuels standard (RFS) and required refineries to blend 4 billion gallons of renewable fuels into the nation’s supply in 2006. That accounted for about 3% of all fuel dispensed to American drivers that year. The mandate was extended by Congress in the Energy Independence and Security Act (EISA) of 2007 to 36 billion gallons by 2022. Refineries equipped to produce ethanol from corn — America’s most abundant crop — sprouted around the country.

The logic seemed sound. By creating a steady and predictable demand for renewable fuels, the private sector would be able invest in a robust supply system. The second version of the renewable fuel standard distinguished types of biofuels — separate from conventional corn ethanol — and set volumes for four nested categories of biofuels: total biofuels, advanced biofuels, biomass-based diesel, and cellulosic biofuels.

The updated legislation, implemented by the U.S. Environmental Protection Agency (EPA), designated fuels resulting in a 50% or greater reduction in total greenhouse gas (GHG) emissions as “advanced biofuels.” It also defined fuels originating from non-food portions of plants such as wood, switchgrass, or corn husks as “cellulosic biofuels,” while “biomass-based diesel” was the given label to any diesel made from renewable non-petroleum resources. Both biomass-based diesel and cellulosic biofuels could be considered under the advanced total if the source met a 50% reduction in GHG levels.

Supply Chains in Conflict

In 2000, ethanol processors used about 8% of the nation’s corn crop.