The Ethanol Lobby: How an Eco-cure became an Eco-curse

April 7th, 2015 - by admin

Debra J. Saunders / The San Francisco Chronicle & Robert Bryce / The Manhattan Institute – 2015-04-07 01:29:28

Ethanol: Corn, Scorn and Policy Porn
Debra J. Saunders / Opinion: The San Francisco Chronicle

(April 5, 2015) — Imagine a government energy program that is such a disaster that the Environmental Working Group and the American Petroleum Institute both oppose it. The anti-poverty group ActionAid USA wants to get rid of it, as does the pro-business Competitive Enterprise Institute. Sen. Dianne Feinstein, D-Calif., wants to end it. So does Sen. Pat Toomey, R-Pa. They’re both sponsors of the Corn-Ethanol Mandate Elimination Act of 2015.

Feinstein pans the ethanol mandate as “both unwise and unworkable.” Quoth Toomey: “It drives up gas prices, increases food costs, damages car engines and is harmful to the environment.” Scott Faber of the Environmental Working Group told me the Environmental Protection Agency “shows corn ethanol is worse for the environment than gasoline.”

The free-market Manhattan Institute’s Robert Bryce believes the Renewable Fuel Standard costs American families $10 billion annually in higher fuel prices. But will Congress vote to kill the program? And if so, will President Obama, a longtime ethanol booster, sign the bill?

The Renewable Fuel Standard started off with the best of intentions: to reduce greenhouse gas emissions and promote American energy independence. It morphed into a victim of its own success. Some 40 percent of the US corn crop now goes into American gas tanks, which has driven up the cost of feed for livestock, as well as food prices for American families.

In 2013, PricewaterhouseCoopers figured the standard pushed up food prices at chain restaurants by $3.1 billion per year. Because the standard requires refiners to purchase increasing volumes of ethanol, production increased from 3.9 billion gallons in 2005 to 13.9 billion gallons in 2011, according to the Manhattan Institute.

At the same time, gasoline consumption is down 12 percent from 2015 projections. The industry is up against the “blend wall.” When blends contain more than 10 percent of ethanol, some automotive engines break down.

Add up the many groups that oppose the ethanol mandate and you would think the Feinstein-Toomey bill is a slam dunk. But there may be one state more powerful than ranchers, consumers, environmentalists and capitalists: Iowa.

As the host of the first-in-the-nation presidential caucus, Iowa has a supersize presence in US politics. Iowa’s GOP Gov. Terry Branstad has a pithy warning for self-styled, free-market GOP hopefuls: “Don’t mess with the RFS.”

For his part, environmentalist Faber believes Capitol Hill can kick its ethanol habit this year. Even the ethanol lobby is looking to Washington to reform renewable-fuel standards. The Houston Chronicle‘s Jennifer A. Dlouhy has reported on the Advanced Biofuels Association’s decision to back an overhaul of the renewal-fuel standard that would accommodate the production of more advanced biofuels. “Their industry will go the way of the butter churn unless Congress changes the RFS,” Faber crowed.

While Iowa will tempt hopefuls to support a bad policy, New Hampshire follows Iowa, South Carolina follows New Hampshire and Nevada follows South Carolina. These states include meat and poultry producers that have had to pay higher feed prices, and consumers who have seen grocery bills rise.

Bryce’s paper The Hidden Corn Ethanol Tax is more cynical. He has reported on how the mandate has lowered fuel efficiency, damaged small engines, promoted harmful land use and driven up food prices. It’s good for corn farmers and ethanol refiners, but bad for most everyone else. “Do I think the corn ethanol scam, the mandate, will be repealed?” Bryce mused. “I doubt it.

“I wish it were so, but after a decade of watching this, I can’t get any more cynical about it,” Bryce continued. “Where are the free-market Republicans?” They seem to melt into the Iowa corn fields.

Senators hear from ethanol boosters, but they don’t hear as much from the ordinary people who pay the freight for this destructive mandate. They should.

Corn-happy in Iowa
In the crowded GOP field, Sen. Lindsey Graham, R-SC, former Pennsylvania Sen. Rick Santorum, New Jersey Gov. Chris Christie and former Arkansas Gov. Mike Huckabeewent to a Des Moines agriculture summit, where they said they supported the Renewable Fuel Standard. Wisconsin Gov. Scott Walker switched from opposing the ethanol mandate to supporting its continuation. Former Florida Gov. Jeb Bush said the mandate “worked for sure” but said Washington should scale it back in the future.

To his credit, Sen. Ted Cruz, R-Texas, told Iowans the standard should be repealed. Ditto former New York Gov. George Pataki. Sen. Rand Paul, R-Kentucky, a longtime opponent of the ethanol mandate, now is co-sponsor with Sen. Chuck Grassley, R-Iowa, of legislation to loosen federal regulations that impede the sale of high-ethanol fuels.

In the 2008 presidential race, Sen. Hillary Rodham Clinton, D-NY, supported legislation to boost ethanol use to 36 billion gallons by 2022.

Debra J. Saunders is a San Francisco Chronicle columnist. E-mail: Twitter: @DebraJSaunders

The Hidden Corn Ethanol Tax
How Much Does the Renewable Fuel Standard Cost Motorists?

A href=””>Robert Bryce / The Manhattan Institute

Executive Summary
Federal legislators are considering an increase in the federal gasoline tax, from the current 18.4 cents per gallon to 33.4 cents per gallon. Before legislators consider raising the gasoline tax, they should first repeal a hidden tax on gasoline: the Renewable Fuel Standard (RFS). This paper finds that:

• Since 2007, the RFS, which requires fuel retailers to blend corn ethanol into the gasoline they sell, has saddled American motorists with more than $10 billion per year in extra fuel costs above what they would have paid if they had purchased gasoline alone.

• The RFS is a de facto tax on motorists because it requires them to consume ethanol, which, on an energy-equivalent basis, is significantly more expensive than gasoline. Since 1982, on average, ethanol has cost 2.4 times more than an energy-equivalent amount of gasoline.

• For eight full years — 1986, 1987, 1988, 1989, 1992, 1994, 1997, and 1998 — ethanol cost at least three times more than an energy-equivalent amount of gasoline.

The recent collapse in crude oil prices has led to a corresponding decline in gasoline prices. Today’s gasoline prices are more than $1 per gallon cheaper than they were a year ago. Falling fuel prices have fueled a push in Congress for an increase in the federal gasoline tax, which currently stands at 18.4 cents per gallon.

One proposal calls for a near-doubling of the tax, to 33.4 cents per gallon. Proponents of the increase claim that the move is needed to help fund improvements in roads, bridges, and other infrastructure. In addition, they claim that the tax should be raised because it has not kept pace with inflation and that increased revenues are needed to keep the Highway Trust Fund solvent.

There are numerous arguments to support — and refute — the need for an increase in the gasoline tax. Such arguments are beyond the scope of this paper. But before federal legislators even consider increasing the gasoline tax, they should first repeal the Renewable Fuel Standard — a hidden tax on gasoline that I call the “corn ethanol tax” — which has benefited a small group of farmers and ethanol producers in a mere handful of states.

Indeed, the RFS, which requires corn ethanol to be mixed into US gasoline supplies, is a de facto tax on motorists because it requires them to consume ethanol, a fuel significantly more expensive, on an energy-equivalent basis, than gasoline.

Although the Environmental Protection Agency has repeatedly delayed issuing guidance on the RFS, the latter will likely require fuel retailers to blend about 13 billion gallons of ethanol into the gasoline they sell to the public in 2015.

A simple comparison of ethanol and gasoline, which accounts for energy density and cost, will show why the RFS is a bad deal for consumers. First, however, a brief review of the politics behind the RFS is needed.

Robert Bryce is a senior fellow at the Manhattan Institute’s Center for Energy Policy and the Environment. He has been writing about the energy sector for more than two decades and his articles have appeared in dozens of publications, including the Wall Street Journal, New York Times, Atlantic Monthly, and Sydney Morning Herald.


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