Commentary: Repeal the Ethanol Mandate (August, 2015)

by John McClaughryJohn McClaughry

What follows is the story of one of the most thoroughly disgraceful special interest schemes ever brought into being in these United States. It is also one of the most fiendishly intricate government programs ever conceived, and its name is Ethanol.

Back in the Nixon years scientists discovered that tetraethyl lead used to improve combustion in gasoline led to serious environmental and health damage. Adding lead to gasoline was banned. That was a good thing.

But gasoline needed an oxygenating additive to turn poisonous carbon monoxide into harmless carbon dioxide. For a while a petroleum-based compound called MBTE filled the bill, but if it escaped into the water supply, it produced seriously negative effects.

Meanwhile the Arab oil embargo of 1973 raised the cry for “energy independence”. Let’s produce our own motor fuels! This cry combined with the need for an oxygenating compound other than MBTE focused attention on another compound, ethanol, also known as “grain alcohol” and, when produced by moonshiners, “white lightnin’”.

Ethanol can be made efficiently from sugar cane, but corn is a far more readily available and politically attractive source. So in 1974 Nixon and Congress began their long love affair with corn ethanol. By the late 1970s Congress had added a host of subsidies, tax benefits, insured loans and other incentives to stimulate ethanol production.

In 1980 Congress added a fifty four cents a gallon protective tariff on ethanol imports, principally from Brazilian sugar cane. During the Reagan years the Agriculture Department actually gifted tons of government-acquired corn stocks to the ethanol industry, for free.

But overproduction during the Reagan years forced many ethanol refiners out of business. To rescue the survivors, Congress provided more tax breaks in 1990, more EPA blend mandates in 1992, and more corn growing subsidies in 2002. In 2005 and 2007 came the Renewable Fuel Standard that now mandates oil companies to blend 36 billion gallons of ethanol into E10 (10% ethanol, 90% gasoline) by 2022.  E10 enjoys a 54 cents per gallon motor fuel tax exemption.

But ethanol comes with problems. One is that it takes almost as much energy to plant, fertilize, harvest, process, and transport corn ethanol, as the resulting ethanol produces when burned. (Gasoline delivers about ten times the energy used to produce and refine it.) Another is that since ethanol is not as energy-rich as gasoline, it takes significantly more E10 than gasoline to propel a car.

In addition, E10 takes a corrosive toll on engines, especially two cycle engines. For an explanation, ask your local lawnmower, snowmobile, and chain saw mechanic.

Midwestern farmers have raced to plant more corn to feed the ethanol plants, until as much as forty percent of the U.S. corn crop is diverted from food to fuel. The conversion of more farmland into corn for ethanol has unwanted consequences. The mandated demand for corn ethanol directly increases the price of food, including beef, pork, and poultry raised on corn feed. The renewable fuels mandate of course drives up feed costs for dairy farmers.

While E10 counteracts carbon monoxide, it also increases production of nitrogen oxides and ozone precursors, both air pollution problems.  It also spurs planting of marginal farmland that would better be left in conservation reserve. Even many environmentalists have turned against the ethanol mandate, including the Sierra Club and the Natural Resources Defense Council.

Then there’s the “blend wall” problem. Given current levels of gasoline demand, refiners cannot meet the 14 billion gallons of E10 mandated for 2015, let alone the 36 billion gallons mandated for 2022. EPA faces an enormous task keeping track of every gallon of ethanol produced (each with a 38 digit Renewable Identification Number!) and tracking down counterfeiters. Ethanol made from cellulosic switchgrass, so highly touted by President Bush in 2007, has yet to materialize.

Driving the ethanol program forward is the political muscle of the corn growers and ethanol producers. They and the corn state members of Congress are currently battling to raise the blend percentage mandate from E10 to E15 or even E20 to get the current ethanol surplus off the market and into gas tanks

In terms of costs and consequences, the ethanol subsidy, tax exemption, and mandate program is perhaps the worst single program carried out by the federal government – and that’s saying a lot. The time is long overdue to repeal the ethanol and biofuels mandates and close this embarrassing chapter in costly special interest politics.

- John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).

 

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