Ethanol loses its few friends

Even Dr. Ben Carson has backed away from subsidies and mandates!

bencarsonEarly in his campaign, now top-tier Republican presidential candidate Ben Carson supported ethanol—a position for which I called him out. It has long been thought, that to win in Iowa, a candidate must support ethanol.

However, in a major policy reversal, Carson told a national audience during the CNBC GOP debate that he no longer supports subsidies for any industry, including U.S. ethanol producers: “I have studied that issue in great detail and what I’ve concluded, the best policy is to get rid of all government subsidies and get the government out of our lives and let people rise and fall based on how good they are.”

Plainly irritated, the ethanol industry shot back immediately, saying it receives no government subsidies. But it neglected to mention a very important fact. Instead of subsidies, ethanol producers get something better: a mandate that orders refiners to blend ethanol into motor fuels which forces consumers to buy their product. A federally guaranteed market beats a subsidy every time.

The ethanol industry also benefits indirectly from agriculture programs that support farmers who grow corn for ethanol. And recently, the Obama Administration announced the U.S. Department of Agriculture is offering $100 million in grants to subsidize the installation of blender pumps at gas stations all over the country.

In attempt to push more ethanol into the motor fuel market, the Environmental Protection Agency (EPA) readily admits it plans to “drive growth in renewable fuels by providing appropriate incentives (italics added).”

Carson, and a majority of Republicans and many Democrats, knows the ethanol mandate is a do-gooder program that has gone horribly animalfeedwrong.  Enacted by a well-meaning Congress in a different energy era, it is part of the Renewable Fuel Standard (RFS), which requires refiners to add biofuels to gasoline and diesel—ostensibly to reduce imports of foreign oil. This multi-headed hydra is siphoning money from consumers’ pockets.

The ethanol mandate has been blamed for rising food prices—particularly for beef and poultry—because it has increased the cost of animal feed. Ethanol-blended fuel provides fewer miles per gallon because ethanol contains only two-thirds as much energy as gasoline, forcing motorists to fill up more often.

The mandate puts at risk millions of vehicles owned and operated by private citizens and fleets. Ethanol is corrosive. In tests, it has been proven to eat engine components, including seals and gaskets, causing expensive repairs. The government does not reimburse motorists for their loss; rather it is allowing—in fact, encouraging—the sale of fuels containing more and more ethanol.

Most vehicles on the road today can withstand E10, a gasoline blend containing up to 10% ethanol, but the EPA has granted a “partial waiver” for the sale of 15% blends. AAA advises owners of non-flex-fuel vehicles to avoid E15, warning that manufacturers will void their warranties. Although the EPA maintains that 2001 model-year and newer vehicles can safely use E15, studies by the prestigious Coordinating Research Council found that E15 caused engine damage to some of the EPA-approved vehicles, leading to leaks and increased emissions.

boatengineLikewise, marine engine makers also caution boat owners to avoid E15. During winter storage, they suggest pouring a fuel stabilizer into built-in gas tanks to avoid problems. A survey of boat owners has shown ethanol-related repairs cost an average of about $1,000.

These days, ethanol has few friends. Opponents include such strange bedfellows as the petroleum, restaurant, livestock, and auto industries—and environmental groups.

Despite government claims to the contrary, studies show ethanol also harms the environment. Earlier this year, the Environmental Working Group (EWG) discovered the EPA grossly understated the amount of carbon spewed into the air by the expansion of corn farming. This month, the EWG found the corn-ethanol mandate is discouraging advanced biofuels development, which could have environmental benefits.

These are just some of the problems. There’s also the EPA’s complicated Renewable Identification Number (RIN) trading scheme, which allows refiners to buy ethanol credits when not enough is available for purchase. This poorly managed program has allowed phony ethanol companies to sell fictitious credits and abscond with millions of dollars. And then there were the huge fines levied against oil companies for failing to add cellulosic ethanol to gasoline although the advanced fuel did not exist in commercial quantities—even according to the EPA’s own data.

All of these costs have an impact on consumers who buy fuel and for taxpayers who pay the salaries of the bureaucrats who administer the RFS program. Yet the RFS continues to stumble along because Congress has not mustered the will to repeal it.

By November 30, the administration must finalize the amount of biofuels that must be blended into motor fuels in the next couple of years. A pitched battle is developing on Capitol Hill. On one side are those who want an even larger market share for ethanol. On the other side are those who see the program for what it is—a massive payout to one allegedly “green” industry.

The latter group includes more than 180 Washington lawmakers, including Rep. Bill Flores (R-TX), who have sent a letter to the welchadministration asking it to “limit the economic and consumer harm this program has already caused.” Rep. Peter Welch (D-VT) (photo) was more direct. “We’ve got to just acknowledge that the corn-based mandate is a well-intended flop,” he said.

If their effort succeeds, it will not end ethanol production, as there is a free-market call for it. Energy Economist Tim Snyder, who was influential in developing many early ethanol plants, told me: “Regardless of the limits the EPA sets, or the fate of the RFS, we will continue to use ethanol as an additive to provide an adequate oxygenate for our fuel. Oxygenates are beneficial in reformulated fuels to reduce carbon monoxide and soot. Formerly we used lead. We replaced lead with methyl tertiary butyl ether (MTBE), then ethanol replaced MTBE. Ethanol was initially targeted as only a replacement for previous oxygenates; however, today with ethanol being 23 cents per gallon more expensive than NYMEX RBOB, the math doesn’t work and the need to increase blends of ethanol doesn’t meet the test of proper blending economics.”

Wisely, Dr. Carson has figured out that government meddling in the marketplace is a bad idea. Contrary to conventional wisdom, his rejection of special treatment for ethanol is not hurting his campaign. Although the State of Iowa has made support for ethanol a litmus test for presidential candidates, polls conducted before and after the October 28 debate, when he announced his revised view on ethanol, show Carson continues to rise in popularity nationally. Even the pro-ethanol lobby, using its semantic gymnastics, cannot dispute that fact.

Congress could learn from Carson’s positive poll numbers by once and for all ending the ethanol subsidies, er, mandates, without fearing political reprisal. Like Carson, doing so might even help Congress’ pitiful approval numbers.

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About the Author: Marita Noon

Marita Noon

CFACT policy analyst Marita Noon is the author of Energy Freedom.,