Ethanol cronyism

  • 17 October 2018
  • NormanL

Cronyism is alive and well in the DC swamp. How do we know? look no further than the federal government's decision to increase the amount of ethanol mandated to be blended into gasoline. 

For years, the mandate was capped at 10 percent as part of the nation's so-called "renewable fuel standards." The aim was to protect consumers from rising gasoline prices, and push the country toward a more energy independent, and supposedly environmentally friendly, way to power our gas motors.

The problem is, the U.S. is now one of the world's largest oil producers. And as we've discovered, making ethanol does more environmental harm than good -- not to mention the corrosive effects ethanol has on engines.

Despite all of that, the Trump administration is raising the mandate to 15 percent. It's the wrong thing to do, for a host of reasons. But among the worst is politics:

Iowa is a swing state with six crucial electoral votes and a first-in-the-nation presidential caucus; whatever Iowa wants, Iowa gets, from politicians of both parties.

Hence President Trump’s announcement, on the midterm-election campaign trail in Iowa, that he would, in effect, double down on this decreasingly justifiable policy. Mr. Trump declared that the Environmental Protection Agency will draft regulations allowing the year-round sale of motor fuel containing 15 percent ethanol, as opposed to the 10 percent limitation in effect for several months a year because of air-pollution concerns related to summertime atmospheric conditions. This would incentivize gas station owners to install pumps capable of delivering the fuel, thus boosting ethanol sales.

The point is to rescue Iowa corn farmers from adverse market conditions, which include lower prices because of retaliation from trading partners against Mr. Trump’s tariffs. The more fundamental problem is that, at its inception, the RFS assumed that ever-rising U.S. gas consumption would permit refiners to absorb huge amounts of ethanol. In fact, the year after Congress adopted the bipartisan RFS legislation, the U.S. economy went into a recession, causing a collapse in the number of miles Americans drove and the amount of fuel consumed per capita. Only last year did consumption return to pre-recession levels.

Refiners face high and rising costs when they are forced either to mix more ethanol into their motor fuels or to buy offsetting credits known, obscurely, as Renewable identification numbers (RIN). Plagued by volatility and ma­nipu­la­tion, the market for RIN has turned into a major headache for smaller refiners, which often seek waivers of the ethanol blending requirement. The entire system adds enormous bureaucracy and complexity to the fuel market, with little or no benefit to consumers. E15, as the 15 percent ethanol blend is known, might cost less per gallon, but because of its lower energy content, motorists would probably get poorer mileage and have to fill up more often.

Bad politics, coupled with bad economics, makes for truly terrible policy. We hope the Administration reconsiders, and takes the mandates, politics, and cronyism out of our gas tanks.