Don’t Increase The Ethanol Mandate
What with trade wars, floods and other disruptions, this has been a tough year for America’s Midwestern farmers, especially those who grow corn. To make matters worse, the demand for ethanol, which consumes 40 percent of the nation’s corn, has flattened in recent years, mainly because we don’t need as much gasoline to fuel America’s increasingly efficient passenger car fleet. In fact, gasoline consumption currently averages 370 million gallons per day, the same level recorded in 2003, even with 45 million more vehicles on the road.
In response, the Department of Agriculture has provided more than $16 billion of financial assistance to farmers to help offset lost sales of corn, soybeans and other products to China. But the effect in terms of grain prices has been minimal. Corn prices, currently around $3.90 per bushel, are up only slightly from a year ago; but they remain 45 percent below their 2012 level. Due to slack demand for ethanol, and China’s current boycott of U.S. biofuels exports, 18 of the nation’s 200 ethanol plants have closed in the past year.
Because Farm Belt votes will be critical in the coming presidential election, the Trump administration is now proposing to help farmers and ethanol processors by mandating more biofuel blending into gasoline. At present, the Environmental Protection Agency requires that 15 billion gallons of corn ethanol are blended into gasoline each year. President Trump has proposed boosting the mandate to 16 billion gallons in 2020 while also ensuring that a gasoline blend of 15 percent ethanol is readily available at all gas stations year-round. (Today, most gasoline contains ethanol of 10 percent or less.)
Because the blending of ethanol with gasoline requires sizable capital outlays, about 40 small refineries currently receive exemptions. That means large oil refiners and fuel suppliers will bear the burden of pushing an additional billion gallons of ethanol into their gasoline. Ultimately, consumers will bear the cost because ethanol delivers only two-thirds the energy content of pure gasoline. As average fuel economy goes down, drivers will have to fill their gas tanks more frequently.
These initiatives may or may not prove to be a win for corn growers and ethanol processors in their continuing battle with oil companies over the Renewable Fuel Standard (RFS), the formal name for the mandate. But because the administration’s plan would shift more of the market for motor fuels from petroleum to ethanol, while increasing prices at the pump, the oil industry vows to fight it. At the same time, automobile manufacturers aren’t happy about the prospect of 15 percent ethanol in gasoline since blends above 10 percent may damage car engines and fuel systems for millions of older vehicles.
Rather than raising the biofuels blending requirement each year, the public would be better served by getting rid of the RFS. It came into law more than a decade ago when we thought we were running out of oil and needed to find domestic substitutes to reduce our dependence on imports that were running at 60 percent. But as a result of the “shale revolution,” the United States is now the world’s largest producer of oil and a net exporter. So the argument we need the ethanol mandate to enhance energy security no longer holds.
Ethanol is not only an inferior motor fuel but its production has huge environmental effects. To grow enough corn to yield one gasoline-equivalent gallon of ethanol requires 2,700 gallons of water while processing consumes between three and six gallons of water per gallon of ethanol. Mandating oil refineries to blend an additional billion gallons of corn-based ethanol into gasoline will mean higher feed prices for beef, poultry, pork and dairy farmers that in turn will be passed on to consumers.
Another alleged benefit of ethanol and other biofuels is that they help reduce greenhouse gases. However, the EPA has determined that the reduction in carbon-dioxide emissions from blending ethanol into gasoline is minimal since making it requires new land from clearing forests and grasslands that would otherwise sequester carbon.
Obviously, corn growers and ethanol manufacturers will resist any efforts to repeal the biofuels mandate. But the economic benefits from removing this gross distortion in the energy markets will far outweigh any costs to farmers, who already benefit from a huge array of subsidies.
Bernard L. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University in Dallas. He wrote this for InsideSources.com.