High Cost of Federal Energy Mandates
by William O'Keefe
May 8, 2012
In a world where facts mattered, the funding for the rural energy program—an ethanol subsidy—would be zero. But Congress and the White House don’t live in that world. It also validates H.L. Mencken’s observation that for every problem there is a solution that is simple, neat, and wrong.
Ethanol qualifies as the King of Boondoggles for a number of reasons including the fact that it is not needed, at least not in significant amounts, to meet air quality standards; it does not significantly reduce oil imports; and it increases greenhouse gas emissions and food prices, to name a few. The government has already taken hundreds of billions of dollars from taxpayers, motorists, and food purchasers to enrich corn growers and ethanol producers. It is legalized robbery, plain and simple.
Last year, Ken Glozer published Corn Ethanol: Who Pays? Who Benefits?—a thorough critique of the ethanol program. It convincingly demonstrates, as has the CBO, that taxpayers are propping up failed companies and that the persistent claims of benefits from ethanol use are nothing more than hucksterism.
In 2007, Congress in its wisdom passed the Energy Independence and Security Act, which mandated that by 2022 fuel manufacturers would have to consume 36 billion gallons of ethanol—15 billion corn based and 21 billion cellulosic. At that time, corn prices ranged between $150 and $180 per metric ton. Today, the price is $275—representing a 60% increase. This increase has a direct impact on the price of beef as well as the prices of products made from corn and soybeans (because soybean acreage is being used to grow corn). Since we are a major exporter of corn and corn-based products, the Congressionally induced higher price of corn has a serious negative impact on consumers in developing countries who are already victims of extreme poverty.
Within two years of the energy policy act being passed, gasoline consumption plateaued which should have put a lid on ethanol use. But the law mandates that more be manufactured and used. So EPA has been floating the idea of increasing the percentage in gasoline from 10% to 15% E-15. Further, since some ethanol is supposed to be cellulosic, EPA is fining refiners who are not blending a product that they can’t buy because it doesn’t exist. If that is not the height of folly, what is?
Secretary Vilsack’s call for more ethanol in gasoline under the banner of reducing imports and boosting job creation is shameless. What he is really doing is promoting the interests of his home state at the expense of sound energy policy.
Increasing the ethanol content of gasoline is not simple and straightforward. Cars made before 2001 can’t use it and not all post-2001 vehicles can because some manufacturers warranties limit ethanol content to 10%. Only Flexible Fuel vehicles can safely use higher percentages. But the problems are not just with vehicles. Off road vehicles, motor cycles, and gasoline powered equipment can’t use it either. A Congressional study concluded that billions of dollars would have to be spent to upgrade the rail, barge, and retail infrastructure to meet near term bio-fuel requirements. From where will that money come? It will be from higher prices or from taxpayer dollars or more deficit spending.
Wasting more money on corn based ethanol will further entrench ethanol interests making it harder to transition to cellulosic bio-fuels. Even though Congress has mandated that 21 billion gallons of cellulosic ethanol be manufactured by 2022, the technology still has to be developed and made commercially viable. Since waste is what the Federal Government does, a better use of the $800 million would be cellulosic R&D. As it is, forcing more corn based ethanol into the fuel system is like mandating that conventional telephones have to be purchased instead of smart phones. It is time to move on and let technology and market forces drive the fuel of the future.
The agricultural community has been at the federal trough for 80 years. The time has come for it to stand on its own and excel in feeding the world instead of picking taxpayer pockets to support a product that is pure waste. Wasteful subsidy programs of the past have no place in an economy that is trying to regain its bearings and compete in a global economy. We need policies that promote 4% economic growth and less that 6% unemployment, not policies that maintain dependency on government spending.
Although there is no prospect that the world is going to run out of oil or oil based products, $70-80 crude oil costs create an adequate economic incentive to develop bio-fuel technologies. Investing in the future with research and development dollars would represent a responsible course of federal action. The route proposed by Secretary Vilsack keeps us on the road of fiscal irresponsibility that enriches the favored.