Commentary

America May Be Catching On to Ethanol Racket

By Nicolas Loris | February 4, 2016 | 11:41am EST
In this photo taken July 16, 2012, harvested corn is dumped from a combine, left, into a hopper being towed by a tractor near Altheimer, Ark. (AP Photo/Danny Johnston)

The results of the Iowa caucus proved that even Iowans—long seen as fervent proponents of ethanol—don’t view Washington’s favoritism to it as necessarily still required.

Much like many campaigns out there, the Renewable Fuel Standard that mandates the use of biofuels in our gasoline has been full of empty promises. When Congress passed the Renewable Fuel Standard in 2005 and expanded the mandate in 2007, policymakers promised reduced dependence on foreign oil, a new source of cleaner energy to lower gas prices, a stronger economy, and an improved environment.

This was certainly wishful thinking, as none of it has come true.

Instead, the policy has resulted in adverse effects to the economy and the environment and demonstrated the folly of the government attempting to centrally plan America’s energy future.

The Energy Policy Act of 2005 first mandated that renewable fuels be mixed into America’s gasoline supply, primarily using corn-based ethanol. The 2007 Energy Independence and Security Act increased the quotas significantly.

By 2022, there must be 15 billion gallons of corn-based ethanol and a total of 36 billion gallons of biofuels blended into the nation’s fuel supply, including soybean-based biodiesel. The program does not end in 2022, however, but grants the Environmental Protection Agency authority to set yearly targets.

The mandate has harmed Americans in a number of ways. Ethanol has only two-thirds the energy content of petroleum-based gasoline, so drivers pay more. In addition, the Renewable Fuel Standard has not delivered on the promise of reducing dependence on oil and protection from high prices.

Because ethanol contributes such a small percentage of the overall transportation fuel market (a mere 5 percent in 2014), it has failed to tamp down prices, which mostly continued to climb from 2002 to 2012 despite increased mandated ethanol use and high oil prices allegedly making ethanol more competitive.

Supply and demand (largely of crude oil) will determine the price at the pump, and the contribution of the Renewable Fuel Standard as a transportation fuel is a mere drop in the bucket against the nation’s entire fuel use.

The Renewable Fuel Standard also artificially diverts food to fuel, driving up prices at the grocery store.

A few years ago, 40 percent of America’s corn crop went to ethanol production. In 2012, the amount of corn used to produce ethanol in the U.S. exceeded the entire corn consumption of the continent of Africa and in any single country with the exception of China.

Now, if market forces drove corn production away from food use and toward transportation fuel because it were more profitable, there would be no problem. But that’s not what is occurring here. Producers are diverting food to fuel because of the government-imposed mandate, and since corn is a staple ingredient for many foods and an important feedstock for animals, families are hit with higher prices from a wide range of food products.

Policymakers hailed biofuels as the green solution to dirty oil. But, in its first of three reports to Congress, the Environmental Protection Agency projected that nitrous oxides, hydrocarbons, sulfur dioxide, particulate matter, ground-level ozone, and ethanol vapor emissions, among other air pollutants, increase at different points in the production and use of ethanol.

A study by Iowa State University researchers concluded that incentivizing more biofuel production with government policies leads to more adverse environmental consequences caused by farming, the use of fertilizers, and land-use conversion for agricultural production, resulting in increased soil erosion, sedimentation, and nitrogen and phosphorus runoff into lakes and streams.

Though the mandate benefits a select few in the Midwest, the Renewable Fuel Standard spreads the cost to the rest of Americans, including many in the agricultural community. The biofuels mandate gives preferential treatment to the production of corn and soybeans at the expense of other agricultural products and artificially eliminates the risk and competition necessary to drive innovation and economic growth.

The problem with the Renewable Fuel Standard is not the use of biofuels themselves, but rather that it is a policy that mandates the production and consumption of the fuel.

Having politicians centrally plan energy decisions best left for the private sector distorts markets and demonstrates the high costs and unintended consequences of government control.

Congress should admit that the Renewable Fuel Standard is costly to the economy and the environment, benefiting a select group of special interests. Importantly, Congress should recognize that the federal government has no business determining what type of fuel we should use and how much of it we should consume each year.

The only viable solution to this broken policy is to repeal the biofuels mandate altogether.

Nicolas Loris, an economist, focuses on energy, environmental and regulatory issues as the Herbert and Joyce Morgan fellow at The Heritage Foundation.

Editor's Note: This piece was originally published by The Daily Signal.

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