Is Congress listening?

An incisive op-ed contribution appearing in the November 28 edition of the New York Times outlines the case against raising the 10% inclusion rate of ethanol in U.S. automobile fuel. The article, authored by Russell Harding, former director of the Michigan Department of Environmental Quality and now an environmental policy analyst with the Mackinac Center for Public Policy, clearly states the case for rejection of the initiative. The Energy Independence Security Act of 2007 envisages an increase in domestic "renewable" fuel from 9 billion gallons in 2008 to 36 billion gallons in 2022. This long range target is in part based on the assumption that cellulosic fermentation will provide a significant proportion of the mandate.

Despite intensive research funding there is little prospect of producing large quantities of fuel from switch grass, wood fiber or agriculture waste. This is due to the complexities of the required technology which impose high capital and operating costs. Despite the fact that one-third of the domestic corn harvest is now diverted to ethanol to produce slightly less than 10 billion gallons of ethanol, prospects for economically viable additional displacement of imported hydrocarbon fuel seems limited.

The reality is that without government subsidies and mandates there would be very little production of domestic ethanol. The survival of the industry depends on a Congressional mandate to increase the blend above the current 10%. The 15% level requested by the Renewable Fuel Association (RFA) is a "hot button" issue in Congress given the number of mothballed and bankrupt plants.

Harding and other agro-industry observers indicate the folly of pushing the blend ceiling by pointing out the downside of ethanol production. As we are all aware diversion has resulted in significant increases in the cost of corn which is reflected in higher production costs for eggs, poultry, pork and beef. Effectively, the ethanol policy of the U.S. Government represents a hidden tax on consumers. The World Bank attributes increases in food costs to diversion of corn to ethanol with the most damage occurring in developing nations.

The environmental impact of producing ethanol from corn is evident in high water and energy consumption by plants and evolution of carbon dioxide. The EPA has determined that ethanol production will in fact increase levels of atmospheric carbon dioxide compared to burning conventional hydrocarbon fuels. The EPA has accordingly postponed a decision to permit an increase in the 10% blend, eliciting strong condemnation and opposition from the RFA. This organization, desperate for federal relief and to avert what they characterize as a “paralysis of the ethanol industry” has proposed a compromise level of 12% inclusion in gasoline while EPA continues with scientific evaluation.   

The U.S. ethanol industry is protected by a 54-cent-per-gallon tariff on imported ethanol.  Brazil which is a significant producer of fuel from sugar cane could contribute to the needs of the U.S., reducing the pressure on domestic corn and indirectly soybeans. This would unfortunately (or fortunately – depending on perspective) destroy the ethanol industry which is basically reliant on Congress for survival. If our Solons increase the blend to 15%, considerable harm will be caused to the environment, and consumers would bear additional costs for repair or conversion of their vehicles together with an escalation in the price of food.

Now is the time for Congress to take a step backwards and reevaluate the impact of recent legislation. Maintaining an industry on "life support" by imposing mandates and advancing direct and hidden subsidies is contrary to the principle of a free market economy. Supporting a corn-based ethanol industry in the face of negative effects on the environment and the economy is parochial and devoid of economic merit.