Why the Ethanol Mandate Is Terrible Policy
You know the campaign season has started when people start talking about ethanol. Various GOP hopefuls have affirmed or reaffirmed their support for existing ethanol mandates, and while there doesn’t seem to be much of a race on the Democratic side at the moment, any candidates who do decide to run against Hillary will probably support it as well. So it’s worth taking a moment to reflect on just how truly awful a program the ethanol mandate is.
First, a note of clarification. It used to be that the federal government subsidized the production of ethanol the old fashioned way: with cash. For every gallon of ethanol blended into gasoline, blenders received a “tax credit” ranging around half a dollar. Foreign imports of ethanol were also subject to a 54-cent tariff. Both of these programs were allowed to lapse at the end of 2011.
Still on the books, however, is the federal Renewable Fuel Standard, or RFS. Like the ethanol tax credit, the RFS came as a result of the Energy Policy Act of 2005 (the Energy Policy Act also extended daylight saving time, so it has a lot to answer for). The RFS mandates a minimum number of gallons of different types of ethanol that must be blended into U.S. gasoline each year. The minimum amount is set to rise over time, and blenders are subject to fines if they do not comply. From the point of view of ethanol producers, tax credits are nice but it’s the mandate that brings home the bacon.
The peculiar nature of the RFS has led to some absurd unintended consequences. For example, cellulosic ethanol (which is made chiefly from grass) isn’t commercially available in the necessary quantities to meet its RFS. Blenders have therefore wound up getting fined for not using a product that doesn’t exist.
Similarly, because the formula used to set the RFS greatly overestimated the number of miles Americans would drive, blenders were required to use more ethanol than could be safely blended into all the gasoline used in American cars. EPA was eventually forced to walk back its own regulations on cellulosic ethanol to better conform with reality, but successfully resisted challenges to lower the overall mandate.
The problems with the ethanol mandate, however, go beyond poor legislative drafting. It is the very idea of the RFS, not just its implementation, that is fatally flawed. The ethanol mandate was billed as an environmentally friendly alternative to gasoline, and a way to wean ourselves off dependence on foreign oil. It is neither. The ethanol mandate has led to the conversion of millions of acres of grassland and wetlands into cornfields. The environmental costs from these conversions swamp any reduced emissions from using ethanol-diluted gasoline. And while oil imports have indeed fallen in recent years, this has been the result of the boom in unconventional oil and gas production, rather than the substitution of biofuels.
Ethanol is also, of course, costly to consumers. A gallon of ethanol costs more than a gallon of gasoline, and it takes 1.5 gallons of ethanol to get the same mileage as a gallon of regular gas. Ethanol costs motorists approximately $10 billion a year in increased fuel costs.
And the cost of ethanol isn’t just felt at the pump. With 40 percent of America’s corn crop being devoted to producing the fuel, the mandate increases prices for food. And since the mandate encourages farmers to grow corn instead of other crops, the effect isn’t just limited to corn.
That’s harmful not only to Americans’ pocketbooks, but also to our national security. Research suggests that higher food prices increase the risk of instability around the world, as developing countries face riots or even revolutions over higher food prices. The Arab Spring was preceded by a spike in food prices, as were a similar series of riots in 2008.
The worst thing about the ethanol mandate, though, is what it says about our democracy. Ethanol is a rare political issue that is not polarized along ideological lines. From left to right, everyone seems to acknowledge that it is horrible policy. And yet not only does the policy continue, but people seem resigned to its continued existence.
If the United States can’t get rid of a policy that is so manifestly unjustified, how can we expect to solve more contentious issues?
Josiah Neeley is Texas Director for the R Street Institute.