Big Oil has squared off against Big Agriculture in the dispute over the federal mandate to mix corn-based ethanol into the nation’s fuel supply. Both sides are powerful and self-interested, but Big Oil has the edge in this case for being right.
The ethanol mandate should be cut because it is a misguided policy. It forces the public to use and subsidize a product that is both uneconomical and environmentally destructive, given the land, fuel and fertilizer needed to grow, harvest and transport all the corn.
So it was good news last week when the Environmental Protection Agency for the first time proposed to trim the ethanol mandate.
Congress should go further and revise the law that requires increasing amounts of ethanol in gasoline -- a law conceived during the post-Sept. 11 attacks anxiety over the nation’s then-growing reliance on Middle Eastern crude oil and before the consequences of mass ethanol production were well understood. Better yet, it should eliminate the law altogether.
The reduction the EPA has proposed is modest: U.S. fuel companies would be allowed to use about 6 percent less ethanol in 2014 than this year. The rationale is that U.S. gasoline use is falling, mainly because cars are becoming more fuel-efficient.
Without such a change, fuel companies might have to break through the so-called blend wall, producing gasoline with more than 10 percent ethanol -- even though many U.S. cars and trucks aren’t designed to run on mixes with higher amounts of ethanol. The alternative would be to buy credits granting exemptions from adding ethanol. A bidding war for these credits earlier this year helped drive up the price of gas to almost $4 a gallon.
By now it should be clear that ethanol, which was pitched to the public as a renewable and environmentally friendly energy source, hasn’t lived up to its billing. By some calculations, producing ethanol is a net consumer of energy and generator of greenhouse gases.
Ethanol has also pushed demand for corn to the breaking point. As much as 40 percent of the nation’s corn crop goes to ethanol production, for which farmers have plowed up millions of additional acres, much of it environmentally sensitive grasslands or wetlands. The mandate not only raises the price of farmland but also forces Americans to pay as much as $40 billion a year more for food, from soft drinks to beef, according to estimates by Texas A&M University researchers. There are even signs that the mandate has played a part in the rise in global food prices.
The oil industry has asked the EPA for a partial or total waiver of the mandate for next year. But don’t expect Big Ag to go without a fight. Agriculture Secretary Tom Vilsack, a former governor of Iowa, has said the Barack Obama administration supports the mandate, and he has powerful allies in Charles Grassley in the Senate and Steve King in the House, both also from Iowa, the country’s biggest corn producer.
Ethanol’s defenders, of course, say the oil industry simply wants to recapture market share lost to ethanol. That sounds right. But at least the demand for oil will persist without federal mandates.
Yes, there is a place for ethanol in the nation’s fuel mix. In small quantities, it helps gasoline burn more efficiently in car and truck engines. But let the market dictate how much ethanol gasoline buyers use.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at firstname.lastname@example.org.