Low-Energy Friday: Ethanol policy is a hot mess—literally
Longtime readers of Low Energy Fridays are probably used to hearing examples of the government getting in the way of the private sector. Sometimes, though, government gets in the way of government itself. One recent example of this can be seen in a current battle in Congress over whether to allow year-round sales of E15—a blend of 85 percent gasoline and 15 percent ethanol.
E15 blended gasoline is widely used throughout the United States. It is sometimes claimed that ethanol lowers gas prices, but this is something of an illusion. Ethanol is less energy dense than gasoline, meaning that a car can drive further on a gallon of gasoline than on a gallon of ethanol. Blending ethanol into gasoline can make the price per gallon at the pump cheaper, but since you have to fill up more often it doesn’t ultimately save you any money.
Instead, much of the popularity of E15 results from government subsidies and mandates. The federal Renewable Fuel Standard required that 22.33 billion gallons of biofuels be blended into gasoline last year, with at least 15 billion gallons of that coming from corn ethanol. Ethanol producers may also be eligible for as much as $1 per gallon in subsidies through the Clean Fuel Production Credit.
But what government regulation gives, government regulation can take away. The use of E15 during the summer is legally problematic because its higher vapor pressure produces smog-forming emissions, especially at higher temperatures, in conflict with Clean Air Act standards. During the hotter summer months, suppliers must ordinarily switch to a lower E10 blend. States can request a waiver from the Environmental Protection Agency (EPA) allowing the continued sale of E15 during the summer months, and in recent years EPA has tended to grant them. But the process involves a fair amount of logistical headaches and regulatory uncertainty, and has led to pressure for legislation that would enshrine year-round E15 sales. Legislation to this effect narrowly passed the House last month and now faces uncertain prospects in the Senate.
The interaction of the various regulations and waivers of regulations can be a little hard to untangle, so let’s zoom out to look at the big picture. Ethanol is fuel made from food. In theory there’s nothing wrong with using the same thing as a food source and a fuel source. If Shimmer can be a floor wax and a dessert topping, then corn can be used for tacos and to power automobiles. But ethanol mandates have meant that over a third of the corn grown in the U.S. is being diverted for use in ethanol production. This raises the price not only of corn products but also many meat and dairy products that use corn as a feedstock. The demand for ethanol can even drive up the price of other agriculture products that are displaced as farmers switch to growing corn in response to government supports. The increase in food prices as a result of ethanol is not only bad for American consumers, it can spark international unrest.
When the Renewable Fuel Standard was first instituted, it was justified as a more environmentally friendly alternative to gasoline and as a way to reduce dependence on foreign sources of oil. The passage of time has not been kind to these justifications. The environmental effects of ethanol are not great to put it mildly, and to the extent there is an alternative to gasoline in the transportation sector, it is coming from electricity, not corn. The rise of fracking and the resulting boom in domestic oil and gas production has also reduced concerns about American dependence on foreign oil.
The current system costs taxpayers billions of dollars without providing any real benefit. In a sensible world, instead of changing regulations that are in conflict with biofuel mandates, policymakers would reconsider the existence of those mandates.