Getting Hosed at the Pump

By Jerry Shenk

 In the new year, we may notice that more than our taxes have increased.

By the end of November 2010, the U.S. Energy Department is expected to complete tests to determine whether increasing the ethanol blend in gasoline would have a detrimental effect on automobile engines and emissions systems. 

Most gasoline sold in America now contains up to ten percent ethanol, a renewable product made from plant materials, primarily corn. The inclusion of a prescribed total volume of ethanol in the national supply of motor fuel is mandated by the federal government's Renewable Fuels Standard program.

Ethanol-free fuel is still available, but it is becoming less common, and consumers must look for it. Gasoline containing the plant-based product is known as E-10 for the maximum percentage of ethanol currently allowed. The Energy Department is considering an increase to E-15, and, if it is approved, officials say that the higher ethanol-content fuel could be on the market by the beginning of 2011.

Drivers who wish to exceed the current limit and use gasoline with an ethanol blend above 10 percent must now purchase a "flex-fuel" vehicle having features compatible with higher levels of ethanol. The flex-fuel vehicle requirement may change if the government decides that volumes of ethanol higher than 10 percent can be used without damaging the current-technology engines, exhaust and fuel systems which equip more than 99 percent of gasoline-powered vehicles on the road today.
Adding ethanol to fuel is meant to satisfy politicians' desire, as they tell it, to cut air pollution and reduce the nation's dependency on foreign oil, especially oil imported from unfriendly areas of the world. Ethanol does neither.

What politicians are actually doing is meddling in multiple markets for their own benefit and the benefit of powerful special interests that fund campaigns, all at the expense of taxpayers and consumers.

Because ethanol producers and the food industry are competing for the same commodity, the ethanol mandate increases the total demand for corn and, accordingly, food prices. Because the poor spend a larger portion of their income on food, the effect of the ethanol mandate is the same as a highly regressive tax on consumers. A higher ethanol mandate will mandate even higher food prices. Ironically, but perhaps not surprisingly, both corn growers and ethanol refiners are receiving taxpayer-funded government subsidies.

The current Renewable Fuel Standard program was established under the Energy Policy Act of 2005, which amended the Clean Air Act. In the bill, Congress directed the Environmental Protection Agency to work with the U.S. Department of Energy, the Department of Agriculture, "and stakeholders" to design and implement the new program. The stakeholders to which the legislation referred did not include any taxpayer watchdog organizations, but they did include agricultural interests and renewable fuel investors and refiners.

The energy value of ethanol is only about 70 percent that of an equivalent volume of petroleum-based motor fuel. A full E-10 blend reduces mileage on a tank of gas by about 3 percent, though drivers pay the same amount per gallon of ethanol per tankful. That's the same amount by which Candidate Obama said drivers could improve gasoline mileage by properly inflating their tires. 

Corn ethanol may actually require more energy to produce and transport than it releases when burnt, and burning it may damage the environment.

It's impossible to distill all the water out of corn to produce ethanol. Water's corrosive properties require different materials to transport ethanol, so it can't be put into pipelines like oil. It must be transported in stainless steel tankers from ethanol refineries close to farmland and blending stations. The tankers burn mostly diesel fuel.

Ethanol evaporates more quickly than gasoline, so it increases smog emissions, and refining it usually involves burning conventional fuels like coal or natural gas.

In short, not only does ethanol lack an environmental benefit, but it may actually worsen the environment. The EPA admits that burning ethanol increases ozone precursor emissions significantly. Furthermore, the overuse of farm fertilizers, pesticides, and water encouraged by corn and ethanol subsidies increases agricultural runoff, corrupting rivers and streams and straining limited water resources.

We suspect that providing renewable fuels from friendly sources is not the true objective of politicians who support ethanol mandates, because the U.S. Congress has excluded imported ethanol from the domestic market. Brazil, a Western Hemisphere ally, makes the world's most cost-effective ethanol from sugarcane, which does not require expensive prior distillation of corn to sugar.

The agricultural lobby is among the most powerful in America. Farm interests have been receiving row crop subsidies for corn since the 1930s, so the ethanol mandate increases subsidy opportunities for large farmers. Ethanol refiners get their cut, too. Refiners currently receive a 51¢-per-gallon federal credit, the only way their product can be made competitive as a volume replacement for fossil fuel. Ethanol is all about producing cash, not energy.

Let's be honest. Whoever develops the next practical fuel source will make Bill Gates, Warren Buffet, and the Sultan of Brunei look like paupers. But there are limits on campaign contributions. Why settle for one mega-billionaire when politicians can hand out taxpayer-funded subsidies to create hundreds or thousands of millionaires all able to pony up the max each election cycle? It's not as if it's the politicians' own money or anything.

Let's review: Corn growers and ethanol refiners are subsidized by our tax dollars to produce a product we are forced to purchase that also provides less energy for our money, adds water to our gas tanks, raises food prices, and degrades the environment.

So every time any one of us who pays taxes and buys groceries inserts the nozzle to fill up our gas tanks with ethanol-blended fuel, we get hosed in five ways.

The matter would be sorted out quickly and easily by market forces, but politicians and the interests that fund them will not permit it. Ethanol's fate should be determined by market decisions made by producers and consumers based on the best interests of each rather than on a government mandate.

If most consumers are like me, the market verdict is predictable. I prefer single-batch ethanol bottled in Kentucky after years of aging in oak barrels.