ETHANOL: Another Monument to Government Arrogance

The Clean Air Act Amendments of 1990 contained a provision requiring that gasoline contain up to 10% oxygenate, which was a code word for ethanol.  At the time, there was an abundance of technical data demonstrating that reduced tailpipe emissions could be met without the mandate.  But, Congress wanted to enrich corn farmers so the mandate became law.

Over time, it became clear that there was a limit to how much corn based ethanol could be produced and since gasoline consumption was increasing something had to be done to maintain a vibrant ethanol market and reward the agricultural lobby.  That something was a mandate was a 2007 law requiring that the US must use 36 billion gallons of renewable fuels annually by 2022, including 16 billion gallons of cellulosic ethanol.  Congress in its infinite “wisdom” was not satisfied to set a mandate 15 years into the future, it also set interim targets—100 million gallons by 2010, 250 million  by 2011, 500 million by 2012, and then 10.5 billion by 2020.  Combining targets with specific dates is both naïve and stupid, as history clearly demonstrates.

Just as the Congress ignored technical evidence in 1990 that ethanol was not needed in gasoline, so did the democrat controlled Congress in 2007 ignore a Department of Agriculture technology assessment  concluding  that cellulosic ethanol technology would not be technically viable for several decades.  Technically viable is not the same as economically viable.

Congress and Washington bureaucrats do not operate by the same rules of reason as those who have to deal with mandates.  They operate by the Field of Dreams philosophy—mandate it, provide plenty of taxpayer money—i.e. subsidies—and someone will make it happen.  The magic of mandates and subsidies!  How many failures are needed for the Washington establishment to learn that technology cannot be mandated any more than King Canute could command ocean waves to stop.

After the 2007 legislation, the economy collapsed, gasoline prices surged to $4 a gallon, new CAFÉ standards have been put in place and  gasoline demand has plateaued.  As a result, so has the demand for ethanol.  No problem.  EPA stepped in and using authority granted by Congress reduced the annual mandates without much fanfare.  Instead of refiners having to use 500 million gallons this year, EPA will reduce the number to something around 12 million.  One of the reasons, but not the only one, why the mandates can’t be met, according to the Wall Street Journal is that the companies that received $1.5 billion in grants and loan guarantees never got off the ground.  Sounds a lot like the fate of Solyndra and the solar plants that have gone into bankruptcy.

If this was the end of the story, perhaps it could be chalked up to an excess of optimism about the potential of technology or simply that sometimes things don’t work out.  But, that is not the case.  We have a 40 year history of the Congress and White House attempting to produce alternatives to gasoline and trying to get citizens to abandon gasoline powered cars.  Ethanol is just one of the latest examples and one that continues to impose costs on consumers.

At the end of 2011, the ethanol subsidy costing taxpayers over $6 billion a year expired but the mandate to use ethanol did not, nor did the requirement to use cellulosic ethanol.  With record high corn prices, ethanol producers continue to get a windfall from refiners who must purchase their product.  If that was not bad enough, EPA requires refiners to purchase a “waiver credit” for failing to use non-existent cellulosic ethanol.  Those credits cost about $1.20 per gallon or $10 million annually which are ultimately paid by consumers.

As the Wall Street Journal summarized the situation, “ Congress subsidized a product that didn’t exist, mandated its purchase though it still doesn’t exist, is punishing oil companies for not buying the product that doesn’t exist, and is now doubling down on the subsidies in the hope that someday it might exist.  We’d call this the march of folly but that’s unfair to fools.”

Is it any wonder that the American people are disillusioned with our government?

This article appeared in the FuelFix weblog athttp://fuelfix.com/blog/2012/01/05/ethanol-another-monument-to-government-arrogance/

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