July 27, 2006 | Commentary on Energy and Environment

Feds make pain at the pump worse

Washington has embraced an alternative to $3-a­­-gallon gasoline -- $4-a-gallon ethanol.

That's the cost of this federally mandated fuel additive, when you take everything into account. Ethanol, produced mostly from Midwestern corn, currently wholesales for more than $3 a gallon.

And that's the Midwest price -- ethanol costs even more on the coasts because it can't be sent through pipelines and thus is costlier to ship than gasoline. At these prices, adding even small amounts of ethanol to gas can boost pump prices by 20 cents per gallon or more.

In addition, the Department of Energy reports, "ethanol has only about two-thirds the energy content of an equivalent volume of gasoline," so it substantially reduces fuel economy. In effect, using it is like switching to a larger vehicle.

And in many big cities, ethanol cannot be added to ordinary gas without the resulting mixture violating federal air-quality regulations. It has to be added to a costly base blend that compensates for ethanol's environmental shortcomings.

When you take into account all the direct and indirect costs of using ethanol, it's the equivalent of $4-a-gallon gasoline -- and closer to $5 if you consider its lousy fuel economy.

Give the feds credit. It isn't easy to find something worse for consumers than $3 gas, but they managed to do it.

Of course, ethanol isn't really designed to help America's hard-pressed drivers, but to help special interests -- namely, Midwestern corn farmers and ethanol producers such as Archer Daniels Midland. For years, the domestic ethanol industry, aided by its supporters in Congress, has enjoyed massive tax breaks as well as protectionist tariffs that block cheaper imports. And now, thanks to last year's big energy bill, Americans are required by law to add 4 billion gallons of ethanol to the fuel supply this year. That number will rise to 7.5 billion gallons by 2012.

The ethanol mandate is only six months old and already has proven costlier than predicted. Yet many corn-belt legislators are trying to increase it. And, thanks to presidential aspirations, they are getting some powerful allies.

Two senators, Hillary Clinton (D-N.Y.) and John McCain (R-Ariz.), used to be among Congress' strongest critics of federal giveways to the ethanol industry. But with an eye towards the 2008 presidential primaries, which begins in the heart of corn country with the Iowa caucuses, both have flip-flopped and are now pro-ethanol.

Nor is the White House any better. At a recent ethanol lobby meeting, President Bush gave the keynote speech and made the odd claim that "ethanol is good for drivers." The president has yet to oppose anything the ethanol lobby and its friends in Congress have asked for, and he's unlikely to start now.

Thus, at a time when Washington should be working on repealing this special-interest handout -- one backfiring beyond anyone's worst fears -- it's instead considering steps to mandate even more $4-plus ethanol.

So expect even more pain at the pump in the years ahead --courtesy not of "greedy" oil companies, but of our elected officials in Washington.

Ben Lieberman is a senior policy analyst at The Heritage Foundation (heritage.org), a Washington-based public policy research institute.

About the Author

Ben Lieberman Senior Policy Analyst, Energy and Environment
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Energy and Environment

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