The new ethanol mandate is
perhaps the most disappointing program in the Energy Policy
Act of 2005. Since taking effect in 2006, this measure has
increased energy and food prices while doing little to reduce oil
imports or improve the environment.
Based on this track record,
the Administration and Congress should now be debating the repeal
of this ill-advised and anti-consumer measure. Instead, in his
State of the Union address, President George W. Bush proposed
greatly expanding the mandate.[1]
Regrettably, this may be one of the few energy policy ideas
upon which he and Congress can agree.
Any effort to increase the
ethanol mandate is misguided because it would exacerbate the
problems created by the current requirements without
appreciably reducing oil imports or protecting the
environment.
Bad News for
Consumers
The 2005 energy bill mandated
that 4 billion gallons of renewable fuel (mostly corn-based
ethanol) must be added to the gasoline supply in 2006. That amount
rises to 4.7 billion gallons for 2007 and 7.5 billion in 2012.
These targets represent a large percentage increase in ethanol
use but are still only a small fraction of the 140 billion gallons
of gasoline that the U.S. currently uses every year.[2]
This mandate comes on top of
other pro-ethanol provisions, most notably a 51 cent per gallon tax
credit. Other incentives include payments to corn farmers and
subsidies for small ethanol producers. These add up to $5.1 billion
to $6.8 billion per year-roughly $1.00 per gallon of ethanol.[3] Thanks in part
to these incentives, current ethanol use is above the mandated
levels, but without any government interference, the ethanol market
would be considerably smaller. The domestic ethanol industry
also benefits from tariffs limiting ethanol imports, mostly of
sugar-derived ethanol from Brazil, which is produced more
efficiently than ethanol from corn.
While a boon to Midwestern
corn farmers and big ethanol producers like Archer Daniels Midland,
ethanol has been bad news for the driving public. ethanol usually
costs more than gasoline, so adding it to gasoline increases fuel
prices at the pump.[4]
Ordinary vehicles can use
gasoline blends containing up to 10 percent ethanol, and
specially modified vehicles can use fuel that is up to 85
percent ethanol. However, ethanol lowers fuel economy
because a gallon of ethanol has only two-thirds of the energy
content of a gallon of gasoline.[5]
Difficulties in transporting it to markets far from the
Midwest and other logistical problems add further to the price of
ethanol in several regions.
ethanol use at current levels
has also led to skyrocketing corn prices as the available
supply is split between food and fuel uses. This has led to higher
prices for corn products and things such as corn-fed meat.[6] The U.S.
Department of Agriculture predicts that the ethanol mandate will
continue to apply upward pressure on food prices in the coming
years.[7] Even the price
of tortillas, the dietary staple of many low-income Mexicans, has
been affected.[8]
No Appreciable Improvement in
Energy Security
Beyond costs, the claimed
benefits of ethanol use have not materialized. For one thing, it
does not reduce oil imports as much as promised, partially because
a gallon of ethanol can do the work of (and therefore replace) only
two-thirds of a gallon of gasoline. In addition:
-
A significant amount of
petroleum-based products is used in growing corn, such as the
diesel fuel for tractors and harvesters;
[9]
-
Certain components of
gasoline must be removed before adding ethanol to prevent the
overall blend from violating environmental requirements under Clean
Air Act provisions, which are applicable in many parts of the
country; and
-
Transporting ethanol requires
more energy than transporting gasoline because ethanol transported
by pipeline (the most energy-efficient means of transport)
becomes contaminated by moisture along the way. Instead,
ethanol is shipped via petroleum-using trucks, barges, and
railroads.
The current ethanol mandate
will supplant only 1.1 percent of petroleum imports by 2012,
without taking into account the petroleum inputs in ethanol
production and use.[10] Once these
inputs are taken into account, that figure falls by half to about
0.5 percent, according to one analysis.[11] Others
suggest a somewhat higher percentage, but still in the very low
single digits.[12] In any event,
the energy security gains from ethanol use are minute, especially
in relation to its costs.
Overrated Environmental
Benefits
The claimed environmental
benefits of ethanol are also suspect. Although promoted as a means
of reducing vehicular emissions that contribute to smog, ethanol is
a mixed bag. It lowers some types of pollutants, such as carbon
monoxide, but increases others, such as the evaporative emissions
that contribute to smog.[13] The
fertilizer, pesticides, and irrigation required for corn farming in
some areas also have negative environmental impacts.[14] These impacts
will only worsen if forests are cleared or marginal lands are
planted to expand corn acreage to meet increasing demand.[15]
The President has touted the
benefits of ethanol in reducing carbon dioxide emissions, which are
linked to global warming.[16] Carbon
dioxide is a natural constituent of the atmosphere, but it is also
the byproduct of the combustion of fossil fuels, including
gasoline. By some measures, using ethanol in vehicles results
in fewer carbon dioxide emissions than an equivalent amount of
gasoline. However, after taking into account the carbon
dioxide emitted from ethanol production, the reduction in
emissions is modest.[17]
Overall, the costs of the
ethanol mandate are substantial, while the benefits are small
at best. The only real winners are the direct beneficiaries of this
special-interest program, mainly corn farmers and ethanol
producers.
Expanding the Mandate: Making
a Bad Idea Worse
Despite the mandate's
shortcomings, the President has announced that he wants to
increase it nearly fivefold to 35 billion gallons by 2017.[18] Several bills
in Congress would set similarly ambitious goals.[19]
Of course, a higher ethanol
mandate would sup¬plant somewhat more than 1.1 percent of
imported oil, but the current mandate is proving costly enough.
Raising the targets would only intensify the problems. In fact,
dedicating the entire U.S. corn crop to ethanol, which would be
prohibitively costly, would probably not meet the expanded ethanol
goals.[20] This means
that substantial new sources of ethanol would be needed.
One free-market policy could
increase ethanol supplies in the U.S.: Eliminating tariffs and
regulatory barriers to ethanol imports would expand access to
global sources, thereby lowering prices.[21] Predictably,
such proposals have provoked strong opposition from the domestic
corn lobby. In any event, the small volume of ethanol available on
the global market would still leave the U.S. far short of the 35
billion gallon target.
For these reasons, the
President has also promised more money for research into
cellulosic ethanol, which is made from wood chips, grasses,
agricultural waste, or other plant materials. The President has
expressed confidence that these additional means of producing
ethanol can supplement the corn-based variety and meet the 35
billion gallon target in a cost-effective manner.
However, cellulosic ethanol
is far from economically viable at this point,[22] and this kind
of federally directed alternative energy research program has a
poor track record.[23] Usually, the
money is wasted on boondoggles like the Carter-era Synfuels
program-an expensive federal program to make motor fuels from
coal and other sources that was a complete failure-while diverting
resources away from more useful avenues of research and
development. If past experience with Washington's attempts to
choose alternative energy winners and losers is any guide,
cellulosic ethanol will fall considerably short of the current
hype.
What Congress and the
Administration Should Do
Instead of trying to pick
alternative energy winners and losers, Congress and the
Administration should: