Loose Canons

Renewable Fools Standard

The drought should mean an end to the ethanol subsidy -- the last thing the EPA and Obama will ever surrender.

By 8.6.12

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Your car will get better mileage if the price of your Thanksgiving turkey goes down, and my chain saw will start more easily. It all comes down to the price of corn, and how much ethanol the federal "Renewable Fuel Standard" mandates to be blended in gasoline.

The price of corn is going to go up sharply in the coming months because the worst drought in fifty years has brought disaster to corn farmers. According to the EPA, which has control of the Renewable Fuels Standard created by the 2005 Energy Policy Act, America grew about ten billion bushels of corn in 2000, almost half of the world's production of 23 billion bushels. Corn was plentiful and cheap, so congressional "experts" mandated that a minimum of 7.5 billion barrels of ethanol be included in gasoline sold in 2012. (It takes about one bushel of corn to produce a gallon of ethanol.)

The actual production of ethanol in 2011 topped 11 billion gallons, more or less all of which was included in gasoline, according to an April 2012 Congressional Research Service report. Last week, the Agriculture Department lowered its projection of the 2012 corn crop by 12%.

Since 2005, the ethanol mandate has driven the average price of corn from about $2 per bushel to almost $8 per bushel, according to a January 23, 2012 CRS report. But all of the supposed benefits of the mandate have not appeared. According to that same report, our dependence on foreign oil hasn't been reduced at all, and there is no evidence that the ethanol mandate has driven energy prices down.

If those benefits were going to happen, they would have in times when the corn crop was plentiful. But now because of the drought, only about 40 percent of the 2012 corn crop is being rated "good to excellent," i.e., worth harvesting. The rest may have to be abandoned. Corn futures prices are rising, which means the cost of the most-used feed for chicken, cattle, and other livestock will rise as much or more than the price of feed corn.

The arithmetic is simple: the more feed corn is used to produce ethanol, the less is available to feed those chickens, cattle, and turkeys. About 40 percent of our corn crop is used for ethanol, not for feeding livestock or people. Simply put, the ethanol mandate is forcing the prices of protein foods to rise and will continue to do so as long as it exists. And the mandate costs the federal government billions because gasoline blenders are given a reported 45 cents per gallon tax credit for using ethanol in their gasoline.

Last week, a broad coalition of meat and poultry producers petitioned EPA administrator Lisa Jackson to waive the ethanol mandate, saying the Renewable Fuel Standard "directly affected the supply and cost of feed in major agricultural sectors of this country, causing the type of economic harm that justifies issuance of an RFS waiver."

If only facts mattered, the EPA would waive the ethanol mandate for this year and Congress would kill it for the years that follow. There is no good reason for it: the price of corn will drop slightly, but every American who buys corn for food or to feed his livestock will benefit. And all of us who have to use gasoline containing ethanol will find that our machinery works better and more efficiently.

Ethanol is corrosive and has a lot of water in it, so you can't leave your gas-powered mower or generator filled over the winter unless you want the inevitable ethanol sludge to destroy its carburetor. Ethanol cannot be shipped by pipeline as pure petroleum-based fuels can, making it still more expensive.

The EPA is considering raising the ethanol mandate to require 15 percent ethanol in gasoline sold, which will bring another problem to everyone who drives. Few cars can handle the 85-15 gas-ethanol mix, resulting in reduced performance and possibly damaging high-performance car engines.

Ethanol is less dense than gasoline, so your chain saws and lawnmowers will start more easily if ethanol is eliminated. Moreover, your car's gas mileage will rise if ethanol is eliminated. There is no evidence that ethanol reduces emissions from cars in a measurable way, so the greenies shouldn't' be upset. But they, and their EPA allies, won't admit that. Politics will dominate the decision.

The EPA is as political an agency as has ever been incubated in the Executive Branch. It not only controls the Renewable Fuel Mandate but also the "corporate average fuel economy" standards for cars and trucks. Last year, EPA announced a hike in the "CAFE" standards to double them -- to 54.5 miles per gallon -- by 2025. If that new standard is established -- at the same time EPA continues to insist on the mileage-reducing ethanol mandate -- a lot of cars and small trucks will simply be regulated out of existence. Ford, planning ahead for the new CAFE standard, has already canceled production of the popular (and enormously useful) Ranger small pickup. (The Ranger I own gets poor mileage, but every larger truck is as bad or worse on fuel consumption.)

Obama's energy agenda is the same as the Global Warmists: drive down the use of petroleum-based fuels by making them so expensive as to be financially unfeasible. EPA control of both the CAFE standard and the Renewable Fuels Mandate enables it to put so much pressure on the car and fuels markets that the expense of operating a car -- or a truck or a lawnmower -- will be too much for our economy to bear.

The Obama administration's decimation of our economy won't stop there. If the ethanol mandate is not waived, the price of food -- for everyone, not just for the "1%'ers" -- will rise dramatically.

Getting rid of the ethanol mandate is part of the answer, but will Congress step up to the challenge? Probably not, and certainly not before the election. Ending the ethanol mandate will probably be just as easy as reducing the other farm subsidy programs that are as sacrosanct as Social Security and Medicare. Oil companies won't willingly give up the complex system of financial incentives that prop up their use of ethanol. But it needs to be done.

You can count on EPA to refuse a waiver of the ethanol mandate and to push the higher CAFE standards for cars and trucks. Despite the increases in gasoline and food prices caused by ethanol, you'll often hear that Obama has reined in the cost of living. The simple reason is that the Bureau of Labor Statistics doesn't count food or energy prices in computing the government's cost of living index.

American consumers know more about their cost of living than the BLS does. Politicians like to talk about "kitchen table" issues that families take to heart. If ever there were one, ridding us of the Renewable Fools Mandate is it. 

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About the Author
Jed Babbin served as a Deputy Undersecretary of Defense under George H.W. Bush. He is the author of several bestselling books including Inside the Asylum and In the Words of Our Enemies. You can follow him on Twitter @jedbabbin.