The Big Ethanol Scam

Annually over the past several years, Congress has considered the repeal of the Renewable Fuels Standard (RFS) and each time has blinked because of the ethanol lobby. Consideration of repeal is before Congress again but in an election year it is likely to happen as seeing pigs fly.

The Renewable Fuels Association leaves nothing to chance and is once again making an all out push to convince consumers, thought leaders and others that the RFS is in the nation’s best interest. What it really is, is just another example of Baptist and Bootlegger economics, an alliance that allows an economic interest—corn farmers and ethanol producers—to enrich themselves by claiming to pursue a cleaner environment and bolster national security.

The facts are completely different than the image being sold by the ethanol lobby. It has been known for almost 30 years that lower tailpipe standards could be met without the oxygenate mandate in the 1990 Clean Air Act amendments. In spite of self serving rhetoric, the ethanol mandate does nothing for the environment, nothing for national security, and instead wastes a valuable food source, damages engines, and robs consumers. Before the Clean Air Act was amended in 1990, the Oil and Auto industries presented Congress with the results of the largest and most expensive research program on fuel-vehicles interactions ever conducted. It demonstrated that the lower tailpipe emissions being contemplated could be achieved without an oxygenate—ethanol—mandate. Congress ignored those results because it needed the support of the farm lobby for passage. In addition to writing a formula for gasoline into law, Congress provided a generous tax credit to offset the higher cost of complying with the mandate.

The Renewable Fuels Association makes the incredulous claim that the ethanol industry “doesn’t receive any federal government subsidies and that it is not a program which the government pays companies to convert corn into ethanol alcohol into an additive.” While these two statements are technically correct, they are misleading and disingenuous. Congress did repeal the ethanol federal tax credit in 2011 but in 2007 imposed a volumetric mandate that increases over time. Forcing refiners to use an additive that they don’t want or need, forces them to purchase ethanol from manufacturers and rewards farmers for planting more corn than consumers demand. A subsidy does not have to be a direct government payment. The existence of the mandate represents “financial assistance provided by a government to another entity, usually a business or industry,” which is a definition of subsidy. The cost to consumers has been calculated to be about $10 billion annually

Were it not for the mandate, the ethanol industry would be a lot smaller and so would be the corn crop, 40% smaller. The mandate has driven up the price of corn and the cost of foods made from corn and foods where corn is a feed for animals. The higher cost of these foods is a tax that is especially punitive to those on low and fixed income and devastating to the global poor who subsist on less than $2 a day.

Ethanol proponents claim that ethanol increases national security because it reduces the amount of oil imports from unstable regions of the world. At first blush, the claim appears to make sense since ethanol is substituted for an equal quantity of gasoline. However, ethanol is less energy efficient than gasoline, so more gasoline has to be consumed to travel the same distance as can be traveled with ethanol free gasoline. An analysis in 2009 by the Energy Insider newsletter reached this conclusion, “The easiest conclusion is that the claims of petroleum import displacement have been at a minimum grossly exaggerated. It may even be that ethanol hasn’t backed any petroleum imports out, or that the impact is so small as to be unnoticeable.” Oil imports have been declining since 2008 but that is a result of fracking, not ethanol. Further, our major sources of oil imports isn’t the Persian Gulf, it is Canada and Mexico.

The dominance of special interest influence is Washington is fueling the anger so visible in the electorate. Congress and the next Administration can take a corrective step by repealing the Renewable Fuel Standard and letting the market determine the composition of the fuel that powers our trucks and cars.





Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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