NCPA - National Center for Policy Analysis


March 17, 2009

Corn ethanol producers want the Obama Administration to make their guaranteed market even larger.  Recall that the 2007 energy bill requires refiners to mix 36 billion gallons into the gasoline supply by 2022.  The quotas, which ratchet up each year, are arbitrary, but evidently no one in Congress wondered what might happen if the economy didn't cooperate, says the Wall Street Journal.

Now the recession is hammering demand for gas, says the Journal:

  • The Energy Information Administration notes that U.S. consumption fell nearly 7 percent in 2008 and expects another 2.2 percent drop this year.
  • Americans are unlikely to use enough gas next year to absorb the 13 billion gallons of ethanol that Congress mandated, because current regulations limit the ethanol content in each gallon of gas at 10 percent.
  • The industry is asking that this cap be lifted to 15 percent or even 20 percent; that way, more ethanol can be mixed with less gas, and producers won't end up with a glut that the government does not require anyone to buy.

The ethanol boosters aren't troubled that only a fraction of the 240 million cars and trucks on the road today can run with ethanol blends higher than 10 percent.  It can damage engines and corrode automotive pipes, as well as impair some safety features, especially in older vehicles.  It can also overwhelm pollution control systems like catalytic converters. The malfunctions multiply in other products that use gas, such as boats, snowmobiles, lawnmowers, chainsaws, etc.

The biggest losers in this scheme are U.S. oil refiners, says the Journal:

  • Liability for any problems arising from ethanol blending rests with them, because Congress refused to grant legal immunity for selling a product that complies with the mandates that it ordered.
  • The refiners are also set to pay stiff fines for not fulfilling Congress's mandates for second-generation cellulosic ethanol.
  • But the cellulosic ethanol makers themselves already concede that they won't be able to churn out enough of the stuff -- 100 million gallons next year, 250 million gallons in 2011 -- to meet the targets that Congress wrote two years ago.

Source: Editorial, "Everyone Hates Ethanol," Wall Street Journal, March 16, 2009.

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