NCPA - National Center for Policy Analysis


April 14, 2006

Rising gas prices (expected to hit a national average of $2.62 a gallon for regular) are the result of the rising price of crude oil, as well as lingering hurricane damage. But even the government is admitting that some of the price increases and regional shortages are the result of the ethanol love-fest that Congress engaged in last summer as part of its energy bill, says the Wall Street Journal.

Congress has long required the use of such "oxygenates" as ethanol and MTBE in gasoline. Midwest drivers have tended to rely on locally produced and corn-based ethanol, while places where ethanol is expensive to ship -- such as the East Coast and Texas -- have used petroleum-based MTBE. But the ethanol lobby wanted more market share, and so last year's energy bill included a giant new ethanol mandate, while at the same time denying liability protection for rival MTBE makers that are getting sued for having sold a product that Congress had once mandated, says the Journal.

  • MTBE makers are now fleeing the market; most oil companies will drop the additive entirely on May 5.
  • So bye-bye to a significant portion of the domestic fuel supply, which already stretched ethanol producers have no hope of replacing any time soon.
  • Since ethanol is difficult and expensive to transport, such highly populated cites as New York or Dallas that are far from the ethanol belt will suffer most from the gasoline shortages.

One eminently sensible short-term solution, says the Journal, would be for the feds to drop the 54-cent-a-gallon tariff on imported ethanol, which would particularly help coastal areas. But eager to show the Bush Administration's own deference to the ethanol lobby, Energy Secretary Sam Bodman defended the tariff last week, saying it was necessary so that foreign producers "can have no advantage over American companies."

Source: Editorial, "The Ethanol Tax," Wall Street Journal, April 14, 2006.

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