It's not too late for US lawmakers to support national rather than political interests in their handling of fuel ethanol. Last-minute manipulations by ethanol interests give them strong reason to reverse course.
Both houses of Congress have passed mandates for agriculturally derived ethanol in gasoline. The initiatives undermine energy bills to which they attach. Energy legislation should serve broad national interests. If enacted, a mandate for ethanol in gasoline would help only growers and distillers of grain and hurt everyone else. It's not energy policy; it's wealth transfer to agricultural interests.
Many if not most lawmakers, with approval from the administration of President George W. Bush, support the ethanol mandate in obeisance to a powerful farm lobby. Some refiners, with backing of the American Petroleum Institute, support it as a tradeoff for elimination of the requirement for oxygen in reformulated gasoline. But support isn't universal. Lawmakers from East Coast states, in particular, oppose the mandate because they see what's coming: rising fuel costs and new trouble meeting federal standards for ozone pollution. And the National Petrochemical & Refiners Association opposes the mandate, arguing correctly that Congress shouldn't replace one mistaken requirement with another.
Insatiable industry
New requests from the ethanol lobby should toughen the resistance. If nothing else, they highlight the insatiability of a politically dependent industry.
The House and Senate bills both call for a doubling of the amount of agricultural ethanol blended into gasoline to 5 billion gal/year. The House's deadline for achieving the volume target is 2015, the Senate's 3 years sooner. Both bills have interim targets. Neither schedule suits ethanol interests.
The Reformulated Fuels Association—"the national trade association for the US ethanol industry" with a mission "to secure a strong marketplace for ethanol"—has urged lawmakers reconciling the House and Senate energy bills to "adopt a more robust" phase-in of the mandate. Ethanol producers, RFA says, expected Congress to pass the requirement 2 years ago and began adding capacity accordingly. They already can produce more ethanol than will be required in 2005. And by then, when the renewable fuel standard (RFS—the ethanol mandate) begins, they'll be able to produce much more: at least 3.4 billion gal/year vs. the 2.6-2.7 billion gal/year required in 2005 by the energy bills.
"Indeed," says RFA in a letter to House-Senate conferees, "given current production rates, neither schedule meets current capacity, and as a result the RFS would not stimulate new ethanol production until at least 2008 under the Senate and 2012 under the House bill." So the group asks lawmakers to raise interim targets to align with capacity growth.
Consider the situation: Ethanol costs twice as much to make as gasoline and contains two thirds the energy, which makes the industry that produces it wholly dependent on a federal tax exemption worth 52¢/gal, enhanced by similar breaks in several states. The industry enjoys watertight protections against competition from non-US and nonagricultural supplies. It further benefits from developing restrictions, if not outright bans, on use of a preferable fuel oxygenate, methyl tertiary butyl ether. And now it wants the government not only to guarantee market growth for its product but also to indemnify its manufacturers against the financial inconvenience of idle processing capacity. What next?
Camouflaging costs
RFA also proposes changes to the tax-credit mechanism that would camouflage costs of the federal subsidy, now more than $1.2 billion/year. That's the amount of gasoline excise tax that
doesn't go into the Highway Trust Fund because of the gasohol credit. RFA wants the credit to apply to general revenue rather than the highway fund. The credit would still exist, of course. The maneuver would just make it harder for taxpayers to know how much they're spending on the enrichment of ethanol tycoons.
With its self-justifying claims to other people's money, the fuel ethanol industry acts more like a government bureaucracy than a real business. It's a creation of the state, after all. Unlike bureaucracies, though, the ethanol industry makes notoriously lavish campaign contributions and dominates politics of the US heartland. Lawmakers serious about energy policy and courageous enough to act would be getting this industry's fat fists out of American pockets, not preparing to stuff them in further.
