Editorial - The energy bill's problem

May 10, 2004
A recent statement by US Senate Majority Leader Tom Daschle (D-SD) underscores the problem with comprehensive energy legislation as proposed.

A recent statement by US Senate Majority Leader Tom Daschle (D-SD) underscores the problem with comprehensive energy legislation as proposed.

"Senate Republicans had an opportunity today to deliver a timely economic boost to rural America and send a powerful message to the Persian Gulf oil producers who are intent on driving up American gasoline prices," Daschle said after the Senate rejected his attempt to attach a renewable-fuel standard to an internet-tax bill. The renewable-fuel standard, which would double the amount of ethanol required in gasoline, has been at the core of congressional efforts to pass an omnibus energy bill. Daschle's lunge for a new legislative vehicle indicates how low chances have become for passage of the energy measure. It's also fitting. An ethanol mandate doesn't belong in serious energy policy.

Overstuffed bill

Daschle is ethanol's leading proponent in a Congress generally disposed to support the fuel additive in deference to farm states. And like all ethanol cheerleaders, he makes statements demonstrably at odds with facts. It's chiefly because of ethanol's political appeal that an overstuffed and underachieving energy bill remains, however tenuously, on the national agenda with almost no public support.

Oil-industry supporters of the measure fail to heed the conflict into which ethanol forces them between political expediency and the interests of their consumers. Because ethanol generates more political energy than the useful kind, it's a poor foundation on which to construct arguments for the supply-oriented policy the country desperately needs.

Contrary to Daschle's rant, an ethanol mandate would send no message to Persian Gulf producers other than that the US remains committed to the abuse of its fuel consumers. The suggestion that ethanol would suppress gasoline prices is ludicrous. Because of its production costs, ethanol needs a heavy tax subsidy to be economic as a fuel additive. It requires special handling. It contains less energy than gasoline. These inescapable costs overwhelm the relatively minor and always exaggerated extension ethanol gives energy supply.

Recent initiatives by California, New York, and Connecticut contradict Daschle's price assertions. After banning the fuel oxygenate methyl tertiary butyl ether, the states have requested waivers from the unnecessary oxygen requirement for reformulated gasoline. The reason? The only readily available alternative to MTBE in gasoline is ethanol. The states seeking waivers recognize that the need to blend ethanol will raise gasoline prices, which are already high in a very tight market, as refiners begin rejecting butanes to meet summertime volatility requirements.

Ethanol's other drawback—persistently and falsely denied by the material's supporters—would further elevate gasoline prices over time. Chemical theory, test results, and experience in California show that gasoline-ethanol blends aggravate smog problems. An increase in ethanol use would add to the difficulties cities face in complying with federal standards associated with ozone smog. More ethanol now means the need for more costly remediation later.

Daschle is apparently as weak on the economics of oil as he is on the chemistry of gasoline. If Persian Gulf producers were truly "intent on driving up American gasoline prices," they could do so by slashing production of crude oil. They're not. Lately they've been producing crude at perilously near capacity rates, despite a quota reduction by the Organization of Petroleum Exporting Countries that now looks overly cautious and destined to be ignored. Gasoline prices are high because, in both the raw material and finished product sides of the market, demand is straining the system's ability to deliver supply.

Price raiser

Elevation of oil prices has been offered as a reason for Congress to enact the comprehensive energy bill. Hogwash. As long as it hinges on an ethanol mandate, comprehensive energy legislation is a price raiser, with part of the effect camouflaged by the tax subsidy. It has beneficial pieces, including tax provisions helpful to small producers. Those provisions and others helpful to oil and gas supply should be passed. But they shouldn't have to hitch themselves to a transfer of wealth from fuel consumers and taxpayers to grain distillers and become dependent on the associated deceptions.

If the energy bill can't survive with the ethanol mandate, the country is better off without it. And energy policy itself is better off without the false promises and distorted economics on which fuel ethanol depends.