Helping ethanol again

Oct. 29, 2018
Nothing helps fuel ethanol more than an imminent political contest. Fuel ethanol feeds on political contests.

Nothing helps fuel ethanol more than an imminent political contest. Fuel ethanol feeds on political contests.

Politics is why US vehicle engines burn food. Other reasons of supposedly national importance—mainly supplementation of oil supply and air quality—are obsolete or invalid. That the administration of US President Donald Trump is moving to expand sales of gasoline with elevated concentrations of ethanol is no accident. Midterm elections loom.

Creature of politics

Fuel ethanol is a creature of politics. Ethanol has value in gasoline because it boosts octane and oxygen content. But those natural advantages support much less than the 15 billion gal/year of ethanol that the US government requires to be sold in gasoline. The balance, costly to motorists and damaging to the environment, is wholly the product of politics.

This is nothing new. The history of US policy on ethanol provides a useful framework through which to analyze current events and to discover why this is one part of the rhetorical swamp that Trump has no intention of draining.

American vehicles burn grain ethanol largely because, in the 1970s, one company needed a market for a byproduct of high-fructose corn syrup, of which it was the dominant US manufacturer. The company was Archer Daniels Midland (ADM), and the byproduct was ethanol. The late Dwayne O. Andreas, ADM’s chief executive and a lavish political contributor, convinced lawmakers and President Jimmy Carter that ethanol could solve America’s newly evident problem of energy supply while cleaning the air, helping farmers, and—oh, yes—enriching grain distillers such as ADM. His first triumph was a 1978 federal fuel-tax exemption of 4¢/gal for gasoline containing 10 vol % ethanol—a 40¢/gal subsidy for the oxygenate.

ADM, other ethanol manufacturers, and corn growers extracted further favors from the government after Russia’s 1979 invasion of Afghanistan. In 1980, the US responded with an embargo on grain sales to Russia that punished American farmers with slumping prices for corn and wheat. Compensating politically, lawmakers in the next few years enacted loan guarantees for ethanol-plant construction, a hefty tariff on imported ethanol, extra tax breaks for small ethanol producers, and increases in the tax exemption to its 1984 peak of 60¢/gal. The tax break, after several modifications and extensions, expired at the end of 2011. By then, Congress had resorted to direct methods of accomplishing the goals of ethanol tax-credits, the financial benefit of which went to blenders, including refiners. It imposed volumetric mandates in 2005 and expanded them in 2007.

Now, the approach of midterm elections, heralded by both main political parties as historic, comes with farmers rocked again by geopolitical disturbance from Washington, DC. The Trump administration is using aggressive trade policy to exert pressure on foreign governments, some of which—notably China’s—have retaliated with measures hurting US farmers. As a political opportunity for the ethanol lobby, this is analogous to the Russian grain embargo.

Wanting to expand sales of ethanol containing more than the standard 10 vol % (E10), ethanol advocates have been pushing for increased sales of E15. Refiners, for which compliance with the ethanol mandate can be difficult and costly, object. Further opposition comes from automakers and small-engine manufacturers worried about misfuelling and product damage. Those concerns bear directly on the interests of consumers. Most environmental groups oppose an E15 boost, too. They reject claims that fuel ethanol’s air-quality advantages outweigh its problems and know that higher concentrations of the substance in gasoline increase evaporative emissions of ozone precursors, especially when outside temperatures are high.

Demanding more

Yet the administration this month said it will proceed with a plan to allow summertime sales of E15. Did someone mention elections next month?

The fuel-ethanol industry exists because of politics. And it behaves as all political creatures do, taking whatever its lobbyists can persuade politicians to give—then demanding more. Its history is a continuing lesson in why energy choices are best left to the market.