Ethanol Industry: Too Big to De-Subsidize?
The ethanol lobby has been extremely successful over the course of the last decade in growing the industry into one of Washington’s favorite pet projects. A reported 76 percent of each dollar in subsidies to renewable energies is allocated to ethanol, including $5 billion in annual tax credits. Auto companies historically have been supportive of ethanol, but the tide could be turning.
The auto industry is fighting to delay an EPA rule change that would increase the allowable level of ethanol blended into gasoline from 10 to 15 percent. Carmakers say that the increase could damage catalytic converters and cause “check engine” lights to malfunction. The Alliance of Automobile Manufacturers says that early results from a study of the blend’s effects on engines is troubling, with half of engines tested showing problems.
A 50 percent increase in the ethanol allowance would help the United States meet a 36 billion gallon ethanol mandate made law by the Energy Independence and Security Act of 2007, and help the ethanol industry—which has lost several companies to bankruptcy recently—continue to grow. The industry currently relies on $0.45 per gallon federal subsidy and a $0.10 per gallon tax credit, but both are scheduled to expire this year. Bills to extend the incentives are currently being considered by Congress, but their prospects are unclear.
Under the government’s fuel economy regulations, automakers are allowed to assign higher fuel economy ratings to vehicles that have been specially outfitted to use an 85 percent blend of ethanol and 15 percent gasoline. Yet, very few of these vehicles ever use E85 fuel.
Friends in High Places
President Obama’s Secretary of Energy Steven Chu has been critical of the fuel and has generally been more supportive of policies that would encourage moving away from all combustible fuels. But Obama and chief of staff Rahm Emanuel are both from a major corn-producing state and have been sympathetic to the industry in the past. Just last week, the President visited an ethanol plant in Missouri, saying “there shouldn’t be any doubt that renewable, homegrown fuels are a key part of our strategy for a clean-energy future… I didn’t just discover the merits of biofuels like ethanol when I first hopped on the campaign bus.” Secretary of Agriculture Tom Vilsack—the former governor of Iowa—is also said to be pushing hard on behalf of the fuel.
The EPA is reported to be leaning toward approving the increase, despite calls from automakers for further testing. Environmentalists are also largely opposed to ethanol, citing a net carbon emissions effect that is questionable at best. Though the burning of ethanol itself produces less carbon than petroleum, emissions associated with the growth, harvesting and production of the fuel have been shown in some studies to neutralize any positive effect.
The time is approaching when Washington will have to make a decision about corn ethanol. As the industry grows in size and power, it may soon become “too big to de-subsidize,” despite questionable environmental and energy policy benefits.