As Government Decisions Loom, Ethanol Fights for its Life
Congress, the EPA and environmental groups may be on the verge of seriously curtailing corn ethanol adoption in the United States. This week, the EPA again decided to postpone a decision on whether to increase the maximum allowable blend of ethanol in regular gasoline from 10 to 15 percent. Automakers have been fighting the increase for some time, claiming that it could cause engine damage. The EPA says it needs more time to study the issue.
The Renewable Fuels Association—one of several lobbying arms of the ethanol industry—issued a harsh rebuke of the decision, calling the EPA’s postponement “shameful” and “a dereliction of duty.”
Judgment Day for Ethanol
The EPA isn’t the only government body that the ethanol industry is relying on. By the end of 2010, several of the programs and regulations that keep the corn ethanol industry afloat will expire unless Congress acts to extend or replace them.
First, there are the so-called “blender’s credits” given out to oil companies for mixing ethanol into their gasoline, which make up the bulk of the subsides for the past five years but are set to expire at the end of 2010. Those credits have helped pump $17 billion into the industry since 2005, but since gasoline producers are already required by law to blend ethanol into their product, the subsidy is largely redundant.
There’s also the matter of a $0.60 per gallon tariff on imported ethanol that effectively keeps all of the ethanol sold in the United States domestically produced. Brazil, which is the world’s second leading ethanol producer, recently lifted its biofuels tariff in the hopes that the United States would do the same. Unless Congress decides to take action by the end of the year, the tariff is set to expire, opening up the market to imports.
With all of the challenges facing American corn ethanol, you can probably imagine why two months ago the industry launched a six month, $2.5 million ad buy aimed at building public support for the fuel. The campaign is intended to buttress the sector’s ever-increasing lobbying activity on Capitol Hill as it attempts to navigate what is perhaps the most critical time in its history. Unfortunately for producers, the political climate in Washington has many politicians nervous about having to justify to voters a new round of subsidies and protections for a technology that is having an increasingly difficult time justifying its existence.
But How Much Does it Really Cost?
Last week, the Environmental Working Group piled on to a growing mountain of criticism of the corn ethanol industry in a study titled “Driving Under the Influence: Corn Ethanol and Energy Security.” Past studies have found that ethanol use and production actually increase carbon emissions instead of cutting them and that growing corn for energy production raises food prices.
The EWG’s report focussed on cost and effectiveness of ethanol subsidies over the past five years. It’s chief findings:
- Between 2005 and 2009, the United States government spent $17 billion on ethanol subsidies.
- During that period of time, ethanol contributed just 0.6 miles per gallon in average increased fuel economy.
- Last year, the United States replaced 7.2 billion gallons of gasoline with 10.6 billion gallons of ethanol at a cost of $4.8 billion to taxpayers. The cost for 2010 is expected to total $5.4 billion.
- Due to the amount of energy required to produce corn ethanol, just 4 percent of the energy in each gallon of E10 blended gasoline comes from corn—the rest comes from fossil fuels.
The EWG called for the elimination of a provision in the 2007 Energy Independence act that mandates the blending of corn ethanol with gasoline and the cessation of tax credits for the industry when they expire at the end of the year.