Al Gore, Newt Gingrich, and the Unintended Consequences of Ethanol Policy

By Eric Lowe

Successive presidential administrations over the past 50 years have vowed to aggressively pursue energy independence, attempting to decrease the amount of oil imported from the Middle East. The federal government has latched onto corn ethanol as the silver bullet solution to domestic fuel production disparities. Yet again, public policy creates a set of unintended consequences that ought to be fully considered if Oregon and the nation as a whole are going to continue to transfer demand and taxpayer dollars to this fledgling industry.

As it currently stands, regulation requires a certain volume of ethanol to be blended into domestic fuel supplies annually, and a percentage ratio of this ethanol-to-petroleum blend is “permitted” in gasoline refining by the EPA. Additionally, the subsidies, grants and tax loopholes for the ethanol industry are numerous. According to Rice University’s Baker Institute for Public Policy, in 2008, roughly $4 billion in taxpayer dollars were spent to subsidize replacement of about 2 percent of the U.S. gasoline supply. Up to 15% of gasoline now can be replaced with ethanol (E15 blends), and taxpayers subsidize half of all related costs for ethanol.

Starting with the 2005 Energy Policy Act, 12.95 billion gallons of renewable fuel must be used in 2010, increasing to 36 billion gallons per year by 2022. The EPA recently raised the amount of ethanol permitted in the blending of fuel to 15%, effectively mandating that many refiners produce at this level to meet legislative requirements. U.S. ethanol enjoys a roughly half-dollar per gallon import tax, making domestically produced ethanol artificially competitive over cheaper, more energy-dense Brazilian sugarcane ethanol. In addition, domestic producers receive a whopping 45-cent per gallon tax credit, a handout even certain refiners within the industry have said they don’t need.

Many have begun realizing that ethanol policies may be causing more problems than they solve. Studies show that vehicles built in or before 2007 and all non-road engines aren’t designed to operate on the E15 ethanol (15% ethanol) currently being pushed by the EPA. These higher blend fuels increase emissions of particulate air pollution, ground-level ozone (which is harmful to humans) and other toxic air pollutants. These emissions can mitigate or entirely eliminate the public health arguments for ethanol.

Ethanol policies on the state and federal levels also don’t account for cost. According to the U.S. Department of Energy research, E10 has a 3.6% fuel economy loss compared to traditional gasoline, E15 has a 5% loss, and E20 has a 7.7% loss. Furthermore, older vehicles and all non-road engines (ATVs, leaf blowers, tractors, generators, etc.) are put at risk by these policies. These generally do not have oxygen sensors, so with more oxygen-rich fuel they burn “lean,” or hotter than normal, contributing to significant wear and tear and early degradation. For the average family, having these expensive machines break down far faster than they otherwise would is an expense they can hardly afford. This means that the roughly 247 million “legacy” vehicles and 400 million non-vehicle gasoline engines are negatively impacted by these policies.

The mandates, regulations, grants, tariffs and tax credits surrounding the ethanol industry are, unsurprisingly, of a political origin, and not necessarily pertaining to sound environmental or economic policy. Even Al Gore admits as much in a recent public reversal of his support for what he then referred to as “gasohol.”

“One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for President,” he said. This isn’t the first time a presidential candidate has supported something purely to gain favor from a specific constituency.

Al Gore also admits a common problem with government programs, particularly the ethanol industry, when he said, “It’s hard once such a program is put in place to deal with the lobbies that keep it going.”

Interestingly enough, at a recent Renewable Fuels Association conference (in, of course, Iowa), Newt Gingrich called upon the government to mandate all vehicles sold be flex-fuel models. Mr. Gingrich explained that “the big-city attacks” on ethanol subsidies are really attempts to deny prosperity to rural America. Not only were his remarks politically tinged and partisan, they lacked any sound basis.

While it is hard to believe Al Gore is wiser on the topic of government intervention than Newt Gingrich, in the case of corn ethanol, he is. Politicians ought to account for the unintended consequences of public policies that affect every American. It is well overdue to reverse the subsidies, taxes and mandates on the state and national levels that force ethanol upon consumers and artificially prop up the industry for reasons of political favoritism.

Eric Lowe is a research associate at Cascade Policy Institute. He recently graduated from Willamette University and is now attending the University of Maryland School of Public Policy to earn his master’s degree in public policy analysis.