The Ethanol Mistake: One Bad Mandate Replaced By Another

Lieberman Op-Ed in National Review Online

Op-Eds & Articles
by Ben Lieberman
March 12, 2002

The good news for the driving public is that Congress is trying to alleviate concerns about the cost and reliability of the gasoline supply. The bad news is that their solution — an ethanol mandate — repeats the very mistakes that created the problems in the first place, and will likely increase the price we pay at the pump.

To its credit, the Senate has added to the pending energy bill a measure to eliminate the two percent oxygen-content requirement for reformulated gasoline (RFG). Under the 1990 amendments to the Clean Air Act, RFG is mandated in those metropolitan areas with the highest levels of ozone (the primary constituent of smog), and it currently comprises about one third of the nation's fuel supply. The two percent oxygen provision requires the addition of so-called oxygenates to RFG during the summer months, most commonly methyl tertiary-butyl ether (MTBE).

Unfortunately, MTBE has proven to be a disappointment, both environmentally and economically. The National Research Council concluded in 1999 that MTBE use "has little impact on improving ozone air quality and has some disadvantages." It has also stirred groundwater-contamination concerns. Consequently, several states plan to ban MTBE, and the Environmental Protection Agency concluded in a 1999 report that "the use of MTBE should be reduced substantially."

Moreover, the oxygen-content requirement not only fails to deliver environmental benefits, but adds to the cost of gasoline. It's part of the reason some metropolitan areas have recently experienced price jumps in the summer, when this provision is in effect. Thus, eliminating the requirement is a step in the right direction.

However, Congress seems intent on replacing its MTBE mistake with an ethanol mistake. At the insistence of Sen. Tom Daschle (D., S.D.) and other Midwest legislators, the Senate is also planning on mandating the use of renewable motor fuels — largely ethanol derived from corn. If this measure is enacted, ethanol usage would expand from its current 1.7 billion gallons annually to 5 billion gallons by 2012. Most of this ethanol would be blended in with gasoline throughout the nation.

Despite the environmental hype that surrounds ethanol, its use does not help clean the air. The same National Research Council study that found little air-quality benefit from MTBE use was equally negative about ethanol. The problem is that ethanol-containing fuels tend to evaporate readily, and evaporative emissions, along with combustion exhaust, contribute to air pollution. Indeed, many environmental groups and green politicians have done a flip-flop on the issue. For example, Rep. Henry Waxman (D., Calif.), who strongly supported ethanol in the past, has recently raised concerns that increased ethanol use may actually worsen smog.

In addition, ethanol generates more pollution during production than does gasoline. A number of studies have shown that it takes nearly as much energy (if not more) to make ethanol — the process, from growing the corn to distilling it into fuel-grade ethanol, involves many energy-intensive steps — than is derived from its combustion. As a result, before it even reaches your tank each gallon of ethanol has already caused more pollution than would a comparable gallon of gasoline.

Ethanol has also been touted as a domestic fuel source, and thus a means to reduce our dependence on foreign oil. But, as a Congressional Research Service study recently noted, "if the energy used in ethanol production is petroleum-based, ethanol would do nothing to contribute to energy security." Unfortunately, this is true, because the industry — despite its eagerness to impose ethanol on others — often prefers cheaper fossil fuels for its own operations.

If the environmental argument for ethanol is weak, the economic argument is even worse. One might ask how a fuel that requires nearly as much energy to make as it provides could be economically viable. The answer is that it isn't: Ethanol costs about twice as much as gasoline. Even preferential tax treatment has not significantly expanded its use, which explains the push for this mandate by the ethanol industry and its congressional allies. Economists can only guess at the costs of scaling up ethanol production to such unprecedented levels — especially now that the market will extend beyond the industry's home base in the Midwest. Since ethanol can't be sent through pipelines, transportation costs will make it even costlier on the East and West coasts.

Clearly, companies like Archer Daniels Midland — which controls nearly 40 percent of the ethanol market — see the mandate as a potential windfall. Unfortunately, that windfall will come on the backs of the driving public, in the form of fuel-price increases estimated to range from 4 to 10 cents per gallon. And whenever corn has a bad year, the costs could go even higher.

It appears that MTBE is on the way out, but then MTBE per se was not the problem. The real problem is the federal government's penchant for micromanaging the nation's motor fuels, to the point where Congress is actually dictating what ingredients should go into gasoline. All they're looking to do now is to replace their MTBE mistake with an ethanol mistake.