Taxpayer Subsidized Ethanol Caught in Partisan Budget Battle

During the past six months oil imports have averaged 381,000 barrels/month or more than the peak imports in 2005 on an annual basis. This as oil once again becomes a national security issue.

The Republican-controlled U.S. House of Representatives has passed an amendment to the continuing resolution for the fiscal year 2011 budget bill that prevents the Environmental Protection Agency from moving forward with E15 blends of ethanol, thereby blocking the expansion of ethanol use as is required by current law.

The amendment appears to be a victory for Big Oil, automakers and other special interest groups, but contrary to spirit and the law of the Energy Independence and Security Act of 2007 (EISA) – passed under the George Bush Republicans. EISA mandated the use of 36 billion gallons of renewable fuels by 2022 as part of plan to wean the U.S. from its dependence on foreign oil, and the political instability issues surrounding it  – once again – in full nightly news view with coverage from the mid-east and North Africa.

Since the leadership of the Democratically-controlled Senate and President Obama have made it known that the House Budget bill is dead on arrival, what happens now to energy independence is unknown.

The politics of ethanol, virtually all of it corn derived and therefore benefiting big money farm lobby interests, are as tangled as it gets. Taxpayers would be better off  if legislators were required to wear NASCAR-style uniforms with the patches of the organizations that are their major, err,  sponsors, to put it politely in “pay to play” Washington where campaign contributions from special interests determine policy not our national interests.

The 45-cent a gallon taxpayer subsidy that U.S. blenders get, as well as a tariff that effectively blocks competition from much more efficient Brazilian sugar-cane derived ethanol are part of huge, multi-billion dollar sops to the agricultural lobby, according to critics. Supporters claim the opposite view – this is a badly needed job creation and energy independence program.

The EPA – not for the first or alas the last time –  is caught in the middle of the political bickering and big-money lobbying. As it stands now by U.S. Congressional law, there needs to be sold annually 16 billion gallons of cellulosic biofuels; 15 billion gallons of conventional biofuels; 4 billion gallons of advanced biofuels; and 1 billion gallons of biomass-based diesel by 2022. That’s the law. How we get there is anybody’s guess since the  mandate is contrary to market pricing.

Virtually  every gallon of gasoline sold in the U.S. right now contains ethanol: 98% as E10 – up to 10% ethanol for conventional autos, and 2% as E85 – 85% ethanol/15% gasoline for use in flex fuel vehicles only. The problem is we are not even currently close to achieving mandated usage goals; projections show that next year the ethanol  market (E10) reaches saturation at approximately 12.5 – 14 billion gallons of ethanol annually, which isn’t enough under EISA.

The current controversy is the result of EPA proposing in January to raise the amount of  ethanol in fuel by 50% – from E10 to E15. (See EPA Grants E15 Fuel Waiver for Some Older Vehicles and Oil Refiners Sue Environmental Protection Agency to Stop E15 Ethanol Fuel Sales. Attack on EPA Broadens. )

EPA also announced at the time that no waiver is being granted for use of the new E15 fuel in any motorcycles, heavy-duty vehicles, or non-road engines because current testing data does not support such a waiver.

The technical debate around ethanol use involves the fact that it is indeed corrosive, potentially breaking down engine and fuel system seals. Ethanol is also harder to ignite, but once and engine is running it burns at higher temperatures, potentially damaging engine and exhaust system components, including air-cleaning catalytic converters. It is also not as fuel efficient as gasoline because of its lower energy density. 

The  majority of vehicles on the road in the U.S. can safely use the new fuel that contains 15% ethanol, according to the EPA, an assertion that is decried by automakers and refiners who aren’t producing the fuel. Both groups, as well as consumers, face higher costs because of the EPA ruling.

Last October EPA approved a waiver allowing the use of E15 for 2007 model year and newer cars and light trucks over the objections of automakers and refiners. As if the ongoing Washington budget battle isn’t enough trouble, EPA as a result or this E15 ruling is being sued by a variety of industry groups.

Since automotive engine warranties usually run 10 years, automakers (or consumers if the warranty is denied or not transferable) could face expensive repairs if the critics are right about E15’s harmful aspects.

How the refiners will respond is also unclear, but another grade of fuel is potentially needed to cover the U.S. fleet, and/or expensive new gasoline pumps that blend varying amounts of ethanol at the point of sale will have to be developed and installed. Neither option appears immanent.

Opposed are various interest groups, including the Alliance of Automobile Manufacturers; American Bakers Association; American Meat Institute; American Petroleum Institute; California Dairies, Inc.; Grocery Manufacturers Association; International Snowmobile Manufacturers Association; National Association of Truck Stop Operators; National Chicken Council; National Marine Manufacturers Association; National Petrochemical & Refiners Association; National Turkey Federation; Outdoor Power Equipment Institute; Small Business & Entrepreneurship Council; and the Specialty Equipment Market Association.

The tragedy here in my view is once again one of partisan politics and ideologies interfering with legitimate and badly needed public policy options – in this case an energy policy that that makes sense for U.S. citizens and not special interest groups. This policy needs to look beyond the next election cycle and that requires – dare I say it – statesmanship, respect for opposing views and  a concern for community, not political caucuses and well-funded pressure groups.

About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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