New York Times Opinion: End the Ethanol Rip-Off
With the collapse in global oil prices, members of Congress are once again pushing to raise the federal gasoline tax, with the proceeds going to new roads, bridges and other infrastructure projects. While some in Congress might be averse to a tax increase of any kind, they might find it more palatable if it came packaged with a tax cut.
Fortunately, there is a perfect option, a hidden levy that has benefited a small group of farmers and manufacturers in a handful of states: the corn ethanol tax.
The tax is hidden because, on paper, it appears as a clean-energy mandate. Federal law currently requires fuel retailers to blend about 13 billion gallons of corn ethanol per year into the gasoline they sell to the public, making the gas more expensive. This year, that mandate, known as the Renewable Fuel Standard, will impose about $10 billion in additional fuel costs on motorists.
Congress created the Renewable Fuel Standard in 2005 with several goals in mind: energy security, rural economic development and environmental protection. But the indirect environmental costs involved, including growing, harvesting and processing corn into fuel, are significant. Ethanol diverts corn from the food supply, driving up food costs; it promotes inefficient and harmful land-use strategies; and it can damage small engines. But a more fundamental problem is its high cost when compared with conventional gasoline. And that higher cost is directly related to its lower energy density.
Ethanol contains about 76,000 B.T.U.s per gallon. Gasoline contains about 114,000 B.T.U.s per gallon. Therefore, to get the same amount of energy contained in a gallon of gasoline, a motorist must buy about 1.5 gallons of ethanol.
Fueleconomy.gov, a site run by the federal government, advises that vehicles running on the most common form of ethanol-blended fuel, E10 (which contains 10 percent ethanol and 90 percent gasoline), will typically get “3 percent to 4 percent fewer miles per gallon” than they would if they were running on pure gasoline. That mileage penalty — in essence, a tax — must be paid at the pump through the purchase of additional fuel.
And that takes us to the cost issue. Since 1982, officials in Nebraska (which is the second-largest ethanol producer, behind Iowa) have been monitoring monthly and annual wholesale, or “rack,” prices for ethanol and gasoline at fuel depots in Omaha. In December 2014, the rack price of a gallon of ethanol was $2.40, while a gallon of unleaded gasoline was $1.73. But recall that we need 1.5 gallons of ethanol to match the energy contained in a gallon of gasoline. That means you would need to pay about $3.60 to get the same amount of energy as from a gallon of gasoline, making ethanol about twice as expensive.
That’s not unusual. Since 1982, the price of an energy-equivalent amount of ethanol has, on average, been about 2.4 times the price of gasoline. Furthermore, for eight full years between 1986 and 1998, ethanol cost at least three times more than an energy-equivalent amount of gasoline. In fact, since 1982, ethanol has always been more expensive than gasoline.
The same energy-equivalent prices allow us to estimate the annual cost of the ethanol tax. Between 2007 and 2014, about 92.5 billion gallons of ethanol were mixed into domestic gasoline supplies. Over that eight-year period, the energy-equivalent cost of ethanol averaged about 90 cents per gallon more than gasoline.
Motorists thus incurred about $83 billion — roughly $10 billion annually — in additional fuel costs over and above what they would have paid for gasoline alone.
The United States now has about 212 million licensed drivers. That means that the ethanol tax is soaking the average driver for an additional $47 per year in excess fuel costs.
In the last session of Congress, 169 members of the House of Representatives sent a letter to Gina McCarthy, the administrator of the Environmental Protection Agency, urging her to reduce the amount of ethanol blended into gasoline supplies because the mandates could cause “economic and environmental harm.” Nothing came of it.
The push to end the ethanol tax has continued with the new Congress. Three senators — Dianne Feinstein, a Democrat from California, along with two Republicans, Patrick J. Toomey from Pennsylvania and Jeff Flake from Arizona — have introduced legislation to repeal the ethanol mandate. Their bill is supported by three dozen groups, ranging from industry groups like the American Petroleum Institute and the National Marine Manufacturers Association to environmental organizations like the Clean Air Task Force and Friends of the Earth.
Similar moves are afoot in the House, where Representative Bob Goodlatte, a Virginia Republican, and three co-sponsors — Steve Womack, a Republican from Arkansas, and two Democrats, Peter Welch of Vermont and Jim Costa of California — are pushing a similar bill. In a statement, Mr. Goodlatte implored his colleagues “to stop this boondoggle.”
Given the high cost of the ethanol tax, the word “boondoggle” seems too polite. Let’s call it what it is: a rip-off.