Unelected EPA Bureaucrats Approve E15 Ethanol

Last week, "an unelected group of people" over at the Environmental Protection Agency revised our national energy policy, approving a new gasoline blend with up to 15% ethanol, known as E15, which may be available in pumps this summer.  Currently, most gasoline sold in the U.S. is E10, containing a maximum of 10% ethanol.

To review the backstory: the last time ethanol was in the news, it seems like its opponents, who come from both the environmental left and free-market right, had won a significant victory.  Last summer, "a strong majority of a democratically elected Congress," to use Obama's words about ObamaCare, voted to discontinue subsidies for ethanol, effective 12/31/11.

The president termed the vote to end subsidies "ill-advised."  Funny how he rails against "giveaways for the oil companies" -- which turn out to be tax write-offs afforded to most businesses -- yet had no compunctions about paying out 45 cents per gallon to ethanol producers.  Rather than an "all of the above" energy policy, Obama seems to be pursuing "nothing from below."

Theoretically, 900,000 gallons of ethanol per day would produce a $17-billion annual subsidy.  The actual number reported was lower, in the $6- to $10-billion range, but still much greater than the oil company tax write-offs of $4 billion that Obama finds outrageous, amounting to a few pennies per gallon of gasoline produced.  (Four billion dollars spread over $133 billion gallons of gasoline per year comes out to 3 cents a gallon, and that doesn't take into account all the other petroleum products that oil companies provide.)

In any case, it appeared that common sense had prevailed.  Ethanol was driving global food prices higher, causing riots in developing countries; rain forests were being destroyed so corn and sugarcane could be cultivated; cars got poorer mileage with ethanol; corn was being raised with genetically modified seed and chemical fertilizers that run off into aquifers; ethanol production was producing more greenhouse gases than the petroleum it replaced, if you worry about things like that; and on top of it all, many analysts question whether ethanol production results in any net energy gain -- i.e., it might take more energy for tractor fuel, processing, fertilizer, etc. than we get out of the final product.

The vote was hailed by the American Enterprise Institute, and over at MSNBC we read: "'Corn ethanol is extremely dirty,' Michal Rosenoer, biofuels manager for Friends of the Earth, said in heralding the tax credit's demise."

It turns out, however, that the EPA never intended to slow its push for more ethanol production; in fact, it is required by law to increase ethanol use.  The ethanol industry didn't need subsidies because it had something more valuable: legislation known as the Renewable Fuel Standard (RFS) that creates a guaranteed marketplace for ethanol.  The EPA describes the history of the legislation:

The RFS program was created under the Energy Policy Act (EPAct) of 2005, and established the first renewable fuel volume mandate in the United States. As required under EPAct, the original RFS program (RFS1) required 7.5 billion gallons of renewable- fuel to be blended into gasoline by 2012.

The Energy Independence and Security Act (EISA) of 2007...increased the volume of renewable fuel required to be blended into transportation fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022.

Current levels of ethanol production are around 900,000 barrels per day, or 17 billion gallons per year.  Thus, by law, ethanol production must double in the next decade, regardless of whether this is a sensible energy policy and regardless of the changing economics brought on by the fracking revolution that is supplying cheap natural gas and shale oil.

Aaron Smith at the American Enterprise Institute writes:

 The RFS mandates that at least 37 percent of the 2011-12 corn crop be converted to ethanol and blended with the gasoline that powers our cars[.] ... [As a result] the current price of corn on the Chicago Mercantile Exchange is about $6.50 per bushel-almost triple the pre-mandate level.

An obvious way to accommodate this mandate is to increase the ethanol percentages in gasoline.  The recent EPA press release reports that the E15 waiver was "in response to a request by Growth Energy and 54 ethanol manufacturers under the Clean Air Act."  "Growth Energy" is shorthand for the "Renewable Fuels Association/Growth Energy" (RFA/GrE), self-identified as "a trade association for the U.S. ethanol industry."  In other words, a lobbying group.

Adapting to any new energy source will create costs and problems, and E15 has more than its fair share.  Car and truck engines, except for those designed to use Flexfuels, can be irreparably damaged by ethanol, and apparently manufacturers aren't sympathetic to warranty claims.  E15 was originally approved only for vehicles built in 2007 and later.  The recent DOE waivers allow use of E15 "in model year 2001 and newer light duty motor vehicles."

Introducing E15 will create costs for the nation's 128,000 gas stations, requiring a separate consumer pump and either a separate fuel storage tank or a "blender pump" to mix gasoline and ethanol on site.

The EPA is also preparing signage and information campaigns to warn owners of older vehicles about E15.  On March 2, the EPA released an "E15 Misfueling Mitigation Plan" with directions for "Labeling," "Product Transfer Documentation (PTD)," an Educational Outreach Coalition (E15EOC), and instructions for a "survey plan," in which "samples will be calculated as follows":

I hope that's clear to everyone.

I can't imagine that local gas station owners are excited by the prospect of investing in renovating their pumps to accommodate a fuel that provides fewer miles per gallon and might cause engine damage.  Not to worry, however.  Oil and Gas Journal writes:

To enable its widespread use, it said the Obama administration has set a goal to help fueling station owners install 10,000 blender pumps over the next 5 years. In addition, both through the Recovery Act and the 2008 Farm Bill, the US Departments of Energy and Agriculture have provided grants, loans, and loan guarantees, it said.

None of these funds doled out from Obama's stash had to go through an appropriations process governed by a "democratically elected Congress."  Unelected EPA officials make decisions and the money is already available.

Ethanol is currently cheaper than gasoline, but this will surely change if the federal government gets out of the business of rewarding ethanol producers and hamstringing gasoline producers.  If ethanol can be sold for a profit without government mandates, it might play a role in our energy future.  Brazilian sugarcane seems like a more promising feedstock than American corn, but the market can make this decision.

In the meantime, let's hope that President Romney has the wisdom to repeal the Renewable Fuel Standard.

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