Once touted as a climate-friendly renewable alternative to foreign oil, corn-based liquid ethanol has been exposed as an environmental and economic mistake. Lured by federal subsidies, Midwestern farmers devoted millions of acres to corn that might otherwise go to soil conservation or feed-grain.
Meanwhile, a "dead zone" fed by fertilizer runoff spreads at the mouth of the Mississippi and production costs throughout the grain-dependent U.S. food industry rise. At the end of 2011, the ethanol industry lost a $6 billion per year tax-credit subsidy. And on Friday the Environmental Protection Agency delivered yet another policy defeat for ethanol which is to say, a victory for common sense.
We refer to the EPA's proposed cut in the amount of ethanol that the nation's refiners must add to the fuel supply in 2014, from 18.15 billion gallons of ethanol called for in current law to a new target of 15 billion to 15.52 billion gallons, the first such reduction since Congress enacted the Renewable Fuel Standard in 2007. At the time, gasoline consumption was high and rising, and it seemed reasonable to put the country on course to blend 36 billion gallons of ethanol into motor fuel by 2022, as the RFS statute did.
Changes in motorists' habits, along with advances in fuel economy, have rendered that objective utterly unrealistic. Driving and motor fuel consumption have plateaued. Mixing more and more ethanol into a fixed or shrinking pool of fuel would bump up against the capacity of existing engines to burn it, as well as the capacity of the existing distribution network to pump it. The EPA wisely decided to scale back the ethanol mandate.
Expect to hear from the ethanol lobby about how this is a victory for their rivals in the Big Oil and Big Grocery lobbies, which it is. The former has no interest in federal subsidization of a rival fuel; the latter would like less competition for access to grain. But that doesn't mean their arguments are without merit. We'd say that in this case, the public benefits do not offset the market distortions. In the case of ethanol subsidies, the benefits do not outweigh the costs.
Indeed, the only flaw we can see in the EPA's announcement is that it doesn't go far enough. Partly, this is because the agency only has authority to waive the current legal requirement for a year; partly it's because "biofuels are a key part of the Obama administration's ... energy strategy," as EPA Administrator Gina McCarthy put it on Friday. What's really needed is a repeal of the ethanol mandate, which was enacted in a different time, on the basis of projections about energy markets that have not panned out. More efficient fuel-conservation measures, such as a gas-tax increase, would let broad incentives, not politics, determine the best way to move cars and trucks while meeting energy security and environmental goals.