Dr. Margo Thorning discusses Ethanol policy

National Journal | Should the White House and Congress incentivize corn-based ethanol in the transportation sector?
Following a decision last week by the EPA, newer-model vehicles can be blended with 15 percent ethanol. The agency punted on its decision for vehicles from model years 2001 through 2006 until later this year and did not approve the increase for older vehicles. The White House is in talks with ethanol groups to ensure a longer-term plan for the industry given the $5 billion worth of tax subsidies expected to expire at the end of this year amid mounting congressional opposition.

The ethanol industry has been lobbying hard to increase its market share, but it continues to face resistance from a disparate group of opponents, including automakers, oil companies, and environmentalists. That opposition aside, ethanol groups can count President Obama, who hails from a Midwestern state with a large biofuels industry, as a longtime supporter.

What should the government do — or not do — to incentivize ethanol? EPA has said its job is not to provide a market for the fuel, but to ensure it’s safely blended with gasoline. What type of burden does that put on the private sector to promote the fuel? What role, if any, should Congress fill? Does incentivizing ethanol leave other alternative fuels, such as natural gas and electric vehicle technology, at a disadvantage?

Increased Ethanol Unsound Policy

By Margo Thorning
Chief Economist, American Council for Capital Formation

Increased use of ethanol may damage the engines of automobiles and other vehicles. In addition, there are cost uncertainties as well including determining the price tag of adding additional pumps at stations or retrofit existing pumps to accommodate EA 15. Furthermore, more resources like water, fertilizer and fuel will be diverted to corn-based ethanol since we don’t yet have the technology to mass produce any other variant. Increased use of these resources and greater use of fuel will actually increase domestic GHG emissions. The World Bank has noted that diversion of corn production into ethanol will have a significant impact on global food prices, which will have a tremendous impact on third world countries. In the long run, increased use of ethanol won’t help reduction of global GHGs and is not a cost effective way to reduce dependence on foreign oil. The administration should pursue more sound, proven renewable energy alternatives as opposed to increesed use of ethanol and should also increase access to onshore and offshore oil and gas reserves.