Ethanol + Floods = More Pain at the Pump
Posted June 19th, 2008 at 11:38am in Energy and Environment 
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Gas prices have already hit $4 a gallon nationally with no relief in sight. Given the flooding in the Midwest and the federal mandate that ethanol must be blended with gasoline before sale to consumers, the pain at the pump could only get worse. The floods could create upward pressure on gas prices in two distinct ways:
1.) As Stephen Schork, editor of The Schork Report in Philadelphia, emphasizes, “If we have prolonged rail and barge delays of getting Midwest ethanol to all the coast, then it will have an absolute upward impact on prices right now.”
2.) The flooding caused severe damage to crops in the farm belt: “In Iowa, the country’s top corn-growing state, more than 1.3 million acres of corn and 2 million acres of soybeans have been flooded; in total, about 16 percent of the state’s farmland is submerged.”
Congress should suspend for one year the federal mandate that requires ethanol to be blended with gasoline before sale to consumers. Alternatively or additionally, the suspension of the mandate should remain in force until oil prices fall to, say $60 a barrel and corn to some lower price per bushel. An implementation like this would not only alleviate the upward pressure on gas prices but would also reduce the price of food. A more effective move for Congress would be to eliminate the ethanol mandate, ethanol-related tax breaks, and protectionist tariffs that keep out potentially cheaper foreign supplies.
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2 Responses to “Ethanol + Floods = More Pain at the Pump”
Steve-SD on June 19th, 2008 at 11:38am said:
That makes a lot of sense. Take 6% of the fuel out of the market. I am sure that will cause oil prices to tumble. Are you really serious? The latest numbers I’ve seen have ethanol responsible for 2-3% of the increase in food prices. At the same time ethanol is contributing to a decrease of 15% in gasoline prices. Get real.
Rolf McEwen on June 19th, 2008 at 11:38am said:
Well stated, Steve. I see it like you do. The addition of ethanol as transportation fuel in the US reduces the demand for gasoline and oil. Without the added ethanol, gas prices would be higher than they are currently. More ethanol reduces demand for oil. Oil increases in price from $1 to $2 to $3 to $4 and now at $4.25 in Oregon, which makes ethanol a bargain and its contribution to the fuel market reduces demand for gas. Good.