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  • Fueling Cronyism

    Ethanol plant in Turner County, South Dakota


    No one knows how much ethanol Americans would use if the fuel didn’t receive preferential treatment. Would we use any at all?

    We do know it has drawbacks as compared to gasoline. Ethanol has less energy, so it reduces fuel efficiency and increases costs. It can damage small engines such as lawn mowers and chain saws. And America’s ethanol policy requires the use of tons of corn that could otherwise be eaten by people and animals, so it drives up the price of food. The amount of corn we burn could feed an estimated 570 million people annually.

    The federal government mandates the use of renewable fuels, which has largely been met by corn-based ethanol. That’s a form of cronyism, as Washington picks a small set of winners (such as corn growers and biofuel plants) and punishes a larger set of losers: refineries, motorists, restaurants, the environment, chicken and cattle farmers, food consumers. The list goes on. But it turns out there’s cronyism even within the cronyism.

    Kimberly Strassel at The Wall Street Journal has been following a curious case. Last week the Environmental Protection Agency (EPA) issued its annual orders telling each refinery in the United States how much ethanol it needs to use in the next year. The EPA noted it was exempting a single refinery—one out of 143—and allowing it to refine gasoline without ethanol.

    The EPA didn’t identify the refinery. But Strassel’s further reporting did: It’s the relatively small Krotz Springs facility in Louisiana.

    Why the special treatment? The EPA won’t say. “We are to trust that it did the right thing,” Strassel writes. “Yet this is the same Obama Administration that has spent years doling out billions in grants and loans to politically connected energy companies and junking federal rules to help favored players.”

    It turns out the refinery’s owners, Alon USA Energy, spent some $60,000 lobbying on the issue of “renewable fuel standards” (that’s principally ethanol) earlier this year. If that turns out to be the reason for the refinery’s exemption, it would be money well spent: Alon estimates it spends some $20 million each year complying with ethanol policy. Surely other refiners have lobbied against the mandate, and trade groups representing refiners have called for its repeal, which makes the Krotz Springs exemption all the more peculiar.

    Cronyism isn’t the only problem with the ethanol mandates. There’s also the question of whether bureaucrats are overreaching. In 2007, Congress enacted a law requiring refiners to use 36 billion gallons of renewable fuel by 2022, with corn-based ethanol capping out at 15 billion gallons of that mandate. But since Americans have been using less gasoline, the EPA may soon unilaterally reduce the amount of ethanol it requires refineries to blend into their gasoline.

    “There are no problems that can’t be fixed administratively,” declares Brooke Coleman of the pro-ethanol Advanced Ethanol Council. Ah, but only Congress may pass laws. Bureaucrats at the EPA don’t have the constitutional authority to change acts of Congress, however misguided those laws may be.

    Lawmakers need to take action and should and repeal ethanol mandates for everyone—not just favored refiners. Market forces should determine how much ethanol and other renewable fuel should be produced. But as long as we have ethanol mandates and a Renewable Fuel Standard, we will never know what that will be, and as a result, American families will suffer.

    For more information on the flaws of the Renewable Fuel Standard, check out “Congress Should Scale Back the Renewable Fuel Standard—to Zero.”

    Posted in Energy, First Principles [slideshow_deploy]

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