Corny Capitalism

Matt Purple exposes one of the biggest idiotic boondoggles (and that comes against a wide and deep field of extremely tough competition) to come out of Congress in the last 40 years: gasohol

Across America, pumps at gas stations are emblazoned with the words, "Contains 10% Ethanol." That's no free market innovation. Since the 1970s, the federal government has heavily subsidized the production of "gasohol"--a blend of 90% gasoline and 10% ethanol that reduces tailpipe emissions. For decades, progressive politicians and environmental groups have revered ethanol as a miracle additive that will help purify America's air. "No country has ever gone to war over ethanol," reads one sign on the Washington, D.C. Metro subway.

There's just one problem: Ethanol fuel is wildly inefficient. The amount of corn required to soak the fuel supply is massive. To shift America's car culture entirely from gasoline to gasohol would require 700,000 square miles of land growing corn exclusively for ethanol production. That would mean converting one-fifth of the United States into a sprawling corn farm.

Then again, the government never found a green boondoggle it didn't love. For five years now, Congress has been mandating that the fuel supply be diluted with ethanol. The Energy Policy Act of 2005 required 7.5 billion gallons of ethanol in the fuel supply by 2012. A Democratic Congress went a step further in 2007, mandating 9 billion gallons by 2008, 15.2 billion by 2012, and 36 billion by 2022.

Unfortunately, that whole Economics 101, supply-and-demand thing got in the way. The maximum amount of ethanol that can be produced to meet demand, called the "blend wall," is expected to level out at 15 billion. That will make it impossible to meet the government's mandates.

The agriculture industry, represented primarily by Archer Daniels Midland and Growth Energy, spied an opportunity. Why not increase the legal gasohol concentration from 10% ethanol to 12% or even 15%? That would immediately ignite ethanol production and allow the government to meet its mandate. More importantly, it would make Big Agriculture some serious money.

The EPA looked ready to raise the limit until science finally intervened. A study surfaced by the National Renewable Energy Laboratory from 2008 that found E15 ethanol caused a raft of problems in cars, including a loss of fuel economy and spikes in exhaust temperatures. Meanwhile the higher concentration of ethanol did nothing to reduce tailpipe emissions. The study also found problems when E15 fuel was used in lawn trimmers.

The car industry exploded in outrage. Most car warranties only cover E10, which could leave customers stuck with hefty bills if their engines were damaged. A study done by the Alliance of Automobile Manufacturers found E15 "made engines run hot, compromised catalytic converters, and even damaged cylinder walls."

To its credit, the EPA ultimately delayed its decision in order to review the science. But in the meantime they'll have an army of powerful agricultural lobbyists leaning on them. Even supported by its scaffolding of government subsidies and mandates, the ethanol industry is collapsing. The recession shuttered several ethanol companies. Others were gobbled up by oil giants at bargain prices. Some estimates suggest ethanol producers are losing 10 cents on every gallon of gasoline. This is all despite the fact that 25% of corn grown in the United States goes towards ethanol production.

The agricultural industry needs E15. And if history is any indication, it'll probably get what it wants.

Read the whole thing here.