“Ethanol is bad for taxpayers, bad for the environment, and horrible for the world’s poor,” Nick Gillespie, editor of Reason.tv, declares in the video.

We are paying more for beef, milk, and eggs because the ethanol craze has increased demand for corn, driving up prices and diverting corn that used to go towards food products and feeding livestock. “We are in the midst of a world food crisis. Several million people are on the edge of starvation because we are turning food into fuel. The amount of corn that it takes to produce a 20 gallon tank of ethanol could feed one person for an entire year,” Reason magazine Science Correspondent Ronald Bailey says.

And those far-reaching environmental benefits that politicians promised? It turns out they were wrong. “Ethanol is much worse for the environment than gasoline,” states Bailey. “As some studies suggest, you put more energy into producing ethanol than you get out of it when you burn it.”

Full Video Online

The Reason.tv video, Silly Senator, Corn is for Food! is online at http://www.reason.tv/video/show/462.html. An archive of Reason.tv’s Drew Carey videos can be found at http://reason.tv/featuredvids/.

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Reason.tv is an online community showcasing the best libertarian ideas and videos on the Internet. Reason.tv gives you the opportunity to create videos, share videos and suggest topics for Drew Carey’s upcoming documentaries. For more information, please visit www.reason.tv.

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Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason Foundation produces respected public policy research on a variety of issues and publishes the critically acclaimed Reason magazine and its website www.reason.com. For more information, please visit www.reason.org.

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The post Ethanol Subsidies Cost Taxpayers $8 Billion This Year appeared first on Reason Foundation.

The Clean Air Act Amendments of 1990 require that gasoline used in the United States has additives that oxygenate the fuel. The most common oxygenate was MTBE, which is being phased out due to harmful effects on human health. Both the House and Senate energy bill proposals in 2003 contain a mandate making ethanol the only legal oxygenate for meeting the federal fuel oxygenate requirement. But both versions of the energy bill also abolish the federal oxygenate requirement, but add a requirement to use ethanol as a renewable energy source. Navigating these political waters has been challenging for both politicians and the interests on all sides of the oxygenate debate.

The Environmental Protection Agency formed a Blue Ribbon Panel in 1999 to study the health benefits of fuel oxygenates. The Blue Ribbon Panel report highlighted the fact that the air quality benefits of oxygenated fuel are unclear. The environmental problems caused by MTBE reinforce that concern, but little analysis has addressed the combined air, water and soil effects of ethanol.

The Blue Ribbon Panel recommendation was to eliminate the oxygenate requirement altogether. In this study we perform a benefit-cost analysis of the ethanol mandate as an oxygenate; our findings support the recommendations of the Blue Ribbon Panel. We also analyze the political economy dimensions underlying the success of federal ethanol mandate provisions in both the House and Senate proposals. That success rests on the uncoupling of ethanol as a renewable energy source from ethanol as an oxygenate, a subtle piece of political rhetoric. We conclude that ethanol is not actually a renewable energy source, given the fossil fuel use required to produce ethanol.

We find that whether or not ethanol use generates net positive energy or net negative energy, ethanol-oxygenated reformulated gasoline uses more resources overall and does not pass an economic or environmental benefit-cost analysis. The fossil fuel energy used in producing and transporting ethanol imposes environmental costs, and whether or not ethanol produces negative net energy, its consumption also leads to costs. These costs outweigh the health benefits of ethanol use. Adding the cost of environmental detriment from agricultural runoff from growing crops for ethanol reinforces this conclusion.

Examining the political dynamics of the success of the ethanol provisions reveals that separating the fuel oxygenate issue from the renewable fuels issue has enabled Congress to satisfy both the strong farm and oil interests in the debate, even when ethanol does not make economic or environmental sense.

Thus although Congress is following the recommendations of the EPA’s Blue Ribbon Panel and eliminating the fuel oxygenate requirement, the bait-and-switch of ethanol from oxygenate to renewable fuel has created the opportunity for the ethanol industry to succeed politically, at a cost that is spread across all taxpayers, drivers, and natural resources.

The post A Federal Ethanol Mandate appeared first on Reason Foundation.

Although initially set for December 2002, the state of California’s mandate to eliminate the use of the fuel oxygenate MTBE will take effect at the end of this year. As we have already seen this year, the transition has involved several time-consuming and costly actions:

• Depletion of MTBE-oxygenated fuel from refiner inventories
• Refitting and retooling refineries to accommodate the differences in production requirements because of ethanol’s higher volatility
• Transport by truck and train of ethanol to California refineries from the Midwest

Not surprisingly, the costs of this transition, in combination with the unsettled global oil markets this spring, led to average retail gasoline prices above $2.00 for some time.

Why have we incurred these costs – why shift away from MTBE? MTBE has some negative environmental consequences. However, so does ethanol. So why do we have an oxygenate mandate? The intended objective is environmental protection, but oxygenates fail on that front. Not only do oxygenates fail to improve air quality, their production creates soil and water pollution, and they are more costly than other approaches to cleaner fuel. Furthermore, the oxygenate requirement redirects resources to oxygenate production that could be used more constructively to achieve real improvements in environmental quality.

The volatility of retail gasoline prices illustrates the most pervasive unintended consequence of our existing layered pyramid of fuel regulations: the combination of state and federal fuel regulations balkanizes markets. In an environment in which fuel regulations balkanize markets, fuel in one place is no longer substitutable for fuel in another. That balkanization reintroduces price disparities that diminish naturally through competition. Thus wholesale fuel markets become less resilient and less able to absorb unanticipated shocks such as pipeline mishaps and fires. This balkanization makes consumers vulnerable to unexpected changes in market conditions, most notably because shortages cannot be offset through importing fuel from elsewhere. As engineers say, the pyramid of fuel regulations reduces the fault tolerance of our gasoline markets.

How does this fracturing of fuel markets relate to California? California is subject to both state and federal fuel emissions regulations. Federal regulations, resulting from the Clean Air Act Amendments of 1990, mandate the use of a fuel oxygenate to decrease emissions and produce a cleaner, fuller burn from the fuel. The two prevalent oxygenates are MTBE and ethanol. MTBE is a methane derivative that has been in widespread use because of the ease of blending it with gasoline, as well as its lower cost relative to ethanol. Ethanol, a plant derivative, also decreases emissions of benzene, 1-3 butadiene, formaldehyde, and acetaldehyde, as does MTBE. The switch from MTBE to ethanol, in California and other states, has been the consequence of two features of MTBE: its unpleasant taste and difficulty of removal when it leaks into water, and its potentially carcinogenic action in humans. The MTBE taste shows up in concentrations much smaller than are considered carcinogenic. These traits of MTBE have helped swing the balance of opinion and policy toward ethanol.

Although such ethanol mandates are increasingly popular at both state and federal levels, the comparisons of the desirability of using ethanol or MTBE are far from conclusive. First, the science of ethanol indicates that ethanol is not unequivocally superior to MTBE in cleaning the air, and there are a lot of unknowns about ethanol’s effects on humans when it leaks into water and soil from tanks. One primary question regarding ethanol’s science has been whether or not ethanol has a positive energy balance; in other words, when you take into account all of the energy that goes into producing ethanol, including the energy required to produce the corn inputs, do we get at least that much energy potential out at the back end? A recent study by Tad Patzek, an engineering professor at the University of California-Berkeley, reviews all of the existing studies and provides some new data. Patzek’s analysis indicates that “as much fossil energy is used to produce corn ethanol as can be gained from it.” (p. 9) His analysis more fully takes into account the entire energy chain than the earlier reports from Argonne National Laboratory and the Department of Agriculture did, and suggest that ethanol production and use is not a positive-energy choice.

Furthermore, Patzek and others (including a 1999 blue ribbon panel for the Environmental Protection Agency) point out that ethanol itself does contribute pollutants to the air. Although it can decrease carbon monoxide, ethanol’s volatility means that it can increase volatile organic compounds when burned. Both carbon monoxide and VOCs are ozone precursors and can lead to smog. In addition, the production of ethanol can produce nitrogen oxides and aldehydes, which are themselves ozone precursors.

When discussing ethanol we tend to think about air quality, and we forget that investigating the effect of ethanol on water and soil pollution is a crucial part of the analysis. MTBE is being phased out because of its leakage into groundwater, but ethanol also has implications when it leaks from tanks. Bacteria living in soil metabolize ethanol so enthusiastically that they ignore the otherwise appealing gasoline hydrocarbons, so ethanol leaks can lead to increased benzene concentration in soil, called benzene plumes. Another consequence of ethanol production arises from the increase in corn planting and cultivation. The GAO estimated in 2002 that California’s ethanol mandate would double the amount of ethanol consumed in the United States. Ethanol production is energy intensive, consuming nitrogen fertilizers and producing air emission, carbon dioxide, and waste water. Increased fertilizer use is likely to exacerbate the problems of runoff running into large watersheds, the most dramatic example of which is the demise of certain animal populations in the Gulf of Mexico due to increased nitrogen concentrations from the Mississippi River watershed. In addition, the production of nitrogen fertilizer is very energy-intensive, and itself generates airborne pollutants. Fertilizer production also creates carbon dioxide as a by-product, so increased ethanol production actually implies increased production of greenhouse gases.

A second set of complications from an ethanol mandate comes from the transportation of ethanol from its production sites in the Midwest (which is unlikely to change, because of the substantial cost savings from producing ethanol close to the feedstock (corn) source). Ethanol is both very corrosive and incredibly water soluble, so shipping it via existing pipelines is impossible (and the construction of new pipelines is highly unlikely). Thus ethanol transport involves trucks, trains and barges, which are expensive means of transporting a dense liquid like ethanol. Furthermore, trucks, trains and barges require energy, which means that ethanol transport generates air pollutants. We should also take into account transportation security risks, particularly the effects of crashes and spills on local soils and watersheds.

A full benefit-cost analysis comparing ethanol and MTBE is necessary to ensure that Congress and the states are taking into account all of the costs incurred in order to achieve a set of air quality benefits. The costs described above must be incorporated into any analysis comparing the two:

• Increased VOCs from ethanol, consequently increased potential for smog
• Increased pollution from fertilizer production and runoff
• Increased transport costs
• Increased emissions from trucks, trains and barges

We know that MTBE is not a clean, green fuel, but neither is ethanol. Claims of its clean nature ignore the energy and pollution costs incurred in the production and transportation of ethanol, and those costs can be large.

But a head-to-head comparison of these two oxygenates begs a very important question: why have oxygenates? What benefits are we deriving from the federal oxygenate mandate? Several studies in the 1980s and early 1990s suggested that oxygenates would lead to decreased emissions, most notably of carbon monoxide. More recent research, as well as technological change in non-oxygenated fuels, shows that non-oxygenated fuels have closed most, if not all, of that gap. As the head of a National Research Council study on oxygenates testified in 1999,

According to the data available to the Committee, the addition of oxygen to fuel in the form of commonly available oxygenates had little impact on improving ozone air quality. Data suggest that oxygen causes a small reduction in the mass of VOC and CO emissions, and the data on NOX emissions is inconsistent.

Both the NRC study and the EPA blue ribbon panel report from 1999 reach the same conclusion: oxygenates may not provide the air quality benefits that we thought they did, and that technological improvements in non-oxygenated fuels has led to fuels that can achieve air quality objectives without oxygenation. Indeed, California Blended Gasoline, CBG, is a prime example of a non-oxygenated fuel that can deliver air quality benefits.

One of the obstacles to evaluating the performance of the federal oxygenate mandate in achieving environmental benefits is the EPA’s stovepipe or silo approach to measuring impacst on air, water, and soil. If in evaluating oxygenates the EPA looks only at changes in air quality, they overlook the effects, positive or negative, on soil and water.

In the case of oxygenates, we are learning that leakage can have serious implications for soil and water quality. For example, California asked to be exempt from the oxygenate requirement when they realized that MTBE leaks into water were making the water undrinkable, but the EPA refused, based solely on an evaluation of the air quality benefits of MTBE. When the EPA limits its scope to air effects it is ignoring obvious costs, even at the expense of damaging other resources that the EPA is required to protect.

The federal oxygenate requirement does not live up to environmental performance standards. Taking into account the pollution created in the production and transportation of oxygenates, it does not increase air quality, yet it still raises costs of fuel to consumers. It contributes to soil and water pollution, which are not currently taken into account in evaluating oxygenates. It also diverts resources that could be used to improve environmental quality by other means into paying to satisfy the mandate, by, for example, inducing increased corn production to manufacture ethanol.

In 1999, a blue-ribbon panel commissioned by the EPA recommended the elimination of the oxygenate requirement arising from the CAAA of 1990. I concur with that suggestion. I suggest that we ask a related question: are there better ways to achieve meaningful environmental performance than command-and-control approaches, such as the oxygenate mandate we are reviewing here? I recommend that the existing input-based mandate be replaced by a performance-based requirement, enforced by air quality monitoring. A performance-based regulation gives refiners the incentive to produce fuels that increase air quality without dictating how they are to do it, which is an onerous constraint on creativity. A performance-based air quality requirement harnesses the deep knowledge that refiners have of how to achieve cleaner fuels, deeper knowledge than legislators or regulators have.

The past decade has illustrated the power that incentives have to shape human behavior with regard to environmental quality. Regulations that rely on command instead of incentives have repeatedly shown that they are ill-suited to meeting the range of goals that we have, including environmental quality. Performance-based requirements that recognize incentives can generate improved environmental quality, as long as statutory regulations do not dictate how that is to happen.

The post MTBE, Ethanol Mandates Aren’t Needed appeared first on Reason Foundation.

The Clean Air Act requires that additives known as oxygenates, such as ethanol or MTBE, be added to gasoline sold in areas that have air pollution problems. Oxygenates were thought to reduce vehicle pollution when Congress enacted the requirement in 1990. MTBE, the current additive, is being phased out because it pollutes drinking water, leaving ethanol as the only alternative that satisfies the requirements. Since most ethanol is produced from corn grown in the Midwest, regional congressmen and their agribusiness constituents fervently support the oxygenate mandate, and were responsible for getting it into the Clean Air Act in the first place.

Lost in all these political machinations is the decisive scientific evidence that ethanol doesn’t perform as advertised. Both the Environmental Protection Agency and the National Academy of Sciences have issued reports showing that adding ethanol to gasoline will at best have no effect on air quality and could even make it worse. Studies show ethanol could even increase emissions of nitrogen oxides and volatile organic compounds, which are major ingredients of smog.

What’s more, adding ethanol costs about five cents extra per gallon and will reduce fuel economy by about 3 percent, for an effective cost increase of 10 cents per gallon. For the average family of four this will amount to about $180 per year – say goodbye to a nice chunk of your tax cut. And if ethanol demand outstrips supply, as many energy analysts predict, motorists could suffer much bigger price increases, as much as 50 cents a gallon according to some estimates.

Despite the scientific case against the oxygenate mandate, House and Senate energy bills include provisions to replace MTBE with ethanol.

Perhaps Midwestern farmers and their powerful congressmen are too important to cross. But without a compelling policy goal, this is no longer a fight between saving money and saving the environment. Instead, the oxygenate mandate now boils down to this: agriculture interests want to make money, and they’ve gotten the federal government to force the rest of us to fork over cash for a product we don’t need.

While oxygenates provide no environmental benefits, there are many positive ways to improve the environment that don’t create unnecessary burdens for consumers. A growing number of states have experimented with innovative clean air programs that offer compliance assistance to small businesses and incentives to larger industrial facilities to achieve environmental gains beyond the minimum levels required by law. More and more states are rejecting cookie-cutter approaches and implementing their own more flexible and more carefully tailored environmental strategies.

If President Bush and members of Congress are genuinely concerned about improving air quality, they should continue to require states to meet the goals of the Clean Air Act, but give them the freedom to find the most effective ways of getting there.

President Bush has said that his administration “will ask not only what is legal, but also what is right – not just what the lawyers allow, but what the public deserves.” Apparently, he thinks the public deserves to be forced to buy products they don’t need for the benefit of powerful business interests. Since the President hasn’t been able to stand up to the ethanol coalition and do what is right, hopefully the courts can.

Joel Schwartz is an adjunct fellow at Reason Foundation and visiting scholar at American Enterprise Institute.

The post Resurrection of Ethanol Mandates appeared first on Reason Foundation.