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By Robert Rapier on Apr 9, 2013 with 17 responses

Ethanol Lobby Agitates for E15 Mandate

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History of U.S. Ethanol Policy

In 1978 the United States Environmental Protection Agency (EPA) issued a gasohol waiver that set the maximum legal limit of ethanol in motor gasoline at 10 percent denatured anhydrous ethanol.

27 years later, the Energy Policy Act of 2005 created a Renewable Fuel Standard (RFS) requiring 7.5 billion gallons of renewable fuel — primarily corn ethanol — to be blended into the fuel supply by 2012.

In 2007, an updated Renewable Fuel Standard — the RFS2 — accelerated the renewable fuel adoption schedule. Instead of 7.5 billion gallons by 2012, the new law required 9 billion gallons by 2008, soaring to 36 billion gallons by 2022.

Hitting the Limits

Americans presently consume about 133 billion gallons of gasoline each year, so somewhere in the range of 13 billion gallons of ethanol (approximately the amount of corn ethanol that is currently being produced in the US) the rising ethanol mandate was set to collide with the EPA’s 10% ethanol limit.

The ethanol lobby recognized this potential limitation to their market, so they petitioned the EPA to raise the allowable limit on ethanol content in conventional gasoline to 15 percent. But if this higher ethanol concentration were mandated instead of “allowed”, it would immediately increase ethanol’s market potential in the US by 50 percent.

The E15 push was opposed by automakers, oil companies, food producers, and environmental groups. Each lobby opposed the higher limits on different grounds, with automakers concerned about vehicle damage from using E15 in automobiles that weren’t designed for that concentration of ethanol. (Ethanol is more corrosive than gasoline, and while these corrosion issues can be addressed, some cars that weren’t designed for higher levels of ethanol could be damaged).

Despite the opposition, the EPA ultimately approved E15 for use, initially for model year 2007 and newer cars and light trucks, and later expanding that for use in 2001 and later models.

However, since it was allowed and not mandated — and damage could still result from using E15 in boats, motorcycles, small engines, and older cars – I predicted that adoption of E15 would be close to zero. That has in fact proved to be the case.

Forcing Consumers to Purchase More Ethanol

But I also predicted that once the waiver was granted, the next step would be for the ethanol lobby to ask for an E15 mandate. Some people argued that this would never happen. After all, how could the EPA force consumers to purchase fuel that many automakers have said would void their warranties? In response, I remind people that the EPA recently required gasoline blenders to blend nonexistent volumes of cellulosic ethanol. So it could definitely happen.

The ethanol lobby is now becoming more vocal in their calls for an E15 mandate. In a recent NPR story — EPA’s Push For More Ethanol Could Be Too Little, Too Late — chief ethanol lobbyist Bob Dinneen, who is President and CEO of the Renewable Fuels Association, continued to complain about the oil industry’s failure to embrace the ethanol industry:

Dinneen says this is the way Congress envisioned the mandate working: more and more ethanol over time in a gallon of fuel, and less and less petroleum.

“This is about market share,” Dinneen says. “This is about their profitability; it’s not any more complicated than that.”

Apparently, irony is lost on Dinneen — or he really is that big of a hypocrite — because it’s also about the ethanol industry’s market share. It’s about their profitability. Or does Dinneen want us to believe that his motives are as pure as the driven snow? That he isn’t being driven by his own fat salary — reportedly $469,332 in 2011 (available at http://www.guidestar.org/)? Incidentally, another irony is that because ethanol is mandated, we are all chipping in for Dinneen’s salary.

Demanding Perpetual Handouts to Stay Afloat

Here is my problem with the ethanol industry. My problem is not that there is an ethanol industry. Some people assume that if you have a problem with our ethanol policy, then you have a problem with ethanol, period. So I always have to add my standard disclaimer that my objections are about policy.

My problem is that the way we have gone about this has resulted in an industry that is dependent on perpetual welfare. The industry simply can’t exist without the direct involvement of the US government. Therefore, what’s been created is an industry that constantly has its hand extended for more government intervention lest it go under. Hence, the industry needs highly paid lobbyists who demand that the government force consumers to buy more and more of their product. That, to be blunt, is an exceedingly stupid way to create an industry.

Conclusion

As I have argued many times, I don’t have an issue with ethanol as a fuel. In fact, I think state governments — particularly in the Midwest — could do a lot to push E85 as the preferred fuel in the region (See E85 Case Study: Iowa). But the ethanol industry has never been about creating their own markets. They have always depended upon the government to force others to buy their product. This has established their industry as one of the largest recipients of welfare in the country, and it has made it virtually impossible for the industry to wean off of this welfare without collapsing.

A much better way to build a thriving ethanol industry would be to provide specific tax incentives for the adoption of ethanol. I am not talking about the federal tax credit that has since expired. I am talking about state governments shifting taxes from state income taxes, property taxes, and/or sales taxes into higher gasoline taxes — while exempting ethanol. This could be done in a revenue neutral manner, but one that makes locally produced ethanol more cost competitive with gasoline. If E85 established itself as a consistently more economical option than gasoline, then the Midwest alone could absorb three times the current US ethanol production.

But that would take too much effort I suppose. Far better to wine and dine lawmakers until they force consumers to buy your product. Instead of investing in ethanol distribution, continue to argue as Dinneen does that it is the oil industry’s fault that E15 isn’t being sold (despite the fact that automakers are warning of voided warranties). Over the long term, that not only keeps the industry dependent on the government, it creates an ever larger class of resentful consumers.

Note: I will be “off the grid” until April 12th, and unable to respond to comments.

Link to Original Article: Ethanol Lobby Agitates for E15 Mandate

By Robert Rapier

  1. By Jack on April 9, 2013 at 10:22 am

    You want to talk about fat salaries, how about the Mr. Jack Gerard, CEO of the American Petroleum Institute. He raked in $5.6 Million in 2011, that’s 12 times larger than Bob Dinneen’s “fat” salary. Obviously it takes much more to defend the pernicious oil monopoly. It’s about time we end the 100 year petroleum mandate!

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    • By Ed_Reid on April 9, 2013 at 11:35 am

      It might be handy to have a suitable replacement available first.

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    • By Robert Rapier on April 9, 2013 at 12:33 pm

      “Obviously it takes much more to defend the pernicious oil monopoly. It’s about time we end the 100 year petroleum mandate!”

      Jack, if Gerard was asking for a legal mandate that 95% of all fuel sold had to be derived from oil, or that 10% of all cars had to burn natural gas — I would be right there with you. If the ethanol lobby wants to end oil’s monopoly, then they need to get busy developing markets instead of trying to force people to buy their products.

      About to leave town, so that’s probably the last response.

      RR

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      • By Biocrude on April 11, 2013 at 1:33 pm

        But he doesn’t need a mandate, he already has 96% of the fuel market. FYI, I fuel our non-FFV Mazda 3 2.5L with 40% E85 all the time and it runs better than on gas. Also, I just filled up our Chevy FFV with E85 in Placerville, CA with E85 at a 26% discount to gasoline…that makes financial and energy security sense…

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        • By Optimist on April 11, 2013 at 6:44 pm

          He doesn’t need a mandate because his won 96% (really?) of the market the old fashioned way: by being cheaper than the alternatives. Funny how the rugged individualists in the heartland have no problem hanging on Mummy… I mean Uncle Sam’s apron when it suits them…

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        • By Cliff Claven on April 14, 2013 at 11:25 pm

          26% discount in price, 28% discount in energy content. Brilliant.

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          • By biocrude on April 15, 2013 at 2:13 pm

            Cliff, yes ~30% reduced btus in lb per lb comparison, but you don’t lose 30% mpg. Think about it, in an ICE you are only using about 30% of the energy in a gallon of fuel, the rest is lost as heat. Some cars experience that kind of loss on E85, but most do not. I would say the average is about an 18% loss of mpg on E85, but vehicles such as the Chevy Impala FFV only lose about 7% per the LA County Sheriff’s Dept in their annual vehicle testing.

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            • By Russ Finley on April 17, 2013 at 11:49 pm

              If ethanol were really cheaper than gasoline consumers would not need to be forced by the government to consume it. They would be clamoring for it. If, say, natural gas had the political capital of the corn belt, the government might be forcing us to consume it as well. Unchecked government interference in markets of this magnitude could eventually grind the economy into dust.

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            • By Cliff Claven on April 24, 2013 at 8:20 pm

              Biocrude, what laws of physics apply in your world? Pure ethanol has 33% less energy than pure gasoline per unit of volume, which means 33% less range from the same tank of gas or 33% less MPG. Ethanol does not magically increase the thermal efficiency of an internal combustion engine. Blends of ethanol and gasoline will have reduced range/MPG between 0 and 33 percent in direct proportion to the ethanol percentage between 0 and 100 percent. E10 loses 3.3 percent and E85 loses 28 percent. Last year Americans paid $8.1 billion for energy not put in their gas tanks because they got gallons of ethanol instead of gallons of gasoline. Taxpayers also paid $6.1 billion for corn ethanol subsidies. Altogether we paid $14.2 billion to displace 6.4 percent of our gasoline energy (95 percent of gasoline volume) with ethanol energy, and we exported the cheaper displaced gasoline to other countries. We have completely corrupt criminals and morons running the country. Please don’t aid and abet them by denying the facts.

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  2. By david olson on April 10, 2013 at 9:34 am

    Not mention it has put 45% of the poultry industry into bankruptcy due to corn going up 250%. It also increases the cost of anything grown in feilds because they have to compete for the limited tillable acres. In the end, the ethanol industry will not make sense until it can use cellulose instead of food.

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    • By jonscks on April 10, 2013 at 8:31 pm

      more broilers on feed this year than last year..

      http://www.usda.gov/oce/commodity/wasde/latest.pdf

      Acreage for 2013 is up.. more production is on the way.

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      • By Optimist on April 11, 2013 at 6:46 pm

        Problem is there ain’t enough acres in America to support this large-scale stupidity…

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    • By Optimist on April 11, 2013 at 6:52 pm

      Only problem: you’re assuming cellulosic will be feasible some day. I doubt it ever will. Contrary to RR’s polite comments, ethanol is a terrible fuel: absorbs water causing corrossion, and eventually separating out, increases emissions when mixed with gasoline, fires are almost impossible to put out, etc. etc.
      On top of that fermantation-distillation is a VERY inefficient way to produce fuel. It’s like hiring a carpenter to cut 2x4s to an exact length of 6 inches, when the product of any wood shredder would be just as good a fuel.

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  3. By Benjamin Cole on April 11, 2013 at 1:01 am

    Excellent blogging.

    Rural America is one vast federal pink zone. Dayglo Pink in subsidies and welfare, and ethanol is just the latest gag. Highways, power systems, water systems, postal service, telephone service, Internet connections, crops—all subsidized by Uncle Sam. Agriculture is the most protected, mollycoddled, supported, subsidized, regulated sector of the US economy. Ethanol is just a part of the picture.

    And no rural welfare program ever dies. Your great grandkids will be buying ethanol.

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  4. By Clee on April 11, 2013 at 9:38 pm

    I agree, the ethanol industry doesn’t need E15 to increase their sales. E85 sales are increasing according to the EIA.

    http://www.eia.gov/renewable/afv/index.cfm

    “consumption of ethanol (E85) jumped 52% from the prior year’s consumption”

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  5. By Russ Finley on April 11, 2013 at 11:13 pm

    Jack said:

    Obviously it takes much more to defend the pernicious oil monopoly. It’s about time we end the 100 year petroleum mandate!

    Those are not original arguments you’re parroting. They were originally disseminated by ethanol lobbyists on the internet. I would like to see us get off fossil fuels, but not at any cost. Look up the definitions of monopoly and mandate and you’ll find that neither apply to the oil industry. The above argument would be no less nonsensical if you used the letters bufizzle and pitangle in place of monopoly and mandate.

    Biocrude said:

    … he [CEO of the American Petroleum Institute] already has 96% of the fuel market …

    That fails to explain why the consumers in every other country on the planet also choose oil for transport. Oil has quite simply won the free market competition for transportation energy because as a liquid fuel it is so energy dense, portable,and the least expensive option. It lost the free market competition to fuel power plants and heat homes.Coal and natural gas won that competition. Oil couldn’t compete on cost. Neither can corn ethanol, which is why the welfare is necessary. The security argument is farcical. Turning your food into car fuel is a good way to reduce grain exports but it’s a brutally inefficient way to reduce oil imports.

    Clee said:

    I agree, the ethanol industry doesn’t need E15 to increase their sales. E85 sales are increasing according to the EIA …consumption of ethanol (E85) jumped 52% from the prior year’s consumption

    Maybe you should email Dinneen and tell him to stop wasting his time and money. If you sell a gallon of E85 one year and two gallons the next, that would be a 100% increase in E85 consumption …but not a lot of consumption.

    jonscks said:

    …more broilers on feed this year than last year…

    Very expensive feed, and your point is lost on me.

    Acreage for 2013 is up.. more production is on the way.

    You ethanol proponents need to have meetings so you can get your stories straight. An increase in acreage is typically denied and replaced with claims that increased yields meet all demand mandatory consumption targets.

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    • By Clee on April 15, 2013 at 3:24 pm

      Russ Finney, Dinneen or anyone else is entitled to waste his own time and his employer’s money however they see fit. If they want to waste time trying to mandate the use of E15 in cars, such as mine, whose warrantees would by voided by E15, I won’t wish them luck, but it’s their money to waste.

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