The Washington Post: Ethanol mandates creating an economic car-wreck

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August 20, 2013

Charles lane, August 19 - There are two iron laws of energy policy in the United States. Iron Law No. 1: A higher federal excise tax on fuel would efficiently reduce gasoline consumption and its negative side effects (air pollution, traffic congestion, carbon emissions, dependence on foreign oil).

Iron Law No. 2: Although economically rational, gas taxes are politically unpopular, so Congress will go to almost any length to avoid raising them, even if that means resorting to far less transparent policies.

Hence we have Corporate Average Fuel Economy (CAFE) standards for cars, which take a PhD in mathematics to comprehend — and increase the price of a new automobile by hundreds of dollars.

Hence, too, we have elaborate government mandates and subsidies for blending ethanol into gasoline, which cause farmers to divert land, water and capital into growing corn and other crops for fuel rather than food.

True, ethanol policy became somewhat less irrational at the end of 2011, when Congress finally allowed a $6 billion annual tax credit to expire.

But a 2007 federal law mandating ever-greater ethanol consumption remains on the books, and it is starting to create the economic equivalent of a multi-car freeway pileup.

Known as the Renewable Fuel Standard (RFS), the law requires refiners to blend 36 billion gallons of ethanol and the like into transportation fuels by 2022.


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