The Economist: Difference Engine: End the ethanol tax

March 25, 2013

Charles Babbage, March 25- THE uneasy relationship between America’s corn (maize) farmers and its oil refiners is fraying at the edges. The source of the conflict is the amount of corn-derived ethanol which has to be blended into petrol as an oxygenator, to boost the fuel’s octane rating (while also providing a generous off-budget subsidy for corn-growers). The farmers want the amount of ethanol used in petrol to be increased from 10% to 15% of each gallon sold at the pump. The distillers argue that diluting petrol with that amount of ethanol would damage engines and leave them liable to lawsuits from motorists and manufacturers alike.

Ethanol in such quantities can certainly damage engines that are not equipped to handle it—as few are. The problem is that, unlike the hydrocarbons of pure petrol, ethanol has a special affinity for water from the atmosphere. The entrapped moisture can corrode petrol tanks, pumps, fuel lines and injectors. Only 3.6% of vehicles on the road in America are certified to use fuel containing higher blends of ethanol like E15 and E85 (15% and 85% ethanol, respectively).

Moreover, ethanol burned in an engine produces more than twice as much ozone as the equivalent amount of petrol. Ground-level ozone is a big cause of smog. And, while good at boosting a fuel’s octane rating, ethanol packs only two-thirds the energy per gallon of petrol. As a result, motorists get fewer miles per gallon using fuel blended with ethanol than with undiluted petrol. So, even if blended fuel is cheaper per gallon than petrol (thanks to ethanol's subsidies), the overall cost of using it tends to be higher.

The tussle between Big Oil and Big Corn has burst into the open because of the sudden surge in petrol prices—up 12% since the beginning of March. This has happened at a time when oil prices in general have been flat, or even in decline.