The Washington Post: Ditch ethanol mandates. Try a carbon tax.

August 27, 2013

August 25 – WASHINGTON IS seeing a great fight between two extremely powerful lobbies, Big Ethanol and Big Oil. Neither should win.

At issue is the Renewable Fuel Standard, a huge subsidy meant for companies making all kinds of ethanol but that mostly benefits the least-attractive type, derived from corn. The policy demands that increasing amounts of various sorts of ethanol be blended into the nation’s gasoline supply. Yet, oil companies point out, when Congress last looked at the standard in 2007, estimates of how much fuel Americans would be using by now were much too high. The result today is a legal requirement to blend the same, mandated amount of ethanol into a smaller-than-expected pool of fuel sold, a task for which the country doesn’t have the infrastructure. And that assumes the ethanol industry manages to produce enough of each type of ethanol in the first place, which it hasn’t. The result, oil companies argue, is a “blend wall” that inevitably translates into higher gasoline prices for consumers, since oil firms have to buy special credits to make up for missing the law’s blending targets.

This month the Environmental Protection Agency, which oversees the standard, softened the government’s ethanol mandate somewhat. But even if the blend wall weren’t an issue, the ethanol industry simply doesn’t deserve federal pampering. The industry claims to be environmentally friendly, but credible environmentalists disagree. The industry claims to be helping the United States wean itself off foreign oil, but increasing domestic oil supplies make that less important, and there are better ways to do it anyway. The industry says it has marshaled billions in private investment, but all of that would surely have gone to more economically productive use if the government weren’t tipping the scales so emphatically in ethanol’s direction.