Wall Street Journal: An Ethanol Spring

April 17, 2013

When Churchill said Americans do the right thing after exhausting all the other options, he was unacquainted with modern Washington. But every now and again that maxim turns out to be true, and so it may be this year with ethanol.

A growing right-left bicoastal coalition is loosening the ethanol lobby's thrall over U.S. politics, and now it may succeed in introducing some rationality to the renewable fuels mandate that passed amid the George W. Bush energy panic in 2007.

Back then everyone assumed domestic gasoline demand would rise to almost 150 billion gallons in 2012 and 155 billion this year. The irony is that 2007 marked the peak of U.S. demand. Last year the country used merely 89% of that projection, and 2013 will probably come in at 80%, or 124 billion gallons. The decline is due mainly to slow economic growth and better fuel economy.

But the 2007 mandate still requires that certain volumes of ethanol be blended into the gas supply each year, with the amount rising over time, which means that more gallons of ethanol are chasing fewer gallons of gas. These quotas will soon force the ethanol to gas ratio to blow past 10%.

Exceeding this per gallon limit harms consumers, who are forced to buy more of product that is less energy efficient yet is also more expensive. Every one-cent increase at the pump steals about $1 billion from the larger economy that consumers would have otherwise saved or spent on something else. Ethanol mixtures above 10% are also unsafe, damaging engines and exhaust systems in older cars and trucks, as well as everything from boats to wood chippers and well pumps.

The Ethanol Promotion Agency—er, the Environmental Protection Agency—could have modified this year's ethanol quotas to reflect market conditions, but it didn't. That decision defies a D.C. Circuit Court of Appeals ruling this January vacating part of the 2012 mandate, so reformers in Congress are now moving to intervene.