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Why You Should Hate Ethanol (Even Though the EPA Doesn’t) – Money Morning

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Proving once again that the government refuses to learn from its mistakes, the Environmental Protection Agency yesterday (Thursday) again increased its ethanol mandate.

The EPA raised the Renewable Fuels Standard (RFS) mandate to 16.55 billion gallons for 2013, up from 15.2 billion gallons last year, while ignoring signs that the policy is doing more harm than good.

The list of problems starts with what the use of ethanol-gasoline blends might be doing to our cars.

Earlier this week, the Coordinating Research Council, a group backed by several major automakers, released a study showing that E15, which blends 15% ethanol with gasoline instead of the previous level of 10%, can damage autos.

The tests showed E15 could cause faulty fuel-gauge readings and check-engine alerts. In some cases, E15 could cause swelling and failure of auto components that “could result in breakdowns,” according to Robert Greco, a director with the American Petroleum Institute.

The American Automobile Association (AAA) last fall voiced similar concerns and asked the EPA to withdraw E15. AAA said that since only 5% of the cars on U.S. roads are approved for E15, the possibility for accidental use in vehicles is too high.

“AAA automotive engineering experts have reviewed the available research and believe that sustained use of E15 in both newer and older vehicles could result in significant problems such as accelerated engine wear and failure, and fuel-system damage,” the organization said in a press release on its Website.

These new concerns come on top of historic complaints that ethanol blends reduce a vehicle’s miles per gallon by about 27%, meaning more trips to the gas station and more money out of drivers’ pockets.

The Ethanol Standard Jacks Up Your Food Bill

And your car isn’t the only part of your budget affected by the ethanol mandates. The rising quotas under the Renewable Fuels Standard mean you’re paying more for food, too – and that’s only going to get worse.

That’s because more than 80% of the ethanol consumed in the U.S. is made of corn. About 40% of the U.S. corn crop goes to ethanol production.

Higher corn demand has helped drive up the price of corn, products made from corn, and many meats, since livestock are fed corn.

Between the time the RFS was enacted in 2005 and 2011, the price of corn has soared from about $2 a bushel to more than $6 a bushel, with last year’s drought pushing prices well past $7 a bushel. (Corn now goes for about $7.40 a bushel.)

According to a recent study by FarmEcon LLC, an agriculture and food industry consulting firm, a typical family of four is paying $2,055 more every year for food due to the rising cost of corn.

And since the RFS law requires the ethanol mandates to more than double to 36 billion gallons by 2022, the bite out of your grocery bill will keep getting bigger.

A recent analysis by PriceWaterhouseCoopers estimates that by 2015, the RFS requirement will increase the cost of many foods even further: corn by 27%, pork by 15%, potatoes by 13%, beef by 8%, and eggs by 11%.

The Folly of Cellulosic Ethanol

The EPA had hoped to reduce some of its dependence on corn-based ethanol by encouraging the development of more advanced types of ethanol, particularly cellulosic ethanol.

Cellulosic ethanol converts materials like wood chips and switch grass into ethanol – a great idea, but one which has proved very difficult to execute.

But that hasn’t stopped the EPA from setting unrealistically high goals for cellulosic ethanol. Yesterday, the EPA told the oil industry it needs to buy 14 million gallons of cellulosic ethanol in 2014, even though producers could manufacture just 20,000 gallons of last year’s requirement of 8.65 million gallons.

The mandate is so absurd that the U.S. Court of Appeals for the D.C. Circuit sided with the oil industry against the EPA in a ruling this week, saying the oil companies could not be forced by law to buy fuel that didn’t exist.

It’s just one more reason why the Renewable Fuels Standard isn’t working, and should be scrapped in favor of a policy that would actually make sense.

“This stealth tax on gasoline might be the most egregious example of bad public policy, and consumers could be left to pay the price,” Bob Greco, the American Petroleum Institute’s Downstream Group director, said in reaction to the EPA’s increased RFS mandates. “The EPA needs a serious reality check.”

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