It’s a depressing ritual. Every four years, as Iowans prepare to cast the first votes in the presidential-primary season, candidates descend on the corn-covered state and discover the miraculous properties of ethanol. The latest convert is Fred Thompson, who voted against ethanol subsidies when he was a U.S. senator but now says that ethanol is “a matter . . . of national security.” What he means is that he supports increasing federal assistance for ethanol production, on the grounds that this will reduce American dependence on oil from the Middle East. But, like most arguments for ethanol subsidies, this one is spurious.
First, even the biggest of proposed ethanol supports — an increase in mandated ethanol consumption from 7.5 billion gallons a year to 15 billion gallons a year, as called for in the energy bill Congress is currently debating — would barely dent America’s oil consumption, which is approximately 150 billion gallons annually. We could plant corn from New York to California and still not produce an equivalent amount of ethanol.
Second, only around 5 million automobiles in America are “flexible-fuel vehicles” — cars that are equipped to run on a blend of 85 percent ethanol and 15 percent gasoline (known as E85). That’s out of 135 million registered passenger cars in the United States. Moreover, as the Dallas Morning News reported last year, the owners of almost all of these flex-fuel vehicles tend to fill them up with regular gas, owing to a scarcity of gas stations that sell E85. Simply mandating greater ethanol consumption won’t change that. A more drastic intervention — for example, requiring gas stations to sell E85 — would also be necessary. Some liberal groups have called for just that. Does Thompson agree with them? Conservative voters should hope not.
Thompson has cited high oil prices to defend his about-face on ethanol: “When I was in the Senate, I think oil was at $23 a barrel,” he told the Associated Press. But this is another red herring. Petroleum is a major input in the manufacture of ethanol — it is required not just to make ethanol, but to transport it to points of sale. In fact, there’s good evidence that making ethanol requires more petroleum than making gasoline does. So if high oil prices should make us want to use less oil, that’s an argument for diminishing our ethanol consumption right now, not boosting it.
None of this is to deny that there’s a legitimate market for ethanol. All gasoline is required to contain additives known as “oxygenates,” and ethanol is one of them. Gasoline blenders have turned increasingly to it since MBTE — another additive — was found to contaminate groundwater.
But the momentum behind federal support for ethanol militates toward production of far more than the market can absorb. The Energy Policy Act of 2005, which enacted the initial ethanol mandate of 7.5 billion gallons a year, encouraged the ethanol industry to increase production dramatically. Now, reports of an ethanol glut suggest that the industry has overproduced — something that tends to happen when companies make production decisions based on government mandates rather than market signals.
The ethanol glut is inefficient, but it’s bad in other ways too. The diversion of corn from use as food to ethanol production has led to higher food prices — a side-effect that has finally gotten Congress’s attention. As farmers grow more corn in hopes of selling it to ethanol makers, they also threaten to disrupt the water supply in some regions. That’s because farmers are both planting new corn on formerly uncultivated soil, and converting acres already under cultivation toward corn and away from other, less water-intensive food crops. To put the current expansion of corn production into perspective, consider that we have more corn growing on American soil right now than at any time since World War II, when the farms of Europe had been devastated by war and America was feeding two continents.
There is no excuse for Congress to bail out the ethanol industry again by doubling a mandate that should not exist in the first place. If any major 2008 presidential candidate aside from John McCain opposes this heavy-handed dirigisme, he or she has yet to say so. McCain, for his part, deserves credit for taking a clear-eyed view of ethanol subsidies — even as he jokes that he drinks “a glass of ethanol every morning.” That position on ethanol is quite possibly the most sober in Washington.