Since the 1970s, Congress has showered the corn-ethanol industry with ever-increasing mandates and subsidies. Congress has justified those subsidies by citing the industry’s oft-repeated claim that increased domestic production of ethanol will cut U.S. oil imports and therefore increase America’s energy security.
That claim has no basis in fact.
Between 1999 and 2009, while U.S. ethanol production increased sevenfold to more than 700,000 barrels per day, U.S. oil imports actually increased by more than 800,000 barrels per day. Furthermore, and perhaps most surprising, during that same time period, U.S. oil exports — yes, exports — more than doubled to some 2 million barrels per day.
Data from the Energy Information Administration show that oil imports closely track U.S. oil consumption. During the past decade, as domestic oil demand grew, imports increased. When consumption fell, imports dropped. Ramped-up ethanol production simply had no apparent effect on oil imports or consumption.
Thus, despite more than three decades of subsidies that have cost taxpayers tens of billions of dollars, the ethanol industry has not, and cannot, show any decline in oil imports — even during the time period when it experienced its most-rapid growth.
Despite these facts, the ethanol lobby — which has tremendous influence inside the Obama administration — is pushing for an industry bailout via the U.S. Environmental Protection Agency.
Within the next few weeks, the EPA will likely issue a ruling that could allow the ethanol industry to increase the amount of ethanol blended into motor gasoline from the current 10 percent to as much as 15 percent. Such a move would be a windfall for the industry, but a disaster for consumers.
Why does the ethanol industry need a bailout? Because it was given too much in the way of subsidies and mandates, amazing as that may sound.
A bit of history:
In 2005 and again in 2007, Congress dramatically increased the mandates for corn ethanol. The industry responded by overbuilding and spending billions of dollars on new distilleries.
In the past five years, U.S. ethanol production capacity has more than tripled and now stands at more than 13 billion gallons per year, far more capacity than the U.S. motor-fuel market can absorb.
In industry parlance, the corn-ethanol sector is facing a head-on collision with the “blend wall.” Ethanol producers depend on gasoline sales because their product must be mixed with conventional fuel. But due to the recession and the increasing efficiency of the U.S. auto fleet, gasoline demand growth is flatter than an Iowa cornfield.
Or, as President Bob Dinneen of the Renewable Fuels Association put it, “We have lots of gallons of ethanol chasing too few gallons of gasoline.”
The ethanol industry’s only option, if it wants to prevent more bankruptcies in the sector, is to convince the EPA to allow the blending of more of its corrosive, hydrophilic, low-heat-content fuel into our gasoline.
It’s time to end the corn-ethanol boondoggle. Despite decades of lavish subsidies, ethanol has done nothing to cut oil imports. Rather than further compound the mistakes that have been made by increasing the volume of ethanol in the U.S. motor-fuel supply, the EPA and Congress should recognize that ethanol is not, and has never been, an energy program.
Instead, it is a pernicious example of how agriculture subsidies are promulgated and expanded for the benefit of few at the expense of many.
Robert Bryce is a senior fellow at the Manhattan Institute and author of “Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future.” His new report, “Despite Billions in Subsidies, Corn Ethanol Has Not Cut U.S. Oil Imports,” was released last week.