PUGLIARESI: Ethanol’s hidden gasoline tax

Mandatory biofuels will increase fuel and repair costs

With regular gasoline prices still averaging more than $3.50 a gallon nationwide, the last thing drivers need is car troubles. Yet a new scheme from Washington to boost the ethanol content of gasoline from 10 percent to 15 percent could gum up many motorists’ travel plans – literally as well as figuratively.

Ethanol has enjoyed a trifecta of government largesse for many years: tariff protection from imports, direct subsidies to encourage its use, and a federal mandate requiring refiners and importers to blend it into the gasoline pool.

At the end of last year, Congress failed to renew the subsidies and tariff protection but retained the federal mandate requiring increases in the use of renewable fuels, such as ethanol, from approximately 13 billion gallons today to 36 billion gallons by 2022.

The mandate assumed that U.S. gasoline consumption would continue to increase rapidly, but the opposite has happened: Consumption has declined by more than 1 million barrels per day since 2006.

To comply with the mandate, therefore, blenders have just one option: increasing the ethanol content of the gasoline supply.

This has severe drawbacks. First, it likely will lead to a significant price increase because the cost of corn is rising. Disappointing U.S. corn yields, loss of wheat crops worldwide, and the increased demand for corn for ethanol production have pushed corn prices from $3.89 per bushel three years ago to more than $6 per bushel today. This makes ethanol more costly than gasoline when adjusted for energy content. (Ethanol contains 33 percent less energy than gasoline.)

A bigger problem is that the federal mandate requires ethanol blending to exceed what most vehicles can use: a gasoline blend containing 10 percent ethanol (the E10 “blendwall”).

One option for meeting the mandate’s targets is with fuel blends containing 70 percent to 85 percent ethanol (E85). But such a mixture can be used only in “flex-fuel” vehicles, and there are too few of them – about 4 percent of the U.S. vehicle fleet, though their numbers are increasing. There also are very few E85 service stations, so E85 would appear impractical without significant new subsidies.

In addition, E85 is even more costly than premium gasoline when adjusted for energy content and mileage performance, according to Department of Energy data.

Rather than telling Congress the truth – that the mandate is unworkable – the Environmental Protection Agency (EPA) instead issued a “waiver,” permitting refiners and blenders to mix 15 percent ethanol blends (E15), assuring drivers the fuel is safe.

Washington Times