Wallace's World

End the Ethanol Insanity: Ed Wallace


"First-generation [corn] ethanol, I think, was a mistake. The energy conversion ratios are at best very small." —Al Gore, speaking at a green energy conference on Nov. 22, 2010

"Ethanol is not an ideal transportation fuel. The future of transportation fuels shouldn't involve ethanol." —Energy Secretary Steven Chu, Nov. 29, 2010

It is now conceivable that the myth of ethanol as the salvation for America's energy problem is coming to an end. And maybe we always should have known it would wind up in italics, underlined, with the real facts of the damage ethanol can do to gas-powered motors laid out for all to see in a court of law. I say that because this past Monday a group calling itself the Engine Products Group, comprising small-engine manufacturers, automakers, and boat manufacturers, filed suit in the U.S. Court of Appeals for the District of Columbia to vacate the EPA's October ruling that using a 15 percent blend of ethanol in the nation's fuel supplies would not harm 2007 and newer vehicles.

Each group of plaintiffs in this case has a different reason for objecting to putting more ethanol into America's gasoline. The automakers claim they have no idea whether a higher percentage of ethanol would damage their newer cars—and won't know until their testing is completed next year. The boat manufacturers claim their engines stay in service much longer, and are therefore more likely to be damaged by this fuel. The small-engine manufacturers are positive E15 would severely shorten the life of their products. According to The Washington Post, that's already been happening. The source is Mick Matuskey, co-owner of Power and Lawn Equipment of Gaithersburg, Md., who said, "You're getting half of the life out of the product today [when using E10 ethanol], compared to 30, 40 years ago."

Ultimately this lawsuit stems from one major issue: Manufacturers have to take legal action to protect their customers from the damage higher blends of ethanol would do to their motors, because their warranties generally don't cover it.

Of course, no such lawsuit would be complete without the ethanol lobby trying to obfuscate the facts of the case. Reuters quoted Tom Buis, head of lobbying group Growth Energy, as saying of the new proposed fuel, "E15 is safe for all vehicles on the road today."

That's patently untrue. For years cars nationwide have been damaged when motorists ended up with more than 10 percent ethanol in their fuel. I covered that situation last year in "The Great Ethanol Scam."

But ethanol's newest public-relations problem actually started in the last eight days of November. Having been fervidly pro-ethanol in the last decade of his political career, former Vice-President Al Gore reversed course and apologized for supporting ethanol. Of course, Gore's reason for taking his original position was perfectly understandable—to a politician. As he told energy conference attendees in Athens, Greece, "One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers of Iowa because I was about to run for President."

Translated from politics-speak into English: Pandering to farmers gets votes. But if your claimed position is to plan some sort of smart energy policy for America, then getting farmers' votes shouldn't be the deciding factor.

Boss' Statement Retracted

Curiously, after Energy Secretary Steven Chu admitted on Nov. 29 that ethanol really isn't any sort of intelligent plan for our nation's gasoline supplies, Energy Dept. spokeswoman Stephanie Mueller issued that same day a statement vitiating Chu's comments: "Secretary Chu believes that biofuels can, should, and will vastly expand the economic opportunities for America's farmers today and in the future."

One has to wonder whether Mueller understands that Secretary Chu was talking about the business and energy illogic of using food-based fuel for gasoline, not to mention that ethanol is just another farm subsidy program that the public is being told is our best chance to wean ourselves off Middle Eastern oil.

And with farm incomes already up 31 percent in 2010, according to a Dec. 1 article in The Wall Street Journal, why do we need to continue the ethanol foolishness at all?

If one is to believe all the business reporting on this subject, speculators have returned en masse to the commodities market (including oil); speculation has already boosted the price of corn by more than $2 a bushel since July. Then again, wheat prices showed similar gains from June to November. So it's fair to say that many food crop prices on the Chicago Board of Trade were dynamic. Corn prices will go up whether it's being diverted for fuel or not.

EPA's Built-In Escape Hatch

Just before this rash of political honesty, in October the Environmental Protection Agency released its own study concluding that vehicles built in 2007 and since could use gasoline with ethanol in a 15 percent blend without doing any noticeable damage. That seemingly was a green light for gas-station owners to pay for yet another tank and pump to handle this new blend of fuel.

For background, "the EPA's study" relied on testing by our Energy Dept., a situation that Representative Michael Burgess (R-Tex.) questioned because the EPA is quite capable of doing these tests on its own. This way, however, if a 15 percent blend of ethanol in the gas supply does not perform as expected and numerous vehicles suffer disabling damage as a consequence, the EPA theoretically could shift the blame onto the Energy Dept.'s tests. Yes, that's the same Energy Dept. whose head said in the last week of November that the future of transportation shouldn't involve ethanol.

Then, on Dec. 20 automobile manufacturers, boat manufacturers, and the makers of small gas engines filed that lawsuit against the EPA for approving this higher level of ethanol in the nation's fuel supplies.

When Is Enough Enough?

Meanwhile, the EPA said testing will continue to determine whether a 15 percent blend of ethanol can be used in vehicles older than 2007 models, but put off making the final ruling on those tests. At this point it should be noted the entire logic for forcing more ethanol on the public is the fact that a congressional mandate will increase the amount of ethanol we use to 13.95 billion gallons in 2011.

According to government estimates of total gasoline usage in the U.S., this means all gasoline in America would wind up with a 7.95 percent ethanol blend next year. But that's based on the assumption gasoline sales will continue to grow as the economy moves slowly toward full recovery, and that assumption may not be valid. In 2010 the low demand for gasoline and the mandate to use ethanol forced an 8.25 percent blend into the nation's gasoline supply.

An ill-thought-out mandate combines with the power of a political cycle, and no one seems to know when to say "Stop, that's enough."

It starts with a bad idea: Putting an energy-inefficient fuel filler into the nation's gas supply and calling that an energy policy. Quickly, engineers and scientists, such as UC-Berkeley's Tad Patzek, discovered that using corn as the base ingredient at best yields zero improvement; energy used to create the product just barely covers the energy the product delivers to the end users, meaning motorists. At worst it's a net energy loser. Yet Congress is not forced to reexamine its mandate based on scientific evidence.

Then too, the head of our Energy Dept. now admits ethanol is not viable as a fuel additive to improve our nation's energy situation. Another well-known retired politician admits the same—and distances himself from a previous position, saying his judgment was somehow clouded by his love for the American farmer.

Actual Bipartisanship Spotted!

Two major governmental agencies are now working to justify the increased use of ethanol in order to comply with the congressional mandate. This can be labeled fixing the facts to justify the policy. But in this case, Congress still held the high hole card on ending this insanity. That's because the 45 cent-per-gallon blending tax credit to put ethanol into our fuel was due to end on Dec. 31. (As was the 54 cent-per-gallon tax on ethanol imported from countries like Brazil.)

And here two diametrically opposed U.S. senators, Democrat Dianne Feinstein of California and Republican John Kyl of Arizona, signed off on a letter asserting that this last major government subsidy needs to end.

Of course, this would put all ethanol into a semi-free-market condition. Refiners would no longer be encouraged to use ethanol because tax credits wouldn't make blending it too lucrative to pass up. And after all, when there already is a hard and foolish mandate that 13.95 billion gallons of ethanol must be used, why would any tax credits for adding a filler to the nation's gasoline supplies be necessary?

The Right Thing Unpopular

Particularly interesting in this debate is the fact that the victors in the last election won on campaign promises they would go to Washington and make the "hard choices" necessary to reduce the federal deficit. Hard choices being political-speak for "unpopular."

One such "hard choice" might have been not to extend the Bush tax cuts, which could again add close to $900 billion to our deficit in the next decade. And the newly mandated 2 percent cut in the payroll tax for Social Security trims that trust fund by $120 billion fairly quickly—just when more and more baby boomers are applying for Social Security. But the newly elected could have made at least a token stab at shrinking the deficit with relative ease: They could have allowed the 45 cent-per-gallon ethanol blending tax credit to expire at the end of this month. That would have immediately saved $6.25 billion in revenue for 2011; it's a small amount, but every little bit helps.

All that's moot now, though, because both the ethanol blending tax credit and the tariff on imported ethanol were extended.

Move Iowa's Caucus to Last?

It's no coincidence that Iowa is both the state that grows the most corn and the site of the Iowa caucuses, the first and most critical stop on every Presidential campaign. No one running for the highest office in the nation can go there and say what Al Gore or Steven Chu said at the end of November and hope to win the state. And therefore the ethanol insanity will continue until so many cars and motors are damaged by this fuel additive that the public outcry can no longer be ignored.

The older cars owned by those less financially secure will be the first to go. In fact, that's already happened in thousands of cases nationwide. Maybe when it starts happening to those on more solid financial ground, then someone will listen: Adding an expensive, harmful, useless filler to gasoline just to win farmers' gratitude is not remotely the same as having a legitimate national energy policy.

Ed_wallace
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Assn. He reviews new cars every Friday morning at 7:15 on Fox Four's Good Day, contributes articles to Businessweek.com, and hosts the top-rated daytime talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: wheels570@sbcglobal.net, and read all of Ed's work at his news site, www.insideautomotive.com.

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