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Biofuel mandates are a bad idea whose time may be up

PETER O’CONNOR
Staff Columnist
oconnor@lbknews.com

There’s bipartisan support for relaxing the 2005-07 mandate.  It’ll have to get past Iowa’s GOP senators.

By Thomas Landstreet ( in The Wall Street Journal, Monday, March 12, 2018)

It may be time to study just a bit on a National subject, beyond our Gulf Key.  We are, after all, a part of this great Nation.  We here at The NEWS seek to Entertain, to Educate, Sometimes  to Convince.

“The political tide may be turning against the corn ethanol mandate.  The Renewable  Fuel Standard, which forces oil refiners to mix corn-based  fuel into gasoline, is one of history’s great policy boondoggles.  Even ex-Rep Henry Waxman of California, a key sponsor of the original legislation establishing the standard, said Thursday that he favors phasing out the mandate.

There’s bipartisan support in Congress for such a move.  Sen. Tom Udall  (D.,N.M.) and Rep. Peter Welch (D.,Vt.) have introduced the Greener Fuels Act, and Sen. John Cornyn (R., Texas) is said to be working  his own legislation altering the mandate, in response to the recent closure of a Pennsylvania refinery.

The corn ethanol mandate was created under the Energy Policy Act of 2005.  Two years later, President Bush signed  the Energy Independence and Security Act, which expanded the program by generous tax credits and subsidies to corn growers and ethanol blenders.  It also established ambitious targets, increasing annually, for biofuels in the national fuel mix. The mandate soon diverted 40% of America’s corn crop away from the food supply.

The government-imposed shortage caused corn prices to float from long-term levels of about $2 per bushel to more than $8 per bushel in 2012.  This extraordinary price surge prompted a range of harmful responses in the farming industry.  Farmers planted 17 million new acres of corn at the expense of soybeans, wheat, hay and cotton, driving prices for those crops to all-time highs as well.  Cattle farmers, unable to afford gluten feed, culled their herds to levels not seen in 60 years, causing beef prices to rise an incredible 60% from 2007 to 2012.  Over this five-year period, the IMF food price index rose 42%.

The stress on the economy was intense.  The mandate became untenable until the Environmental Protection Agency announced in August 2013 that it was weighing freezing the annual ethanol blend mandate at 14 billion gallons (it ultimately followed through.  This caused the bubble to burst in a spectacular fashion.  The new blend level was rightly viewed as a cut in future demand, and corn prices collapsed in subsequent months.”

Landstreet continues:  “The country has endured a startling amount of economic disruption for what is clearly an inferior source of energy.  Ethanol produces 34% less energy per volume than conventional gasoline, reducing car’s  fuel economy.  As for its effect on the environment, a 2010 Congressional Budget Office study found that corn-based ethanol subsidies are terribly inefficient with the government spending an estimated $754 per metric ton of avoided emisions  – an astronomically high price tag compared with other policies. (The economics of climate change literature estimates the ‘social cost of carbon’ at far lower levels, meaning the program is inefficient even on its own terms.)

Moreover, ethanol is too corrosive to be transported through pipelines, so trucks must transport it.  Growing corn also requires more water than other crops    and the policy gave farmers an incentive to plant only corn, which depleted the soil of nutriants.  A 2008 study in Science found that converting natural environments for biofuel production can produce hundreds of times more carbon emissions than the biofuels themselves would save.”

Finally, Mr. Landstreet:  “Revising the mandate will take significant courage and political will, but it’s clearly the right thing to do.  The ethanol lobby is extraordinarily powerful, recycling profits gained  from this self-dealing policy right back into efforts  to protect it.  Iowa’s Republican senators – otherwise solid conservatives – are in thrall to this corporate welfare program.  But the time has come to modify the ethanol mandate    before the costs to the economy and the environment grow steeper.”

Mr. Landstreet is founding partner of N3L Capital Management and founder of Standard Research.

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