Ethanol in gasoline — an environmental and economic problem

The old adage “be careful what you wish for” sums up the federal Renewable Fuel Standard (RFS), better known as the federal mandate to mix ethanol into gasoline.

Back in 2005, when the proposed biofuels regulation was just picking up steam, environmentalists thought they had a can’t-miss idea.

{mosads}Basically, ethanol was supposed to help reduce carbon emissions and fix our growing dependence on foreign oil.

For starters, America has now become self-sufficient in oil and natural gas thanks largely to the “fracking” revolution. In fact, the U.S. is now the world’s largest producer of oil and gas.  

As for the environmental groups, corn ethanol has now turned on it. For example, the National Resources Defense Council even wrote, “the bulk of today’s conventional corn ethanol carries risks to the climate, wildlife, waterways and food security.”

Today, about 40 percent of the nation’s corn crop is used to create ethanol.  Millions of acres of once untouched lands have been plowed to accommodate corn ethanol demand. Instead of expanding wildlife habitat, the ethanol mandate is steadily reducing it.

Because growing corn is hard on the soil, farmers have been forced to use more and more fertilizer. Runoff from that fertilizer is adding to a growing dead zone in the Gulf of Mexico that is so low in oxygen that it kills off significant fish and wildlife. 

As for economic factors, huge amounts of Midwest corn are used for ethanol production to mix with vehicle gasoline. This “extra” corn has raised the cost of food inside and outside of America.

And yet, despite these concerning problems with the RFS, proponents of the law are now trying to implicitly expand its scope by discouraging the EPA from exercising its authority to issue hardship waivers to the small refineries that are struggling with the high compliance costs associated with the troubled mandate.

The EPA administrator is expected to release a decision on the outstanding small refinery exemption applications to the Renewable Fuel Standard by the end of the month.

Some analysts and industry leaders have argued that issuing hardship waivers undermines the goal of the RFS, which is to advance America’s energy independence and competitiveness. They fail to see that issuing these small refinery exemptions was part of the RFS’ plan all along to ensure that competition remains preserved.

In accordance with the Energy Policy Act of 2005 — the law that created the RFS — the EPA has for years granted hardship waivers to small institutions producing no more than 75,000 barrels a day that the EPA determines face “disproportionate economic hardship” from the ethanol mandate.

Both sides of this debate should agree that there is nothing competitive about small refineries that employ thousands of blue-collar workers entering bankruptcy because of an inability to comply with the program’s mandate. Unfortunately, limiting market options is precisely what will occur should the EPA stop issuing hardship waivers to the companies that need relief.

Without the hardship waivers that the EPA has granted to the struggling companies that are not equipped to blend ethanol, small refineries — particularly in the Northeast — could submerge into bankruptcy. Some have already filed because complying with the red tape costs more than any business expense other than crude oil, more than 100 percent of payroll costs. Their demise would expand big oil’s influence over the energy industry — the exact opposite of the RFS’ intent.   

{mossecondads}To say that issuing these exemptions do anything other than preserve competition is simply not true. In fact, according to Dr. Scott H. Irwin, Chair of Agricultural Marketing at the University of Illinois at Urbana-Champaign who “helps farmers in Illinois, and throughout the world make more informed production, marketing, and financial decisions,” small refinery exemptions have not even reduced physical ethanol use.

Ironically, failing to continue issuing hardship waivers represents the true threat to ethanol demand and the existing scope of the Renewable Fuel Standard. Should the EPA refrain from saving the small refineries struggling with the compliance costs, as was the intent of the law all along, bankruptcies will ensue, energy competition will fall. The EPA will then have no choice but to significantly lower renewable fuel volume obligations to prevent further instability. Is that really what the law’s proponents want?

J. Winston Porter, Ph.D., is an energy and environmental consultant in Atlanta and freelance author. Porter previously served as an assistant administrator of the EPA.