Ethanol a “stealth tax” on drivers

October 20, 2010

Substituting ethanol for petroleum – what could be wrong with that? A lot, it turns out, including a cynical “stealth tax” on drivers.

A few days ago the Environmental Protection Agency announced that soon gasoline can be made from 85 percent petroleum and 15 percent ethanol, up from a current limit of 10 percent ethanol. Such a move to replace imported petroleum with home-grown ethanol sounds great — until you examine the details.

Ethanol is the king of subsidies. Ethanol from genetically engineered dwarf trees or tall grasses holds tremendous promise as a cost-effective, greenhouse-neutral fuel. But for today, nearly all ethanol sold in the United States is made from corn. Domestically produced corn-based ethanol is subsidized via federal payments to grain farmers, by refinery tax exemptions for fuel containing domestic ethanol, and by tariff barriers intended to prevent Brazilian sugar-based ethanol from entering the country. Annual federal subsidies to corn ethanol cost around $5 billion. Are the benefits worth that?

Corn ethanol may not save petroleum. There’s a dispute, but some research suggests corn-based ethanol is a net loser in energy terms — more petroleum goes into production of the corn than the energy value in the ethanol. Indisputably, raising corn to burn as ethanol depletes topsoil. Topsoil may be a more important resource than petroleum, given there are vast reserves of oil and alternatives being developed, while with current science, topsoil is irreplaceable. We’ve got to deplete topsoil to eat. We don’t need to deplete topsoil for fuel: topsoil should be allocated to its highest use, food production.

Corn ethanol may not be good for the environment. If ethanol occurred by magic, then replacing fossil fuel with corn ethanol would reduce greenhouse gas emissions. But ethanol calculations should take into account the greenhouse gases associated with corn production, especially carbon released by changes in land use. Last year, the EPA concluded that corn ethanol production would be worse overall for the environment than petroleum refining http://www.epa.gov/otaq/renewablefuels/420f09024.htm. The ethanol lobby howled, and the EPA “reworked” its ethanol data to reach the desired PC outcome. In politics, “sound science” is whatever supports your predetermined conclusions.

Politics drives the corn-ethanol push. The farm lobby loves corn-based ethanol because it raises the price of corn – though that penalizes average people via higher food prices. Many (not all) enviros love ethanol because it’s not a fossil fuel. Big campaign donors such as ethanol producer Archer Daniels Midland love ethanol because the subsidies are corporate welfare. But does adding more ethanol to gasoline serve the public? Hey – who cares about that?

The stealth tax. By volume, corn ethanol contains about a third less energy than petroleum. That means a gasoline blend of 85 percent petrol, 15 percent ethanol delivers about 95 percent the energy of pure-petroleum fuel. When the federally sanctioned new gasoline blend starts being put into the tanks of cars, MPG will go down.

The typical American driver covers 12,000 miles annually at a real-world fuel economy average of 20 miles per gallon, which comes to 600 gallons of gasoline purchased annually. That the typical U.S. driver burns through almost two gallons a day is a core reason America is addicted to oil. But higher-MPG vehicles with lower horsepower, and plug-in hybrids, seem the best cure — rather than subsidized ethanol.

If the typical driver’s annual 600 gallons declines in energy value by 5 percent, the typical driver will need to buy 30 additional gallons per year. At today’s prices, that’s a stealth tax of $100 per year per American driver. If gasoline prices go up, the stealth tax rises.

Who gets the money from the stealth tax? Oil companies that market gasoline, and the ethanol lobby. Typical Americans will pay an extra $100 per year so that funds can be channeled to these politically connected lobbies, which in turn will make campaign donations to incumbents of both parties. This is both parties of Congress, and the White House, at their worst – reaching into your pocket in order to create campaign donations for themselves.

Don’t fall for it. The media have not noticed that ethanol mandates will cause automotive MPG to decline – as well as subtract spending money from people’s pockets at a time when consumer demand is needed to spur the economy.

Politicians hope people won’t notice that their MPG is going down, or won’t know why, and will simply be quiet and pay the new stealth tax.

Don’t fall for it.

15 comments

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There is nothing stealth about Mr. Easterbrook’s misrepresentations of ethanol. It is there for all to read.

First, Mr. Easterbrook is correct that about $5 billion is invested in ethanol. What he fails to mention is the $8.4 billion returned to federal treasury in new tax revenue as a result of economic activity generated by the production and use of ethanol. Nor does he tell readers that the Oil Industry recieves more than 3x times amount in permanent subsidies including in the tax code.

Next, Mr. Easterbrook relies on a 2001 study to make claims that ethanol takes more energy to produce than it yeilds. There is no debate, this is settled science: ethanol is a net energy positive. The most recent analysis from USDA demonstrates current ethanol energy returns of nearly 2:1 – 2 units of energy produced for energy 1 unit used.

Continuing, Mr. Easterbrook correctly states that a marginal loss in MPG will occur with the use of ethanol. What he excludes is the fact ethanol-blended fuels are often cheaper than pure gasoline, eliminating the cost penalty he believes will exist.

I would urge readers of this piece to view his statements with a healthy does of skepticism and search out the facts for themselves. The Dept. of Energy is a good place to start: http://www.afdc.energy.gov/afdc/ethanol/ index.html

Posted by mhartwig | Report as abusive

Finally, all the arguments I’ve been making for years in one convenient place! If we were to channel that $5B per year into alternate energy research for ten years (a la the moonshot project), we’d have a solution.

And don’t forget that those extra 30 gallons per year will funnel $5.40 per car into the Federal treasury through the current 18¢ gas tax (which there is talk of raising, BTW). If there are 150M cars in the fleet, that’s $810M. And the states will get their share too based on how much they tax at the pump.

Posted by nadie | Report as abusive

Thanks for taking the time to post this blog. I’d like to clear up many of the errors of fact and omissions that leave an inaccurate picture of ethanol, which can go a long way to clean our air, create U.S. jobs and strengthen our national security.

First, if there is a “king of subsidies,” it would be Big Oil, not ethanol. Whether it is the outright subsidies, as reported on by DTN here, http://tiny.cctkjgy , or “hidden costs of oil,” such as the $50 billion taxpayers spend each year to protect oil shipping routes, Big Oil comes at a great cost. On top of the direct taxpayer subsidy to Big Oil – an industry that includes ExxonMobil, which reportedly paid no taxes to the U.S. last year, as reported by Forbes.com, here http://tiny.cc/5pxj4 – there is the $300 billion we drain out of our economy and ship overseas for our addiction to foreign oil. To your point, imagine what we could do if we invested that money in places like Edgely, N.D., instead of Abu Dhabi?

To your point on energy, in fact, the most recent study by USDA demonstrates that ethanol is a net energy gain, 2.8 Btus for every single Btu put into production. That study is here: http://tiny.cc/dmzf0 You also unfortunately repeat a rather tired red herring when you bring up topsoil, which is a dark horse for the easily-refuted “food versus fuel” fiction. You can read Growth Energy’s blog post about that here: http://tiny.cc/9pavi. That includes the proposal from a DC public relations firm to the Grocery Manufacturers Association to manufacture this fake issue; in fact, grocery prices spiked because of high oil prices and Wall Street speculators (as reported in the July edition of Harper’s magazine).

Further, let’s stack up your claim that corn ethanol may not be good for the environment against that of Yale University’s Journal of Industrial Ecology, which published a peer-reviewed study that found grain ethanol is at least 59 percent cleaner than gasoline. Read that here: http://tiny.cc/n7y88 That’s pretty black-and-white, and relies on the grounded science of the Life Cycle Analysis, not a controversial scheme put together by a New York City lawyer-activist.

Finally, on your issue of MPG, since NASCAR – a sport that is notably is notably involved in the automotive industry – has moved to E15, its drivers have not detected any notable decline in MPG. Instead, they’ve seen an increase in horsepower, which isn’t surprising because ethanol is added to gasoline in order to increase the octane of your fuel.

Ethanol has been around since the birth of our nation’s automotive industry; the first car built by Henry Ford ran on ethanol. Ethanol was widely used during both World Wars when demand for oil ran high, and ethanol is used today by fuel blenders who want to improve the performance of their low-octane gasoline and also help the smoggiest states reduce air pollution and meet Clean Air Standards.

Posted by chris_thorne | Report as abusive

Well, I agree with you on this one, but you forgot to mention the fact that ethanol is corrosive to plastics: increased ethanol content in gasoline can lead to the rapid deterioration of fuel lines in older vehicles.
There have been serious worries in the motorcycle community for a few years now, with nightmares of a fire starting under your crotch going down the highway…..

Posted by dzoo35 | Report as abusive

“Who gets the money from the stealth tax? Oil companies that market gasoline”

I was unaware that the fuel taxes went to the oil company. Did you leave out a step in the process, or am I missing something?

Posted by drewbie | Report as abusive

He calls it a “stealth tax” because it’s not actually a tax, but a government-mandated price increase via the need for drivers to buy more fuel to drive the same distance. Oil companies get the additional revenue, and pols get their share of kickbacks in the form of campaign contributions while getting to deny that the price increase is a “tax.”

Posted by l3randon | Report as abusive

Hello, I work for Growth Energy, the coalition of ethanol supporters that filed the E15 waiver with the EPA.

Thank you for taking the time to post this blog, however, I would like to clear up many of the errors of fact and omissions that leave an inaccurate picture of ethanol, which can go a long way to clean our air, create U.S. jobs and strengthen our national security.

Due to space constraints, I have listed my comments on Growth Energy’s blog. You can read it here: http://www.growthenergy.org/news-media-c enter/blog/some-clarification-/

Posted by sdreyer | Report as abusive

As I understand it, the “Stealth Tax” he is referring to is the extra gallons of gas we as consumers have to purchase in order to drive the same mileage. Last week I needed 20 gallons; this week I have to buy 21 gallons. Since there is no corresponding price cut to cancel out the increase in consumption (in fact, prices may go up due to higher demand), the oil companies will get their normal profit from that additional gallon. As Nadie pointed out above, part of the money we pay for that extra gallon will go to local and federal taxes. So by increasing the amount of ethanol, governments and oil companies created extra revenue and profit without raising taxes or prices. Win-win.

Technically, Mr. Easterbrook’s analysis is a worse-case scenario as it assumes that the new 15% ethanol will replace regular gasoline. In reality, the 15% ethanol blend will often replace 10% ethanol blend. This has less impact on performance: about 1.5% instead of 5% change.

Posted by markosOD | Report as abusive

drewbie – you’re missing something. It’s not the tax that goes to the oil companies, but the additional revenue from forcing people to consume more gasoline. The ethanol requirement forces people to consume more gas by reducing fuel economy. Increased consumption means increased profits for oil companies.

Calling it a tax is probably a bad term, because to most people tax means government taking money out of your pocket for government use. In this case, it’s government taking money out of your pocket for the benefit of corn growers and oil companies (and themselves, of course).

Posted by elth_doa | Report as abusive

Good arguments. Similar to your argument in favor of saving topsoil as a priority over oil, saving water as a priority over oil shouls be considered when arguing the benefits of hydrogen cells. Would you please look into the pros and cons of hydrogen cells and publish your conclusions in a manner as effective as you have done in this column? Hydrogen cell technology breaks down water and expels it as water vapor into the environment, with no provision for recapture. I see a lot of potential climactic effects, not to mention increasing demand for our most precious and already scarce resource.

Posted by march12 | Report as abusive

Drewbie, the reason it is called a “stealth tax” is that it isn’t actually a tax. The loss of money for the consumer stems from the fact that as ethanol content increases, fuel efficiency decreases, causing the average person to have to consume more fuel. The fact that the average person is dropping up to $100 per year more at the pump benefits the oil companies selling the fuel, the ethanol producers getting fat government paychecks, the state and federal governments taxing the product, and the politicians who get campaign funding from ethanol advocates. Everyone wins, except the consumer, of course.

Posted by shawngrggs | Report as abusive

The Renewable Fuels Association, a corn ethanol lobbying organization, is not happy with the requirement to label pumps that carry E15 even though it will damage older cars.

See: http://www.biodiversivist.com

Posted by Biodiversivist | Report as abusive

Your article has hit the nail on the head.
Increasing the ethanol in petrol results in lower miles per gallon and a boost in income for the oil companies, and corn farmers.
A better solution is to improve the octane rating of the petrol sold at the pump, and invest in better power stations and transmission of the same.

Posted by The1eyedman | Report as abusive

It is much worse than the article states. We are presently getting only 5/6ths the gas mileage we should be getting at a dilution rate of 10% ethanol. That means we are burning more petroleum than if we use no ethanol at all! That means we are producing more pollution than if we use no ethanol at all. That means we are spending more on petroleum and the entire cost of the ethanol plus the cost of the additional fuel wasted, is a tax. If we have to buy fuel with a 15% deleterious impurity, it will get much worse! We need to pass legislation prohibiting the Government from using junk science to support policies intended to promote special interests.

Posted by hatman20 | Report as abusive

Topsoil is fine using crop rotation. Duh. How about that fact that some farmers do not crop rotate but instead dump more fertilizer on the ground…which is oil based.

Also, Cellulosic ethanol can be produced from a wide variety of cellulosic biomass feedstocks including agricultural plant wastes and reduce greenhouse gas emission reductions.
(Source: harvestcleanenergy.org)

Yes, I agree that subsidies need to end. (Same goes for the defense industry, which the budget is 6x larger than China, the next biggest world military budget. Source: wikipedia.org)

And cleanup your comments. Too much spam posts.

Posted by jtestor | Report as abusive