Another classic moment in government interventions

posted at 11:55 am on November 28, 2009 by Ed Morrissey

Two years ago, the newly-Democratic Congress struck a blow for a greener planet by demanding a level of ethanol production based on current estimates of gasoline use.  This delighted corn farmers and ethanol manufacturers, and most everyone else assumed that little harm could be done by growing more corn and turning it into something other than food.  No one thought about what a recession might do to gasoline demand, or how a parallel Democratic push to force automakers to produce more efficient cars would impact the need for all of the ethanol Congress demanded.

Now it looks as though we have a glut of ethanol coming, and your catalytic converters might be sacrificed on the altar of Congressional foolishness (via Brian Faughnan):

In theory, the Environmental Protection Agency has the power to solve this problem by tweaking the mandates imposed by Congress, and it may act as early as next week.

Each potential solution would anger one interest group or another, so the agency has been subjected to fierce lobbying, including from members of Congress lining up behind various factions. One possibility is to raise the maximum proportion of ethanol in gasoline to 15 or 20 percent.

But that idea is opposed by some carmakers and pollution experts. They contend that high ethanol blends can cause damage to cars, including making catalytic converters run hotter.

The Alliance of Automobile Manufacturers says it believes this could cause the converters, components that help control pollution, to fail at around 50,000 miles. They are supposed to last for 120,000 to 150,000 miles. “We are sensitive to the issues facing the ethanol industry, but the government must make decisions based on sound science,” said Dave McCurdy, president and chief executive of the alliance, in a letter to the E.P.A.

Another possibility is that the agency could waive the mandates requiring use of a large volume of biofuels. But that would anger farmers, who sell a great deal of corn to ethanol factories, and the members of Congress who represent them. It might also undermine the efforts of companies that are investing millions in factories to make ethanol from waste materials, like corncobs, straw and garbage.

Think of this as a bubble in the ethanol market not unlike that seen in the housing market with subprime loans and ill-advised government incentives.  Congress created an artificial demand for ethanol production, and got much more than we needed.  Now a lot of people may lose their shirts if someone doesn’t buy it up, and a lot of us may lose our catalytic converters if they do.

The government incentives have had other perverse outcomes, too.  The CBO reported in April that it drove food prices higher, making more difficult for the poor to get enough food to eat.  In October of last year, the International Monetary Fund called corn ethanol “a very, very bad idea” for the same reason.  Those market distortions go well beyond damaging catalytic converters or sticking Congress with a lot of ethanol it can’t use.

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It seems to have gone unnoticed in much of America, but there are also ethanol producers which were driven into bankruptcy because of (wait for it) high corn prices! There may be a place for ethanol, but we need to let market forces dictate when and how.

nkviking75 on November 28, 2009 at 9:55 PM

You get it! Thank you.
The business model of the failed plants was off. If the Government does own any plants they failed also.
The farmers must own a part of the plant to succeed. The farmers grow the normal amount of corn (feed or sweet)they always do. Plant the High starch corn on previously Government subsidized land. Saving tax payers money. Sell their regular crop at market prices. supply the plant with the Ethanol corn at pre-agreed price. The farmer also gets the by-product of the plant. A high protein mash, the farmer adds to his cattle feed. The farmer is able to sell more of his feed corn on the market. Since the farmer also owns shares in the plant he shares in the profits of the plant.
Think of it this way, the farmer grows feed corn for his cattle. He does not see a profit off of the corn until he sells his cattle. The farmer grows Ethanol corn for his plant. He sees his profit when his Ethanol is sold. The market should dictate how much of each type he decides to grow more of. With this model the farmer produces more food not less. It does not matter which corn the farmer grows as far as food supply is concerned. The by-product of Ethanol is high protean feed.

IowaWoman on November 29, 2009 at 12:53 AM

We just covered ethanol in my energy class. Few people know the environmental harm that ethanol actually does. It takes 3 gallons of regular petroleum fuel to make 4 gallons of ethanol. When you factor in equipment, materials, and environmental impact (huge amounts of waste water), its actually worse than drilling for oil. Ethanol produces 15% less horsepower than regular gasoline resulting in worse mileage, and therefore increased fuel consumption. Ethanol is highly corrosive as well. Its not terrible in lesser amounts like 10% (it still burns out sensors and the like) but if it goes higher it will start eating fuel lines, injectors, seals, and everything in between. Thats why newer flex-fuel vehicles have fuel systems composed of stainless steel and alloy components. It also tends to gum up the works. Replacing a catalytic convert would be a best case scenario in comparison to a few thousand bucks on a new engine. If there were not hefty government subsidies ethanol would simply be unprofitable to make. In fact, a number of makers have gone bankrupt. Unfortunately many midwestern states (like Wisconsin) have a mandatory quota for ethanol production whether they can consume that much fuel or not. Hence the problem with overproduction. Then again, maybe that was the plan all along. By mandating an overproduction of ethanol they could just as easily say “we must save our farmers and American jobs” and force the increase to 20%. By creating a problem they can force a solution. Environmentalism strikes again.

Logboy on November 29, 2009 at 3:30 AM

Of course the farmers need to have ownership! Without a majority ownership by farmers there are no subsidies. Without the subsidies (especially with Iowan tax dollars) there is no profit margin or chance of one ever. The sad part about this is that companies who will build & operate the plants, while also handling the marketing, have suckered into investing money which is evaporating.

Kermit on November 29, 2009 at 9:10 AM

We just covered ethanol in my energy class. Few people know the environmental harm that ethanol actually does. It takes 3 gallons of regular petroleum fuel to make 4 gallons of ethanol. When you factor in equipment, materials, and environmental impact (huge amounts of waste water), its actually worse than drilling for oil. Ethanol produces 15% less horsepower than regular gasoline resulting in worse mileage, and therefore increased fuel consumption. Ethanol is highly corrosive as well. Its not terrible in lesser amounts like 10% (it still burns out sensors and the like) but if it goes higher it will start eating fuel lines, injectors, seals, and everything in between. Thats why newer flex-fuel vehicles have fuel systems composed of stainless steel and alloy components. It also tends to gum up the works. Replacing a catalytic convert would be a best case scenario in comparison to a few thousand bucks on a new engine. If there were not hefty government subsidies ethanol would simply be unprofitable to make. In fact, a number of makers have gone bankrupt. Unfortunately many midwestern states (like Wisconsin) have a mandatory quota for ethanol production whether they can consume that much fuel or not. Hence the problem with overproduction. Then again, maybe that was the plan all along. By mandating an overproduction of ethanol they could just as easily say “we must save our farmers and American jobs” and force the increase to 20%. By creating a problem they can force a solution. Environmentalism strikes again.

The main problem with ethanol is not only its effect on the sensors but also the polymers used pre-flex fuel vehicles do not stand up over time. So, gaskets, hoses, pumps, and all those plastics used to lighten the weight of a vehicle so that it can get better gas mileage are in peril. Ethanol also attracts moisture like a magnet and that moisture does not help the rust situation in carbon steel.

The real boom to the ethanol market came when MTBE was outlawed and another oxygenator of fuel was needed.

I am not so sure about waste water unless a plant is drawing water from underground or a river and after using it for cooling returns it. The water used in the process ends up going through evaporators where it goes to the atmosphere or is recycled. If water treatment is sorely needed, it is when it enters the plant.

There is a new process which takes place during the fermentation process. The products produced are of more value than the ethanol and CO2. There are no DDGS’s for feed but instead a high dollar product. Ethanol then becomes more of a by-product.

One reason that most of the ethanol plants are in the Midwest is because it removes the cost of transportation (a couple of bucks per bushel) to get it to export point (mostly along the Gulf Coast particularly New Orleans). Also there is not enough crop production elsewhere or nearby destination for the CO-PRODUCT DDGS’s (distillers dried grain solubles) to feedlots, or aquaculture.

CO2 at one time had pretty good value when compressed and sold to soft drink companies or turned into dry ice. Most of the time it is vented to the atmosphere. Glowarmers beware! I could care less.

Kermit on November 29, 2009 at 9:25 AM

Ethanol produces 15% less horsepower than regular gasoline resulting in worse mileage, and therefore increased fuel consumption. Ethanol is highly corrosive as well. Its not terrible in lesser amounts like 10% (it still burns out sensors and the like) but if it goes higher it will start eating fuel lines, injectors, seals, and everything in between.
Logboy on November 29, 2009 at 3:30 AM

What you say is true with my experience.

Here in Oregon, the legislature required 10% ethanol to added at all of the gas pumps. I track my MPG with each fill up. About two years ago when the 10% ethanol was mandated, my MPG dropped from a regular 32 miles per gallon to a consistent 28 or 29.

So it’s easy math: 10% ethanol added = 10% less mileage. No gas savings whatsoever. I’m using THE SAME AMOUNT OF PETROLEUM TO GO THE SAME DISTANCE.

Add to that the amount petroleum to grow the corn, ship, process, and ship it again to the oil companies, and you’ve got a perfect SNAFU. A total waste of money.

Oh yeah, it’s driving up the cost of food, too.

Pazman on November 29, 2009 at 10:19 AM

Another government success story.

Is there anything they can’t do?

Actually, is there anything they CAN do? For a realistic price?

NoDonkey on November 29, 2009 at 10:27 AM

Those market distortions go well beyond damaging catalytic converters or sticking Congress with a lot of ethanol it can’t use.

It’s clear to us that Congress is drinking the ethanol.

landlines on November 30, 2009 at 12:43 PM

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