The oil blowout will mean more subsidies for the ethanol industry. That's bad news for consumers.

Commentary about business and finance.
June 10 2010 12:14 PM

The Ethanol Trap

The oil blowout will mean more subsidies for the corn-fuel industry. That's bad news for consumers.

Read Slate's complete coverage of the BP oil spill.

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The strongest indication that an ethanol bailout is imminent came last Friday when Agriculture Secretary Tom Vilsack (former governor of Iowa, the nation's biggest ethanol-producing state) said, "I'm very confident that we're going to see an increase in the blend rate."

The "blend rate" refers to the federal rule that limits ethanol blends to no more than 10 percent for standard automobiles. Commonly known as "E10," the fuel contains 90 percent gasoline and 10 percent alcohol. The Obama administration bailout, which would come via approval from the EPA, will likely allow gasoline retailers to blend up to 15 percent ethanol into U.S. gasoline supplies.

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And that's where the corn-ethanol mess becomes truly outrageous and depressing. The United States now has about 250 million motor vehicles. Of that number, only about 7.5 million are designed to burn gasoline containing more than 10 percent ethanol. And there is evidence that even 10 percent ethanol may be too much for the other 242.5 million. Last year, Toyota recalled more than 200,000 Lexus vehicles because of internal component corrosion that was caused by ethanol-blended fuel.

In addition to problems with their cars, consumers may soon find that more ethanol in their gasoline will result in the fouling of smaller engines. The Outdoor Power Equipment Institute, which represents companies that make lawnmowers, snowblowers, chainsaws, and the like, opposes the bailout of the ethanol industry. It says that increasing the amount of ethanol in gasoline "could damage millions of forestry, lawn and garden, and other small engine products currently housed in consumers' garages."

An increase in the ethanol blend rate is opposed by one of the oddest coalitions in modern American history. Last year, more than 50 groups—including the Sierra Club, National Petrochemical and Refiners Association, Competitive Enterprise Institute, Grocery Manufacturers Association, Friends of the Earth, National Chicken Council, and the Association of International Automobile Manufacturers—signed a letter that was sent to Vilsack, EPA administrator Lisa Jackson, Energy Secretary Steven Chu, and Obama's energy advisor, Carol Browner. The coalition members said that they oppose "any administrative or legislative efforts to increase the current cap on the amount of ethanol permitted to be blended into gasoline" until "comprehensive testing programs" have been done.

The damage caused by increasing use of ethanol won't be limited to ruined boats, snowblowers, weed whackers, and lawnmowers. The EPA itself has admitted that increased use of ethanol in gasoline will result in worse air quality. You read that correctly: The agency in charge of protecting the environment in America concluded in April 2007 that total emissions of key air pollutants such as volatile organic compounds and nitrogen oxides will increase because of expanded use of ethanol. (Read the key EPA document here.)

Yes, it's madness. And none of this even considers the effect that the ethanol rip-off is having on food supplies. Earlier this year, the Earth Policy Institute estimated that in 2009, the U.S. ethanol industry consumed 107 million tons of grain, or about 25 percent of total domestic grain production. That amount of grain, said the Institute, "was enough to feed 330 million people for one year at average world consumption levels."

BP's disaster in the Gulf of Mexico will force the offshore oil and gas industry to dramatically improve its safety procedures. That's a good thing. But if it only serves to strengthen the corn-ethanol industry, it will be a squandered opportunity, and another tragedy for the nation.

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Robert Bryce, a senior fellow at the Manhattan Institute, is the author, most recently, of Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future.

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