E-15 May Do More Food Price Harm than Gas Price Good
The Biden administration Environmental Protection Agency has announced an emergency waiver allowing gasoline blends containing up to 15 percent ethanol in a bid to bring down high pump prices. As with his much-publicized withdrawals from the Strategic Petroleum Reserve and announcements of investigations into oil company price gouging, the president wants to show he is “doing something” about gas prices without doing the one thing that really matters—ending his hostility to domestic oil production. In reality, adding more ethanol to gasoline won’t make an appreciable difference at the pump, though it could add to the growing problem of food price inflation.
The federal Renewable Fuel Standard (RFS) requires the addition of corn-based ethanol and other biofuels to the nation’s gasoline and diesel fuel supply. But Clean Air Act provisions (as well as concerns about engine damage in older vehicles) kept that amount at no more than 10 percent (E-10), particularly in the summer months when too much ethanol may contribute to smog. President Trump, in a bid to win favor with corn growers and ethanol producers, tried to change the rules in order to allow year-round E-15, but lost in federal court. Biden is now attempting to use separate emergency authority to do so.
Throughout the history of the RFS, ethanol has more often than not been costlier than gasoline, but that is not the case now, so allowing more ethanol could reduce the per gallon price a bit. But keep in mind it is only an additional 5 percent of the cheaper ethanol, so the difference will not be great. Also note that ethanol contains one third less energy content per unit volume, so drivers get slightly fewer miles per gallon with E-15 than E10. Add to that the fact that only some gas stations will choose to carry E-15, and the actual consumer relief will be miniscule, likely well below the White House claim of 10 cents per gallon in savings.
One of the ongoing concerns about the RFS is the so-called “food versus fuel” issue, which is particularly salient today. Most of the feedstocks for biofuels are food sources, chiefly corn for ethanol production but also soybeans for biodiesel. Attempts in the RFS to shift production over time to primarily non-food cellulosic biofuels have been a flop. In recent years, the RFS has used nearly 40 percent of America’s corn crop.
Thus, any increase in biofuels use takes away from food supplies. Even before Russia’s invasion of Ukraine, corn prices were at multi-year highs. And at this point, it seems that prices have nowhere to go but up now that Ukraine, one of the world’s major grain producers, won’t have much of a crop this year, and Russia’s output may also be down.
With inflation at 40-year highs, the president’s announcement may just be trading a modest reduction in gasoline price inflation for an increase in food price inflation that could have more serious consequences around the globe.