The Ethanol Industry and Competition

Growth Energy, an ethanol trade group, released a blog post yesterday titled “In An Open Market, All Fuels Can Compete.”

The blogger writes:

Velasco is right when he says that “competition works.” But we can only compete in a fair and open market where consumers have access to all fuels. Redirecting current U.S. government supports to the build out of blender pumps and flex fuel vehicles will enable consumers to choose an alternative fuel at the pump. With the infrastructure is in place, government supports for ethanol become less necessary.

These are curious definitions of “competition,” and “open market.”

Imagine I were to bake some bread that consumers didn’t enjoy as much as I had hoped.

(1) Then I took advantage of a government law which required consumers to include my bread in about 10-15 percent of their total bread consumption per year.

(2) Then I convinced the government to shell out money for each loaf of bread I produced to encourage grocers to stock my bread.

(3) And I convinced the government to forbid imports from foreign companies who bake bread similar to mine at a lower cost.

(4) Now I want the government to spend money making it easier for me to get my bread to its final sale point.

After all of this, finally my bread can compete fairly with other breads on the market. See how that works? Now replace bread with ethanol and grocers with gasoline stations. This is the ethanol industry.

The ethanol industry benefits from the Renewable Fuel Standard, which requires approximately 10 billion gallons of renewable fuels to be blended into our gasoline each year. They benefit from a tax credit received by the gasoline blenders for each gallon of ethanol blended into our fuel supply. They also benefit from a tariff on foreign ethanol.

And now, in the name of competition they have asked for continued support to pay for infrastructure to encourage the sale of ethanol in gasoline stations. They have suggested mandating, in their Fueling Freedom Plan, that all new cars be made flex-fuel compatible so they can run on E85 (85 percent ethanol, 15 percent gasoline). They then make the bold claim that the increased cost from installing E85 compatible engines will fall entirely on car manufacturers and not at all on consumers. All while sticking their hands in their ears and yelling loudly about supporting competition.

Now, the blogger is right (in one sense) to say that the ethanol industry is being restricted by the E10 blend cap. They are hoping that the EPA will lift this cap to E15 this fall. And it is a curious paradox because the government is mandating that we use all these renewable fuels but the EPA might not allow enough ethanol to be blended into our fuel supply to meet this mandate.

However, asserting that Growth Energy supports any form of competition or market forces is laughable. And implying that government is holding back their industry whileignoring the fact that other government laws support a huge percentage of their industry is dishonest. If the Energy Act of 2007 didn’t require billions of gallons of ethanol to be blended into our fuel supply, consumers wouldn’t be choosing high percentage blends of ethanol. Ethanol would likely remain as an octane booster and in low percentages (under 10 percent) per each gallon of gasoline.