Will Senator Dianne Feinstein (D-CA) intercede with Sacramento politicians to protect the California marketplace for pickup trucks, minivans, and SUVs? Senator Feinstein is not widely known for her devotion to free market economics and opposition to big-government mandates. Neither is Senator Hillary Rodham Clinton (D-NY). But in the ongoing clash over national energy policy, Senators Feinstein and Clinton have staked out an anti-corporate welfare position that's to the right of President George Bush. The debate in the U.S. Senate boils down to this: Should government mandates or consumer choices determine the profitability and market share of ethanol (corn liquor) in the nation's fuel supply? More simply put, should government pick the pockets of millions of motorists to enrich agribusiness giant Archer Daniels Midland and seven other big ethanol producers? The Senate energy bill contains a “renewable fuels” mandate that would require states to almost triple the amount of ethanol used in gasoline (from about 1.7 billion gallons in 2002 to 5 billion gallons in 2012). Although popular with many Senate Democrats, (including Majority Leader Tom Daschle (D-SD)), Feinstein and Clinton — joined by Barbara Boxer (D-CA) and Chuck Schumer (D-NY) — vehemently oppose the mandate. The foursome offers several telling objections.
- The ethanol mandate amounts to a “new gas tax” that could raise fuel costs 9.6 cents per gallon in California, 7.1 cents per gallon in New York, and 4 cents per gallon even in the Midwest states where 98 percent of the nation's ethanol is produced.
- The mandate is flagrant corporate welfare, transferring billions of dollars from working families to a handful of big companies.
- The mandate is environmentally dubious. Although ethanol is an “oxygenate” that, when blended with gasoline, reduces emissions of carbon monoxide, California does not need to increase its modest use of ethanol to meet federal clean air standards. More critically, ethanol contributes to smog and enhances the ability of toxins found in gasoline (such as benzene, a carcinogen) to seep into ground water supplies. Arbitrarily tripling the amount of ethanol in motor fuel can only increase the risks associated with its use.
- The mandate rigs the market against newer, smarter ways of reformulating gasoline and producing cleaner fuels. Starting in 2013, the mandate requires refiners to increase the 5 billion gallon target to guarantee ethanol a fixed market share as the nation's overall fuel usage expands. Regardless of what consumers demand, or what superior alternatives industry invents, refiners will still have to make, and service stations will still have to sell, massive quantities of ethanol-blended gasoline.
- The mandate is “highway robbery.” Because gasoline made with ethanol is exempted from 5.4 cents of the federal motor fuels tax, tripling the sale of ethanol will diminish highway trust fund revenues by $7 billion over the next nine years. States will not be able to afford new roads, bridges, and other critical infrastructure projects needed to relieve congestion and improve auto safety.
In the floor debate, Senator Clinton warned her colleagues that, if enacted, the ethanol mandate will come back to bite them: “If the average American consumer tunes in on this debate and realizes what is happening, there will be a revolt. I dare predict that voting for this bill, which will raise gas prices in 45 of our States, will be a political nightmare for people who end up voting for it. Higher gas prices at the pump, reduced Federal assistance for much needed transportation projects, possible negative air quality, and public health impacts, to say nothing of raiding the Federal Treasury to give this giveaway to these large producers, makes it is impossible to understand why any pro-consumer, pro-health, pro-environment, anti-government mandate Member of this body would vote for this provision.” Actually, it is easy to understand why so many lawmakers support the mandate. The ethanol lobby is more than happy to spend hundreds of thousands of dollars in campaign contributions to get back billions in corporate welfare subsidies. ADM's soft money donations — $250,000 to Democrats and $395,000 to Republicans, in the last election cycle alone — buy lots of “access” to policymakers in Washington, DC. From Capitol Hill to Sacramento But if the ethanol mandate is bad for California, a bill passed by both the California Assembly and Senate, but not yet signed into law by Governor Gray Davis, is worse. AB 1058 will require the California Air Resources Board (CARB) to mandate “maximum feasible” reductions in carbon dioxide (CO2) emissions from new cars and light trucks. This bill has the potential not just to foist ethanol upon unwilling consumers but to price and regulate millions of Californians out of the market for new large sedans, pickups, minivans, and SUVs. Supporters boast that AB 1058 will accomplish at the state level what Congress and the President have “failed” to do at the national level, namely, impose stricter Corporate Average Fuel Economy (CAFE) standards on new cars and light trucks, thus beginning to implement the Kyoto Protocol, the non-ratified UN global warming treaty. Why is this worse than the ethanol mandate? According to the Energy Information Administration, Kyoto's restrictions on carbon-based fuels will drive up the average price of gasoline 14 cents to 66 cents per gallon — considerably more than the increases Senator Feinstein fears from the ethanol mandate. Moreover, Kyoto will increase electricity prices by 20 to 86 percent and reduce GDP growth by 2 percent annually. Kyoto-style energy suppression policies are the last thing Californians need as they struggle to recover from a recession and an electricity crisis. In addition, whereas the safety risks from boosting ethanol usage are hypothetical, the risks from boosting CAFE standards are demonstrable. The simplest way to increase fuel economy — and to reduce CO2 emissions from cars — is to make cars lighter and smaller. But decades of research confirm what common sense tells us: Big cars are safer. The more your car resembles a tank rather than a go-cart, the more protection it provides from collision forces. The size and weight reductions induced by CAFE added 1,300 to 2,600 fatalities to the nation's highway death toll in 1993, according to a recent study by the National Research Council. Mandating stricter standards will put even more motorists at risk. AB 1058 is quite open ended about the means CARB may employ to reduce vehicular emissions of CO2. However, a recent CARB and California Energy Commission (CEC) joint report entitled “Task 3: Petroleum Reduction Options” reveals the kinds of measures California regulators are thinking about. One option presented in the joint report is “expand the use” of hybrid gas-electric vehicles. Sticker price per vehicle: anywhere from $9,500 to $14,700 more than a comparable gasoline-powered car. Another option is requiring a 50-cent increase per gallon in fuel taxes. Still another is a “feebate” program that would give $3,500 bonuses to motorists who purchase low-CO2 emitting cars, paid for by $3,500 fees collected from motorists who purchase high-CO2 emitting cars. What kinds of vehicles emit the most CO2? The very ones most consumers want: large sedans, pickups, minivans, and SUVs. Like the ethanol mandate, AB 1058 is environmentally challenged. Today's new cars and light trucks emit 90 to 97 percent less pollution than their 1960s predecessors, and tomorrow's vehicles will be cleaner still. Any policy that appreciably slows down auto fleet turnover — the replacement of older cars with newer models — hinders pollution control. By increasing the cost and/or reducing the utility of new cars, AB 1058 could encourage motorists to hang on longer to older vehicles — a consumer response known as the “Jalopy Effect.” Like the ethanol mandate, many of the options reviewed in the joint CARB-CEC report reduce gas tax receipts and, thus, the trust fund revenues available for infrastructure projects. For example, over the 10-year life of a fuel cell vehicle, the highway program loses $1,653 in revenues – substantially more on a per vehicle basis than the losses arising from the ethanol mandate. Of course, AB 1058 supporters will say that we must pay any price and bear any burden to save the planet from global warming. That's easy for them to say, since half the Members of the California Legislature drive gas-guzzling pickup trucks, sedans, and SUVs-heavily subsidized at taxpayer expense. The Legislature buys cars for its members, and pays a hefty share of the cost. “For example,” explains a recent Los Angeles Daily News article, “senators can choose to pay off their cars in two or four years, with the state paying up to $500 a month under the two-year plan and up to $350 under the four-year plan.” Hillary Clinton's warning about a “political nightmare” for lawmakers who end up voting against American motorists needs to be heard in Sacramento, not just Washington, DC. Governor Davis has not yet indicated whether he will sign or veto AB 1058. Can the senior Senator from California pull Governor Davis and the Legislature back from the brink? Don't bet your SUV on it: Senator Feinstein in March supported a provision to increase by almost 50 percent the CAFE standards for new cars and trucks.