The Great Ethanol Debate: Status Quo Or New Paradigm?

Robert: What are some examples of these regulator barriers? I am all for removing barriers and providing incentives. I am against federal mandates that can wax and wane, but which impact the ability to make decisions on long-term capital projects.

Doug: Agree on the risk of hot-one-day-cold-the-next requirements. Just ask the utility industry and how the renewable portfolio requirements have whipsawed them.

But we do need quality controls on gasoline. I sense you do fall into the trap of forgetting this is an environmental program — Congress adopted a renewable policy because it protects public health. Energy security and jobs/economic stimulus/rural support are additional benefits. And not incidental benefits — they are part of the program.

Robert: Yes, there have always been these sorts of controls on gasoline. And, there should be. The objection I have is this one-size-fits-all mandate that ethanol is required to meet these specification. I maintain that sometimes this may be the case, but sometimes it isn’t.

And can you definitively say that ethanol has been an unqualified environmental success? Has anyone done a comprehensive assessment of all the environmental impacts – good and bad – of this massive increase in ethanol production? I am talking about everything from the change in air pollutants in congested cities to the impact on water quality in the Midwest. There are many peer-reviewed studies that focus on the negative environmental impacts as you know. I am just wondering if anyone has ever tried to objectively summarize the overall impacts in one comprehensive study.

Doug: We certainly have studies as well. Working with the Urban Air Initiative we have several independent new studies from the University of California Riverside, North Carolina State University, and an extensive meta-analysis showing significant emission improvements with higher ethanol blends. We have submitted extensive comments on the deficiencies in EPA modeling, both in terms of lifecycle analysis and emissions. I’ll concede that is an ongoing battle of studies but our argument is the manner in which these studies and tests are conducted does not reflect how fuel is blended in the real world.

Let me come back to the list of regulatory items that would be game changers, but first I would ask you and others who continually say the RFS requires obligated parties to blend ethanol into gasoline to STOP SAYING THAT. There is no such requirement in law, ethanol is simply one of the choices available and one they choose. Biodiesel, renewable natural gas, butanol, and even renewable methanol would be eligible. Corn ethanol shouldn’t have to apologize for being the most cost-effective way to comply with a renewable standard. Oil companies supported the RFS for that very reason — so they could choose when, what, where and how to use renewables.

Robert: I have not actually seen much support from the RFS from the oil industry. Even Valero, which owns ethanol plants, has spoken out against the costs imposed on them under the current system. I think they are more than happy to have ethanol as an option to meet their octane requirements, but they oppose being told they must blend X% ethanol and they must bear the financial burdens associated with that.

I am extremely sympathetic to the plight of rural America, having grown up on a farm there. But I vehemently disagree with the way the ethanol industry is structured. It has always been a dependent of the federal government. I don’t know why the ethanol industry has been so content to rely on federal mandates to create their markets. I have warned since the beginning that this wouldn’t give them long-term prosperity. The status quo has put us in the position where the answer seems to be “We need more status quo.” That, in my opinion, is not a sustainable solution.

Doug: Well, OK, but in terms of being dependent on the federal government, what other industry that provides benefits to certain sectors and is deemed by every president from Carter to Trump, and Republican and Democratic Congress to be in the public interest then has to sell to its competitors? Does anyone believe the oil industry got where it is today without tax incentives? In corn ethanol’s case the tax incentives are now all gone. And I agree we need to build the industry on a sustainable basis but is a 10-15% share of a 140 billion gallon gasoline market too much to ask for as a base and a backstop? These are job creating, tax generating, food producing, pollution reducing businesses….isn’t it in all our interests to foster that by at least mitigating the risk factors, like not being able to sell your product?

Robert: I think the relative tax breaks of the oil industry versus the ethanol industry are apples and oranges, but that’s an entirely different debate. Let me just say that large portions of the country don’t agree with the arguments you make above. It would appear at the moment that President Trump doesn’t fully agree that the benefits outweigh the costs to small refiners. A federal mandate isn’t a sustainable model. Midwest-driven subsidies and legislation designed to increase ethanol consumption would be because Midwest politics will always support ethanol.

To be continued…

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