Last week, the Environmental Protection Agency (EPA) denied Texas' request for a temporary reprieve from federal ethanol mandates.
Under the energy law signed late last year, 9 billion gallons of ethanol and biodiesel must be blended into gasoline between Sept. 1, 2008, and Aug. 31, 2009, to meet a national Renewable Fuels Standard. Texas Gov. Rick Perry (R) sought to reduce that to 4.5 billion gallons, on the grounds that the mandate is hurting livestock producers and increasing food costs.In denying the request, the EPA explained that it did not believe the mandate was having too great an impact on food and fuel prices, and that whatever costs the mandate imposed were outweighed by the mandate's benefit. The ethanol mandate "is strengthening our nation's energy security and supporting Americans' farming communities," Administrator Stephen Johnson explained. Funny thing, I thought the EPA's job was environmental protection, not subsidizing farmers or promoting something as nebulous as "energy security." The mandate cannot be justified on environmental grounds, however, as the ethanol mandate does more harm than good.
Texas Governor Rick Perry is none too happy with the EPA's decision. He writes in today's WSJ:
the diversion of our corn supply from grocery stores to gasoline pumps has caused the price of corn to spiral out of control. Corn prices were once driven by market forces. Today they are artificially driven up by a government mandate. In 2004, before the mandates were imposed, the cost of corn hovered around $2 per bushel. Now it is close to $8 per bushel.This is hardly the EPA's first bad, anti-environmental effort to prop up the ethanol industry. During the Clinton Administration, the agency sought to impose a de facto ethanol mandate in the guise of a "renewable oxygenate" standard under the Clean Air Act. The problem was, the Clean Air Act did not provide the agency to impose such a requirement -- and a good thing too, as the mandate would have done more environmental harm than good.This is driving up the cost of staple food items at the grocery store. And it is also driving up the price of corn-based feed, devastating the livestock industry to the point that Texas cattle feeders have been operating in the red since 2007. . . . .
Denying Texas's request is a mistake that will continue to force families to bear a heavier financial burden to put food on the table than necessary and harm the livestock industry.
Supporters of the ethanol mandate have their hearts in the right place if they want to diversify this nation's fuel supply. But artificially propping up an industry to the detriment of the vast majority of Americans is bad policy. And that's what this mandate does.
The Clinton Administration's effort could be ascribed to the ethano-philia common among D.C. politicians who hope to curry support in the farm belt and bolster their reelection efforts. But the Bush EPA has no such an excuse. No crass political motive appears to explain the Agency's decision. Rather, it seems, the Bush EPA actually believes in this bad policy.
I wrote about the mandate in this piece about rent-seeking in environmental policy. Here is what I said then:The D.C. Circuit's decision invalidating the mandate is here.
JHA
Going by excerpt from Prof. Adler's Cato essay, I could agree that "30%" of the 1990 act was intended to be a giveaway to ethanol producers...but it didn't work.
MTBE, derived purely from petrochemicals, was the oxygenate of choice until the early 2000s.
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Or Conoco, which successfully lobbied for MTBE as the oxegenate.
No, simple economics means that if there is no more ethanol for fuel, the cropland dedicated to producing the ethanol must simply be taken out of production until the supply is reduced to the point that it drives up the price to where the farmers can make money. Now taking cropland out of production may be a good thing in and of itself, but it's not going to get you $2/bushel corn...
I disagree. The Bush admnistration and its agencies believe in the status quo, whatever that is. Energy is something this administration has always lacked. Pun intended
Are you attempting to use an approx. 100%-150% increase in the input of a product to justify an 400% increase in the cost of said product?
JHA
In other words, it was a congressional effort. EPA simply neglected to overrule congress. I agree that it may be bad law, and I agree that we would be better without it, but I don't think EPA should be in the business of overrulling laws simply because I (or someone else) happens to disagree with it. Its not clearly an environmental issue that the EPA should be involved with, and its not clearly the case that the law causes more harm than good (and specifically more environmental harm than economic/policy/social good), so why should EPA be involved at all?
Or, again more simply: sometimes democracies pass bad laws. Everytime a bureaucracy neglects to overturn a law (even one that I dislike), the democrat in me smiles.
Sk
I believe the enabling legislation had a provision that allows the EPA to waive the mandate if it was having too much of a negative impact.
Jon, do you really think that the crass political motives that provide such firm support for ethanol end at the EPA?
Ethanol mandates are a giveaway to farm states, many "Red" states (don't forget Bob Dole's long leadership on ethanol). Here is a guess at ongoing "crass political motives": the Republicans already have Texas wrapped up for the fall elections, and are looking not to shoot themselves in the foot in other states with strong agricultural lobbies (especially as Obama clearly supports corporate welfare).
It is true that the governor does not cite other reasons that also contributed to the price increase. That is typical of political speeches.
However he did not claim that the subsidies were the only factor driving the cost increase... he stated that the subsidies happened, then the cost increase happened, implying that the subsidies were a cause of the increase. All of which are true.
You cannot disprove his claim merely by advancing an alternate explanation, especially if you don't bother to make a case that that alternate explanation accounts for the entire increase... and as other commenters have pointed out, your explanation does not account for even a majority of the increase.
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