-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
By Martin Hutchinson
WASHINGTON, Oct 14 (Reuters Breakingviews) - America&${esc.hash}39;s latest ethanol deal looks much like previous ones. The Environmental Protection Agency&${esc.hash}39;s approval of 15 percent concentrations of ethanol in car fuel may help farm state Democrats, but it does nothing for the environment or the broader economy. Failure by gas station owners and motorists to take advantage of their new permission to burn liquefied corn energy would be the best outcome all around.
The new permission relates only to cars manufactured in 2007 or later. So it will affect only around 20 percent of vehicles on the road. An extension of the mandate to cover cars manufactured between 2001 and 2006 is possible, but the chance of engine damage on such older vehicles is greater. Gas stations will have to retrofit their pumps for the new fuel, at a cost of ${esc.dollar}25,000 per pump, while the majority of automobile warranties, which relate only to the mixture legally mandated at the time of manufacture, won&${esc.hash}39;t cover damage from the higher ethanol content. Thus the new mixture may be unattractive for both motorists and garage owners.
Unsurprisingly, the ethanol content boost is supported by the fuel&${esc.hash}39;s manufacturers and many farmers, who welcome the additional market it brings for their crops. In that way, it should help embattled "blue" Democrat congressmen from farm states. However with the corn harvest smaller than expected, according to Department of Agriculture statistics, and corn prices near record levels, the change risks exacerbating food shortages and inflation.
Certainly, high corn prices mitigate any economic advantage in substituting ethanol for petrol, once government subsidies are stripped out. U.S. corn-based ethanol is subsidized through restrictions on sugar imports and a 45 cent per gallon subsidy for blenders of the fuel. That subsidy expires Dec. 31, but the "lame-duck" session of Congress will presumably extend it because of its political benefits.
Environmentally, too, corn-based ethanol&${esc.hash}39;s benefits are at best marginal; it uses more than twice the land of Brazilian sugar-based ethanol and is six times less energy efficient.
The last few years have seen a surge in congressionally-mandated rent seeking, of which ethanol subsidies are a prime example. Sustainable economic recovery, not to mention natural resources, will require this surge to be reversed. But with the Iowa 2012 presidential caucuses just around the corner, don&${esc.hash}39;t count on that.
CONTEXT NEWS
-- The Environmental Protection Agency on Oct. 13 approved a boost from 10 percent to 15 percent in the amount of ethanol allowed in fuel for cars and light trucks made in 2007 or later. The new fuel will be known as E15. Ethanol groups expect the EPA to approve E15 for cars built between 2001 and 2006 by December 2010.
-- The United States produced 10.75 billion gallons of the world&${esc.hash}39;s 19.53 billion gallons of ethanol in 2009; Brazil, which produces ethanol from sugar cane, was the world&${esc.hash}39;s second largest producer at 6.58 billion gallons.
-- Most U.S. ethanol is made from corn, whose price recently hit a two-year high near ${esc.dollar}6 per bushel after the U.S. Department of Agriculture released unfavorable crop forecasts.
-- Brazilian sugar-based ethanol has a yield of about 800 gallons/acre, with an output to input energy efficiency of about nine to one, whereas U.S. corn-based ethanol has a productivity of about 350 gallons/acre and an energy efficiency of about 1.4 to one.
Reuters news story: US allows more ethanol in gasoline for newer cars [ID:nLDE69D070]
-- For previous columns by the author, Reuters customers can click on [HUTCH/]
(Editing by Rob Cox and Martin Langfield)
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