There’s bipartisan consensus that ethanol mandates have been an utter policy failure. But getting rid of them still looks like a long shot.
In 2007, Congress passed the Energy Independence and Security Act. Among other things it created a Renewable Fuel Standard, which was sold as a way to increase renewable fuels.
Behind the environmental veneer, however, was the political clout of the corn lobby. Requiring gas and diesel fuel producers to blend in corn was a boon for that special-interest group. Not so much for the rest of us.
To meet the renewable requirement, oil producers bought renewable credits. Think cap-and-trade for gasoline. Yet instead of producing technological breakthroughs, the program is plagued by fraud and insiders manipulating prices. Who could have seen this coming?
As the Los Angeles Times reported last month, the Environmental Protection Agency has prosecuted more than $500 million worth of fraud involving the credit scheme. One man and his partners collected $42 million in exchange for phony credits. That’s just the fraud the government knows about. Doug Parker, a former director of EPA’s criminal investigation division, told the Times that $500 million in known fraud “means there have been billions of dollars in fraud losses out there.”
That fraud and the cost of those credits have real-world consequences. In January, a Pennsylvania oil refinery filed for bankruptcy, blaming the cost of the credits. Last year, it spent more on credits than on paying its hundreds of employees. The credits don’t add anything of value to the final product. They’re just, as Sen. Ted Cruz put it, a type of “a government license.”
It’s so bad that former Rep. Henry Waxman, a big government California Democrat who championed the program, told the Times, “The law hasn’t worked out as we intended. We made a mistake.”
The problem is, to paraphrase former President Ronald Reagan, that government programs are the nearest things to eternal life that we’ll see on Earth.
“You are fooling yourself if you think this law was ever passed in the first place for its environmental benefits,” University of Illinois professor Scott Irwin told the newspaper. “The drivers of the Renewable Fuel Standard have always been farm interests that have had decades-and-decades-old goals to expand their markets and the demand for farm commodities. That is the driving political impulse. It always has been.”
The solution is obvious. Repeal the program. The federal government doesn’t exist to enrich Iowa farmers or protect Iowa politicians, even if the state holds the first presidential caucus. If ethanol remains price competitive, refineries will use it without the government forcing them to jump through artificial hoops.