Those who thought Big Oil rules a White House run by former oilmen George W. Bush and Dick Cheney may have underestimated the high-octane political power of King Corn.
The Bush administration last month gave ethanol, and the corn growers and processors who make it, a huge boost by denying California a waiver that would have freed the state from having to use an oxygenate, such as ethanol, in its cleaner-burning gasoline. An unlikely collection of oil companies and environmentalists had fought to opt out of the requirement to use ethanol.
Independent scientists in government-funded studies have concluded that ethanol blended into gasoline does nothing to clear smoggy skies. Though touted as a homegrown renewable fuel, ethanol plays no significant role in reducing U.S. reliance on imported oil.
It is expensive and difficult to make and transport, and it costs hundreds of millions in tax subsidies annually.
But whatever the environmental and economic shortcomings of ethanol, they are unlikely to deter efforts to save family farms while furthering the interests of major corn processors such as Decatur-based Archer Daniels Midland Co.
In addition to President Bush, ethanol’s biggest champions include Sen. Tom Daschle (D-S.D.), now the Senate majority leader, and House Speaker Dennis Hastert (R-Ill.). Both lawmakers weighed in against allowing California to skip ethanol.
That lineup made it clear that the ethanol decision wasn’t a matter of Republican policy as much as it was an issue that pitted farm states against oil states, with the farm states grabbing a clear victory.
Bush’s action opens a huge new market for the corn-derived fuel. The only alternative, methyl tertiary butyl ether, or MTBE, has been found to cause pollution in groundwater, and California has decreed that it be phased out by December 2002.
But the decision is bigger than California.
Several Northeastern states, including Connecticut and New York, also have moved to ban MTBE and plan to seek similar waivers.
The administration’s California decision makes it likely that the entire country may have to rely on ethanol in areas where oxygenates have been required.
Ethanol and pollution
Bush made his decision on California’s waiver despite the fact that five months ago, the U.S. Environmental Protection Agency issued a 33-page draft report concluding that California air would be cleaner if the ethanol requirement were dropped.
The report, obtained by the Tribune, concluded that requiring the use of ethanol in the summertime would increase two primary chemicals that lead to smog: nitrogen oxides and volatile organic compounds. The reason is that corn-derived ethanol, when mixed with gas, makes gas evaporate faster, releasing smog-causing chemicals in the air.
And despite Bush’s recent assertions in Iowa that ethanol reduces the nation’s dependence on foreign oil, the General Accounting Office reported in 1997 that the use of ethanol, which is reliant on tax incentives, is far too small to have such impact.
The Clinton administration, for which California represented an important constituency, can be faulted for dodging a tough decision on the oxygenate question.
On the other hand, the Bush administration’s action can also be cynically interpreted: write off California and throw a sop to the Midwest. Furthermore, it shows Bush backpedaling on his advocacy as a presidential candidate of local control and a reduction of dictates from Washington.
Some analysts think that’s too simple an explanation, that maybe the petroleum industry and the big oil-producing states, namely Bush’s adoptive state of Texas, are getting something out of it too.
“Given the [oil industry’s] mild reaction, it seems they weren’t so sad to see this happen,” said Bill O’Grady, an analyst with A.G. Edwards & Sons in St. Louis. “I think it’s a strong possibility that the oil companies may actually like boutique fuels. Even if you assume normal ration profit maximizing behavior, these boutique [fuels] reduce the amount of competitors and make it easier to make a profit.”
Seemingly lost in all the corn euphoria, critics say, is ethanol’s role in pushing up the costs of refining gasoline, costs that are passed on to consumers in the form of higher prices at the pump. The reality is that boutique fuels isolate markets, making them more vulnerable to supply shortages and resulting high prices.
Some of the politicians who have been most outspoken about gasoline price spikes in the Midwest are among the most ardent ethanol supporters, including Hastert and U.S. Sen. Dick Durbin (D-Ill.).
Most consumers baffled
So far, consumer ire has not been turned on them.
In part, that’s because the case that ethanol helps jack up gasoline prices is complicated and little understood by consumers.
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“I’m amazed that the Illinois delegation hasn’t been more concerned,” said A. Blakeman Early, environmental consultant to the American Lung Association.
“Why they think there aren’t going to be problems with ethanol not being in the right place at the right time for fuel needed for Chicago is a mystery to me,” Early said. “Given that Chicago’s gasoline prices are already very high, you can see what the risk is here. Because if you ain’t got the ethanol, you can’t sell the fuel.”
Even if ethanol supplies are readily available, the more complicated process required to make the blend stock also drives up costs.
Refiners have to remove huge quantities of heavy gasoline components, namely butane and pentane, to accommodate the ethanol.
In other words, there is less gasoline in the gasoline, and while the extracted butane and pentane can be sold separately as chemical feed stocks, they command a much higher price when they are a part of gasoline. About 7 percent of the gasoline is lost in this process, a deficit that petroleum industry consultants say is enough to drive up prices.
For example, in the late 1970s there was a 7 percent reduction in world oil supplies that caused the price of crude oil to jump from $12 a barrel to $30 a barrel.
Cost in billions
Bottom line, the process adds 5 cents to the cost of a gallon of gas, according to petroleum industry chemists. About 15 billion gallons of gasoline are sold in California each year. At $2 a gallon, that’s an additional $750 million cost to the consumer. Then there’s the matter of gas mileage, which oxygenates cut by almost 3 percent, for an additional cost of 5 1/2 cents a gallon.
Now you are talking about $1.5 billion in additional costs from the lack of the waiver, consultants say.
Second, a huge marketing complex has arisen to trumpet the benefits of ethanol. And supporters adhere to a line not easily diverted by critical studies.
“Is ethanol good for farmers? Yes. Should that be considered? Absolutely. It can’t all be just a bunch of guys in white lab coats coming up with theoretical postulations not understood by anyone who doesn’t have 12 years of postgraduate schooling,” said Gregg Durham, spokesman to Illinois House Minority Leader Lee Daniels (R-Elmhurst).
The National Research Council, a private, non-profit institution hired by the EPA, found no environmental payback to ethanol or MTBE.
But Illinois Gov. George Ryan and the governors of Kansas and Iowa, for example, seized on the study’s shred of good ethanol news–that it reduces carbon monoxide–in a 1999 letter to the White House.
Because of that, they claimed the study advocated crediting ethanol-blended gasoline with more lenient standards on volatility–important to the ethanol industry because ethanol makes gasoline evaporate faster, putting more smog-causing compounds in the air.
The study made no such recommendation, said the scientist who headed the National Research Council study.
“It’s a really bizarre turn of what we actually said,” said William Chameides, an atmospheric sciences professor at the Georgia Institute of Technology. “What we actually had to say was having oxygen in the fuel made no difference in terms of air quality benefits during the summer.”