"B" Side Will Get More Air Time -- May 29, 2015

Updates

June 8, 2015: great op-ed on the ethanol scam in today's WSJ. It begins:

Mark down May 29 as the date when the last tether connecting ethanol subsidies to reality came unhitched, and the fuel made from corn and tax dollars achieved a kind of postmodern perfection. On the same day the Obama Administration conceded that the U.S. auto fleet cannot practically consume enough ethanol to fulfill Congress’s quotas, it announced a new program so motorists can consume more ethanol.

In other words, the point of the subsidy is the subsidy, and therefore the U.S. must subsidize ethanol because the U.S. already subsidizes ethanol. Once in place, such self-referential mandates appear to be eternal.

The 2007 energy bill’s renewable fuel standard requires certain annual volumes of ethanol to be bootlegged into the U.S. gasoline supply, but for years the mandate has crashed into the “blend wall.” Ethanol is corrosive, and gallons of conventional gas with concentrations of the stuff higher than 10% damage the engines and fuel systems of most of the cars and trucks on the road today.

The problem is that Americans aren’t guzzling enough gallons to achieve Congress’s mandates at E-10—that is, 10% ethanol, 90% gas. Either we need to drive more in less fuel-efficient cars, consuming more overall. Or the concentration of ethanol in a given gallon needs to rise, risking accidents, breakdowns and valve, pump, cylinder and injector replacements rarely covered by consumer warranties. For model years 2001 through 2011, no car makers allow blends above E-10, and a little fewer than half say it is safe to fill up with E-15 for the last two model years.

To avoid filling this ethanol junkyard but also to avoid displeasing the corn lobby, the Environmental Protection Agency simply refused to finalize the quotas for 2014 and 2015. So the EPA has finally admitted in a regulation that “due to constraints in the fuel market to accommodate increasing volumes of ethanol, along with limits on the availability of non-ethanol renewable fuels,” the volume targets “cannot be achieved.”

The EPA thus proposed quotas that are 3.75 billion gallons below the statutory minimums for 2014, 2015 and 2016.

Renewable Fuels Association president Bob Dinneen raged that this rare EPA recognition of the real world “eviscerated the program’s ability to incentivize investments in infrastructure that would break through the blend wall.” 

Original Post

 

It took a few minutes to sort out what I thought I had heard on the radio. I heard the story on the "B" side but I did not hear the story on the "A" side. Folks who grew up with 45 rpm vinyl will know what I mean.

Anyway, on the "B" side, the EPA will cut ethanol mandates. Bloomberg Politics is reporting:

The U.S. Environmental Protection Agency on Friday proposed cutting quotas for the use of renewable fuels, lowering the mandate for corn ethanol this year and next from the 15 billion gallons set by law.

The decision, more than a year overdue, is a retreat from aggressive goals set by Congress almost a decade ago to promote American-grown alternatives to fossil fuels obtained from hostile nations. The program is backed by corn growers who sell almost a third of their crop to fuel producers, and opposed by the oil industry.

More than a year overdue, the proposal is made halfway into the "new" year. Whatever.

On the "A" side, President Obama pledges $100 million of tax money to be used to support the ethanol initiative. Bloomberg Politics is reporting:

The Obama administration is set to pledge $100 million Friday to expand the use of special fuel pumps that allow drivers to blend more ethanol into their gasoline, according to people briefed on the announcement.

The U.S. Department of Agriculture, which has long championed these so-called blender pumps, may unveil the plan on the same day that the Environmental Protection Agency announces quotas for the use of renewable fuels. With ethanol makers facing a possible cut in their quota below the statutory level of 15 billion gallons, the grant program will let the administration of President Barack Obama demonstrate that it still supports the fuel, which in the U.S. is produced mostly from corn.

The pledge was reported yesterday, even before the EPA reported the new quotas (see side "B" above).  $100 million is a rounding error in a multi-trillion dollar economy but that's why it's reported in Bloomberg Politics.

"A" side:

Reason To Believe, Rod Stewart
"B" side:

Maggie May, Rod Stewart
It depends on which "DJ" you listen to whether you hear the "B" side, or the "A" side. On conservative talk radio, we heard the "B" side; elsewhere it was the "A" side with regard to ethanol.

In this case, the "B side will be the bigger hit, just as it was with the Rod Stewart vinyl above.