WASHINGTON IS seeing a great fight between two extremely powerful lobbies, Big Ethanol and Big Oil. Neither should win.
At issue is the Renewable Fuel Standard, a huge subsidy meant for companies making all kinds of ethanol but that mostly benefits the least-attractive type, derived from corn. The policy demands that increasing amounts of various sorts of ethanol be blended into the nation’s gasoline supply. Yet, oil companies point out, when Congress last looked at the standard in 2007, estimates of how much fuel Americans would be using by now were much too high. The result today is a legal requirement to blend the same, mandated amount of ethanol into a smaller-than-expected pool of fuel sold, a task for which the country doesn’t have the infrastructure. And that assumes the ethanol industry manages to produce enough of each type of ethanol in the first place, which it hasn’t. The result, oil companies argue, is a “blend wall” that inevitably translates into higher gasoline prices for consumers, since oil firms have to buy special credits to make up for missing the law’s blending targets.
This month the Environmental Protection Agency, which oversees the standard, softened the government’s ethanol mandate somewhat. But even if the blend wall weren’t an issue, the ethanol industry simply doesn’t deserve federal pampering. The industry claims to be environmentally friendly, but credible environmentalists disagree. The industry claims to be helping the United States wean itself off foreign oil, but increasing domestic oil supplies make that less important, and there are better ways to do it anyway. The industry says it has marshaled billions in private investment, but all of that would surely have gone to more economically productive use if the government weren’t tipping the scales so emphatically in ethanol’s direction.
Ethanol backers are right that it’s firmly in the nation’s interest to reduce the amount of oil Americans use, not least because it’s dirty. The answer, though, is not for lawmakers to guarantee a market for an alternative product of their choosing. Instead, Congress should make polluters pay something for the pollution they cause by establishing a reasonable tax on the carbon dioxide contained in oil and other fossil fuels. Without all the congressional micromanaging, the policy would nudge consumers to use less fuel, it would give investors incentive to divert their money to the clean technologies that will do the most good, and it would direct the tax revenue raised to the Treasury, instead of enriching politically favored groups.
If perfecting and using ethanol is an economically efficient way to reduce the transportation sector’s emissions, the industry should prosper under those conditions. Oil companies, meanwhile, would still sell a lot of gasoline for a long time, but they would face consumers less eager to take unnecessary drives or buy gas-guzzlers.
The biggest problem with the carbon tax is that it would be hard to get one through Congress. Fine. Then lawmakers should choose another policy that encourages conservation and innovation without absurd central planning.