The Ethanol Mandate Needs to Be Reformed

I have written before about the market manipulation going on in ethanol, a classic case of Wall Street speculators driving up prices for everyone else, and using government subsidies to do it. Beyond the market manipulation, though, progressives like me are quickly coming to the conclusion that the entire Renewable Fuel Standards (RFS) program that mandates more ethanol in the nation's fuel supply may need to be dramatically reformed or even ended. Sold in the beginning as an environmental idea, it has become rife with problems of all kinds, including major environmental concerns, and is now just a fat corporate subsidy and a tool for Wall St speculators to make money off of.

An increasing number of lawmakers realize its demands are unworkable and driving up the price of food and gas. The most recent Member of Congress to pile on is strong progressive Rep. Peter Welch (D-VT), who called the ethanol mandate a "flop" this week and rightfully argued for serious changes to the program. The fact that such a great progressive Democrat is calling for an overhaul to a clean energy law underscores just how flawed the RFS program has become and how badly it needs to be revised.

The ethanol mandate was originally intended to spur the development of renewable energy sources by requiring an increasing amount of ethanol be mixed into the nation's gasoline supply over time. If energy companies such as oil refiners failed to blend enough ethanol into their fuel, they could compensate for the shortfall by buying ethanol credits known as RINs (renewable identification numbers) -- a type of commodity sold and traded in a specialized market.

The problem is that the RFS law now calls for blending more ethanol into the nation's fuel supply than is possible without causing significant problems. (Too much ethanol can damage engines, automakers have warned -- and some car warranties actually prohibit fuels with high levels of ethanol.) These problems have resulted in a discrepancy between the amount of ethanol required under the RFS and the amount of ethanol that can feasibly be blended into gasoline. As a result, RINs credits -- which are the only thing that can make up for this gap -- have suddenly become prized commodities and their price has spiked.

Energy companies that need to buy the RINs credits for RFS compliance purposes have found themselves facing exorbitant new costs that will soon be passed on to consumers in the form of higher gas. Outside observers have said drivers could soon pay up to a dollar more per gallon at the pump.

Food prices could spike as well. As The Hill reported, Rep. Welch "said that the renewable fuel standard...drives up the cost of corn, which ends up raising prices for dairy farmers in his state as well as other livestock producers."

It's clear that the ethanol mandate is no longer working for consumers and must be altered dramatically. The steady stream of lawmakers coming out against the law is only further proof of this fact. Until something is done, the pain at the pump and in the supermarket will only grow and the calls to repeal the mandate will multiply.

The time for reform is now.