Ethanol: Trivia contest
Republican gubernatorial candidates Sarah Steelman and Kenny Hulshof are having a big argument about an itty-bitty problem: the new Missouri law that requires ethanol in gasoline.
Since January, the law has required that gasoline sold in Missouri contain 10 percent ethanol, but only when the cost of ethanol is equal to or lower than that of gasoline. In truth, the mandate makes very little difference in the bank accounts of drivers, grocery shoppers or even farmers.
But as a political issue, it’s been a gold mine for Ms. Steelman, who is looking to move up from the state treasurer’s office to the governor’s mansion. She’s been using the mandate as the basis for attack ads against Mr. Hulshof, a U.S. House member from Columbia who supports the mandate. Ms. Steelman, who hails from Rolla, has been pounding the issue in heavily Republican southwest Missouri, where the rocky terrain is far more hospitable to raising livestock than to growing grain.
“One of the first things I would do as governor is repeal the mandate,” says Ms. Steelman. That draws cheers from livestock farmers who blame ethanol plants for driving up the price of corn and other animal feeds.
Mr. Hulshof’s family raises corn and soybeans on its southeast Missouri farm, and corn farmers have been big supporters of ethanol. He credits ethanol with keeping gasoline prices down.
There’s truth in both positions, but just a little.
Early this week, ethanol was about 50 cents per gallon cheaper than gasoline on the commodities markets. The difference grows to nearly a dollar when a federal credit is figured in.
The price spread activates the ethanol mandate throughout the state, which knocks a few cents off the price per gallon at the pump. But ethanol produces less energy than gasoline, so you need to burn more of it to drive your car the same distance that you would on pure gasoline. That cancels out part of the benefit. Bottom line: For drivers, there’s probably only a tiny savings.
Getting rid of the mandate wouldn’t mean an end to ethanol in Missouri. Even before the law was enacted, gasoline distributors in the St. Louis area (where about 40 percent of the state’s gasoline is sold) were adding 10 percent ethanol to their gasoline blends to help meet the region’s clean air standards. Outside the state’s big cities, distributors probably would add ethanol to their gas to keep prices competitive, even if the mandate didn’t exist.
“Given current petroleum prices, we’re going to see more biofuels anyway,” says Pat Westhoff, co-director of the Food and Agricultural Policy Research Institute at the University of Missouri.
Demand for corn from ethanol refining plants is one factor pushing up the price of the grain, but it’s not the only one. Rising demand for food overseas and higher production costs (because of the higher cost of oil and petroleum-based fertilizers) also play a major role.
Some of those costs get passed to consumers, but not much. Corn prices doubled from 2004 to 2007. But that added less than one-half of 1 percent per year to the cost of food consumed at home, according to a recent Texas A&M study.
Finally, consumption in Missouri represents only a tiny fraction of the national market in ethanol, feed and food. If Missouri dropped its mandate, “the effect [on pricecs] would be very small,” says Mr. Westhoff.
Our state has many serious problems, but the ethanol mandate isn’t one of them. Close to 800,000 people lack health insurance. Our public schools need improvement. Our state universities are unimpressive and overpriced. Our highway maintenance and construction program soon will grind to a halt for lack of funds. Our unemployment rate is above the national average.
Serious candidates for governor should spend more time addressing the state’s serious issues.
The production of ethanol has a very minimal effect on the price of corn. The current fiscal policies of the federal government, the weak dollar, and fund-money speculation is what has driven up the price of corn. If ethanol was the culprit, then why are all of the other commodities prices also high (i.e. oil, precious metals, gasoline, soybeans, etc).
Another misconception is that the ethanol production facilities are not the recipients of the $0.51/gallon tax credit for blending ethanol into the gasoline. The tax credit is applied when the ethanol is blended, and guess who does the majority of gasoline blending…..you guessed it, BIG OIL!
Repealing the mandate will without a doubt affect the ethanol producer, but it will NOT lower the price of corn. However, it will likely raise the price of gas at the pump. Ms. Steelman, please be careful for what you wish for!!!!