An ethanol train wreck

By Wall Street Journal

Last update: March 18, 2009 - 3:50 PM

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These days, it's routine for businesses to fail, get rescued by the government, and then continue to fail. But ethanol, which survives only because of its iron lung of subsidies and mandates, is a special case. Naturally, the industry is demanding even more government life support.

Corn ethanol producers -- led by Wesley Clark, the retired general turned chairman of a new biofuels lobbying outfit called Growth Energy -- want the Obama Administration to make their guaranteed market even larger. Recall that the 2007 energy bill requires refiners to mix 36 billion gallons into the gasoline supply by 2022. The quotas, which ratchet up each year, are arbitrary, but evidently no one in Congress wondered what might happen if the economy didn't cooperate.

Now the recession is hammering demand for gas. The Energy Information Administration notes that U.S. consumption fell nearly 7% in 2008 and expects another 2.2% drop this year. That comes as great news for President Obama, who is achieving his carbon-reduction goals even without a new carbon tax, but the irony is that the ethanol industry is part of the wider collateral damage.

Americans are unlikely to use enough gas next year to absorb the 13 billion gallons of ethanol that Congress mandated, because current regulations limit the ethanol content in each gallon of gas at 10%. The industry is asking that this cap be lifted to 15% or even 20%. That way, more ethanol can be mixed with less gas, and producers won't end up with a glut that the government does not require anyone to buy.

The ethanol boosters aren't troubled that only a fraction of the 240 million cars and trucks on the road today can run with ethanol blends higher than 10%. It can damage engines and corrode automotive pipes, as well as impair some safety features, especially in older vehicles. It can also overwhelm pollution control systems like catalytic converters. The malfunctions multiply in other products that use gas, such as boats, snowmobiles, lawnmowers, chainsaws, etc.

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