Free Our Fuel Markets

Guest post by my former student Jim Vinoski:

For the past year I’ve been reading the complimentary trade journal Ethanol Producer Magazine.  Ethanol production is a close tangent to my business of making beverage alcohol, and fuel ethanol producers often offer manufacturing best practices that can readily be adopted for beverage production.

But I just let my free subscription lapse.  Why?  Because over that year I’ve experienced ever-growing disgust at the naked rent-seeking displayed by the magazine’s editors and contributors.  Every issue features columns which hammer the theme that the US government should mandate ever-greater use of ethanol in our automotive fuel supply.  Here’s one example.

To be fair, today’s fuel ethanol business is largely a creation of the federal government, through the Renewable Fuel Standard (RFS), which requires by law the blending of ethanol into gasoline in specified proportions.  So there’s little surprise if the folks who’ve profited from this regulatory coercion should want to see it continued and expanded. (Readers of Free Our Markets will recall its description of this kind of regulatory capture.) That being said, I struggle to understand the mindset of people who want to make a living by forcing other people to do things they do not wish to do: gasoline refiners to blend into their products ethanol their consumers largely don’t want; gas station owners to refit their equipment to handle higher and higher percentages of corrosive fuel alcohol; automobile, sports vehicle, and lawn equipment producers to redesign their engines to handle the largely unwanted fuel component; and finally, consumers to pay higher prices for lower-energy fuels that might damage any older vehicles they own.  (You can read the details on the technical risks here.)

The articles in Ethanol Producer Magazine have become increasingly shrill in recent months as the EPA, in a welcome exercise of restraint, applied science and common sense, has proposed dramatically lowering the ethanol total the oil companies will be required to blend into fuel in 2014.  This move recognizes that the mandate has driven food costs higher by increasing demand for corn, and that blending at a rate greater than 90% gasoline/10% ethanol (E10) risks seriously damaging older engines. But the writers in the magazine want neither science, nor common sense, nor harsh economic realities to matter.  Unanimously they call for government to force oil companies to purchase and blend ever-higher volumes of fuel ethanol, and force gas stations to sell potentially destructive E15.

What should happen instead is that all government mandates should end.  If fuel ethanol has value to consumers, that demand will be reflected in the marketplace and entrepreneurs will satisfy it.  If not, then the resources currently being expended to make fuel ethanol – people’s time and talent, equipment, and raw materials – will be reallocated to better uses.

The views expressed above are Jim’s alone, and not the views of any company or other business entity with which he is associated.

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