TCS Daily

Corn Cartel

By Duane D. Freese - March 20, 2002 12:00 AM

California, ever the trendsetter, again faces troubles that presage dangers to the rest of the nation - all thanks to legislative and administrative efforts to bolster a special interest.

Last week, California Gov. Gray Davis ordered a year's delay in implementation of his 1999 order banning the oxygenate MTBE from gasoline. Davis originally ordered the ban because MTBE was polluting state water supplies.

Davis moved on the heels of a state-funded study that found the ban, if implemented in January, could hit drivers with $3 a gallon gasoline.

"If I could snap my fingers and make MTBE go away tomorrow, I would," Davis huffed. "But we've seen this movie before, and I am not going to allow Californians to be held hostage by another out-of-state energy cartel."

What cartel is that? Well, if aimed at the oil and natural gas industry, Davis' remark would be off target. But if his intention were to point fingers not at Texas or the Middle East, but at the Midwest, he'd have a good case to make.

Corn Cartel

The Corn Belt -- headed by its primary salesman, Archer Daniels Midland -- is banging the drum for a corn liquor version of MTBE, ethanol. It began doing so back when the federal government first mandated the use of oxygenates in gasoline for communities with smoggy air with the Clean Air Act of 1990.

That act didn't get farmers everything they wanted, basically because MTBE - made from natural gas - was far less volatile and water soluble, and thus easier to transport and use as an oxygenate, than ethanol.

Only problem is MTBE tends to be persistent when leaked into the environment, as it has been by some of the decrepit underground storage tanks at many gas stations. While no studies demonstrate a link to cancer in humans from ingestion of the small amounts of MTBE that was found, even in light doses the additive smells like turpentine and can taste just about as bad. Corn-based ethanol, meanwhile, sounds, oh, so natural, (if you can forget about fetal alcohol syndrome and the fact that in large quantities it is a proven carcinogen).

Blessed with those advantages, in recent years, the ethanol lobby has spent a lot of its time trying to get MTBE banned, with great success.

In addition to the California ban, the U.S. Senate earlier this month passed legislation sponsored by Majority Leader Tom Daschle that would ban MTBE. Oddly, the legislation, at the same time, would lift the oxygenate requirement, but make that otherwise sensible move meaningless by mandating a tripling of ethanol use by refineries - to 5 billion gallons a year - by 2012.

And what will that do? Well, it will put a smile on the face of ADM stockholders, no doubt. California's one-year delay cut analysts' stock price forecast for ADM's by about 4% this week. Getting a bigger guaranteed market would give it a boost. And farmers, well, they would share in the money, too, but only if corn prices rise above $1.89 a bushel, which is the floor of federal price supports under which they now lie.

But every dollar the farmer makes will come from the food industry or consumers. Every gallon of ethanol produced will cost taxpayers 50 cents in price supports and money taken from highway tax payments (no highway taxes are collected on the ethanol component of gasoline). And every gallon used will cost drivers about 3% of their mileage.

Worse than that, ethanol, supposedly added to gasoline to make the air cleaner, will actually make it smoggier, according to the National Research Council of the National Academy of Science, the U.S. Environmental Protection Agency and the Northeast States for Coordinated Air Use Management (NESCAUM). And ethanol's addition to gasoline won't prevent gasoline from escaping from those decrepit underground storage tanks. Indeed, if it is released with gasoline, the ethanol will further its spread - only you'll drink it without knowing it.

Perhaps, that's why Sen. Daschle gives up the preposterous premise that the oxygenate rules were really aimed at cleaning the air and improving public health. If you're going to mandate the spread of a known carcinogen that could create some air quality problems, it's best to avoid the hypocrisy that you're doing so to improve health and the environment.

Instead you sell the ethanol mandate as part of an "energy" program. That's what Daschle argues (even though he steadfastly opposed exploration for oil in the most environmentally friendly way in any portion of the Arctic National Wildlife Refuge). Encouraging farmers to turn their feed corn into auto fuel is just the ticket to greater energy independence, he says.

Only, even in that, some studies find that you get no more energy out of ethanol than the energy you put into growing the corn, fertilizing it, transporting it, distilling it and restransporting it before burning it. What a mockery to public policy making that would be if it later is found that the nation had to import additional oil from the Middle East to produce ethanol from the Middle West.

What's needed instead? An end to the mandates for ethanol or any other oxygenate in fuel would be a good start. Let Uncle Sam set the standards for local air quality if it must, but let state governments decide how they will meet them.

And let science lead. Lawmakers and policy makers have leapt to solutions before they've let science delve into the answers. That's a bad model every time. The precautionary principle so prized by some environmentalists cuts another way - don't mandate answers when you're unsure if the cure will be worse than the disease.

California's water contamination with MTBE provides no reason for Congress to order a ban that could contaminate the air, ground or water pollution with ethanol. No energy cartel, however politically well connected, should dictate to consumers or to states that they take actions detrimental to their economic or environmental interests.

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