Policy Documents

Testimony to the Chicago City Council Committee on Finance on E15

July 28, 2014

Chicago City Council
Committee on Finance
July 28, 2014
Testimony of Taylor Smith
Policy Analyst, The Heartland Institute

Good afternoon, Chairman Burke, Vice Chairman O’Connor, and members of the committee. I thank you all for the opportunity to speak today. My name is Taylor Smith and I’m a policy analyst at The Heartland Institute, a 30-year old nonprofit policy organization based here in Chicago.

As someone who has lived either in Chicago or its surrounding suburbs all his life I can say without equivocation that although I greatly enjoyed the time I’ve spent living in this great city, I did not enjoy paying the city’s higher gas prices. Therefore, I sincerely consider it a noble aim for the committee to consider an ordinance that claims to lower such prices; unfortunately, there is a significant body of research that shows it would have no such effect. Moreover, it would lead to no considerable reduction in greenhouse gas emissions.

Over the long run, gasoline prices are determined by two things: global crude oil supply and global crude oil demand. With huge nations like China and India – whose combined population is more than eight times than that of the United States[i] – experiencing rapid economic growth that is driving global demand faster than global production can keep pace, government policy at any level here in the U.S. will simply lack the scope to achieve a reduction in gasoline prices.

To further illustrate this point, even if the federal government were to open all offshore oils fields to development, an economic analysis finds that would only add about one million barrels of oil a day to the crude oil market, such an amount would lower world crude oil prices no more than one percent.[ii]

Many ethanol supporters argue ethanol production can increase the supply of transportation fuel and thus lead to lower prices. But ethanol production also has a minimal impact on the cost of crude. Moreover, as the Chicago Sun-Times pointed out in a July 24 editorial, consumers won’t see cheaper prices without Springfield expanding the sales tax credit that applies to E10 gasoline to also include E15 gasoline, a credit that is worth about 11 cents a gallon at today’s prices.[iii]

However, given that Illinois is one of only seven states to even apply the sales tax to gasoline – which is already taxed once by traditional motor fuel taxes – Illinois lawmakers would be doing us a bigger favor by eliminating the sales tax on gasoline altogether, which unlike the motor fuel tax, increases and decreases along with the price of crude oil, and the revenue of which is not even used for building or maintaining our roads.[iv]

In addition, a recent study titled, “Ethanol production and Gasoline Prices: A Spurious Correlation,” MIT economists pointed out that ethanol contains about 33.3 percent less energy than pure gasoline, which means engines need more of it to power a vehicle for the same distance.[v] This further underscores the point that if E15 had any economic merit, a city ordinance compelling fuel retailers to offer it wouldn’t be necessary.

Despite its lack of economic merit, many argue ethanol-blended fuel still offers value as a carbon dioxide reduction strategy. However, a September 2013 paper published in the peer-reviewed journal, Climatic Change, found per unit of energy, the carbon dioxide emissions from burning ethanol are just 2 percent lower than those from gasoline.[vi] Since this is an insignificant amount, the author of that study, University of Michigan Professor John M. DeCicco, says any climate benefit from ethanol would therefore have to occur at the cornfield, but since corn grown to produce ethanol absorbs the same amount of CO2 as the corn grown for cattle feed or corn flakes, ethanol and other biofuels offer no substantial climate benefit and policymakers seeking such an effect would be better off enhancing reforestation efforts as well as protecting current forests.[vii]

Although I support the expansion of consumer choice, mandating the sale of E15 would be a costly initiative for Chicago that would fail to meet its objectives. Chicagoans should steer clear of E15 and instead support eliminating the double tax we all pay on gasoline. Thank you.

 

 

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For more information about The Heartland Institute’s work, please visit our Web sites at www.heartland.org or http://news.heartland.org, or call Taylor Smith at 312/377-4000 or reach him by email at tsmith@heartland.org.