Ethanol mandate sparks Democrats’ opposition

Published July 1, 2002

Will Senator Dianne Feinstein (D-California) intercede with Sacramento politicians to protect the California marketplace for pickup trucks, minivans, and SUVs?

Feinstein is not widely known for her devotion to free-market economics and opposition to big-government mandates. Neither is Senator Hillary Rodham Clinton (D-New York). But in the ongoing clash over national energy policy, Feinstein and Clinton have staked out an anti-corporate welfare position that’s to the right of President George W. Bush.

The debate in the U.S. Senate boils down to this: Should government mandates or consumer choices determine the profitability and market share of ethanol (corn liquor) in the nation’s fuel supply? More simply put, should government pick the pockets of millions of motorists to enrich agribusiness giant Archer Daniels Midland and seven other big ethanol producers?

The Senate energy bill contains a “renewable fuels” mandate that would require states to nearly triple the amount of ethanol used in gasoline (from about 1.7 billion gallons in 2002 to 5 billion gallons in 2012). Although the mandate is popular with many Senate Democrats (including Majority Leader Tom Daschle (D-South Dakota)), Feinstein and Clinton—joined by Barbara Boxer (D-California) and Chuck Schumer (D-New York)—vehemently oppose the mandate. The foursome offers several telling objections.

  • The ethanol mandate amounts to a “new gas tax” that could raise fuel costs 9.6 cents per gallon in California, 7.1 cents per gallon in New York, and 4.0 cents per gallon even in the Midwest states where 98 percent of the nation’s ethanol is produced.
  • The mandate is flagrant corporate welfare, transferring billions of dollars from working families to a handful of big companies.
  • The mandate is environmentally dubious. Although ethanol is an “oxygenate” that, when blended with gasoline, reduces emissions of carbon monoxide, California does not need to increase its modest use of ethanol to meet federal clean air standards. More critically, ethanol contributes to smog and enhances the ability of toxins found in gasoline (such as benzene, a carcinogen) to seep into groundwater supplies. Arbitrarily tripling the amount of ethanol in motor fuel can only increase the risks associated with its use.
  • The mandate rigs the market against newer, smarter ways of reformulating gasoline and producing cleaner fuels. Starting in 2013, the mandate requires refiners to increase the 5 billion gallon target to guarantee ethanol a fixed market share as the nation’s overall fuel usage expands. Regardless of what consumers demand, or what superior alternatives industry invents, refiners will be required to make, and service stations will be required to sell, massive quantities of ethanol-blended gasoline.
  • The mandate is “highway robbery.” Because gasoline made with ethanol is exempted from 5.4 cents of the federal motor fuels tax, tripling the sale of ethanol will diminish highway trust fund revenues by $7 billion over the next nine years. States will not be able to afford new roads, bridges, and other critical infrastructure projects needed to relieve congestion and improve auto safety.

Ethanol partisans dispute the economic analysis on which Feinstein relies. According to them, California motorists will spend an additional 0.5 cents to 4 cents per gallon due to the ethanol mandate, not 9.6 cents. But this rebuttal is beside the point. A mandate is a mandate. Consumers have to pay for it, no matter how expensive it gets. It sets a market share floor for producers, but no market price ceiling for consumers. It is a “heads I win, tails you lose” proposition, in which consumers bear all the risk.

Furthermore, as California phases out methyl tertiary-butyl ether (MTBE), the state will increase its use of ethanol to comply with the oxygenate requirement of the Clean Air Act’s reformulated gasoline program. Why should Californians have to purchase even one gallon more of ethanol than the Clean Air Act requires?

In the floor debate, Clinton warned her colleagues that, if enacted, the ethanol mandate will come back to bite them:

“If the average American consumer tunes in on this debate and realizes what is happening, there will be a revolt. I dare predict that voting for this bill, which will raise gas prices in 45 of our States, will be a political nightmare for people who end up voting for it. Higher gas prices at the pump, reduced Federal assistance for much-needed transportation projects, possible negative air quality, and public health impacts, to say nothing of raiding the Federal Treasury to give this giveaway to these large producers, makes it impossible to understand why any pro-consumer, pro-health, pro-environment, anti-government mandate Member of this body would vote for this provision.”

Actually, it is easy to understand why so many lawmakers support the mandate. The ethanol lobby is more than happy to spend hundreds of thousands of dollars in campaign contributions to get back billions in corporate welfare subsidies. ADM’s soft money donations—$250,000 to Democrats and $395,000 to Republicans, in the last election cycle alone—buy lots of “access” to policymakers in Washington, DC.

Marlo Lewis, Jr. is a senior fellow at the Competitive Enterprise Institute. This article first appeared on

For more information …

on ethanol policy issues, search PolicyBot for the following documents: #2303309 “Questions about Ethanol,” a 5-page factsheet from the American Petroleum Institute; and #2303213 “It’s Time to End the Ethanol Tax Credit,” a 4-page commentary from the Public Interest Institute.