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- The oil industry has launched an assault on the ethanol mandate that drives demand for the plant-based fuel.
- Thanks largely to cars' improving fuel efficiency, gasoline consumption has steadily fallen over the past few years.
- But current market conditions have driven the oil lobby to take up arms.
Drama is high these days for ethanol makers, whose fate is on the line in Washington - fitting for an industry dependent on government.
The oil industry has launched an assault on the ethanol mandate that drives demand for the plant-based fuel. The Senate recently confirmed an industry friend to head the Environmental Protection Agency. And the EPA is finalizing a controversial rule to allow higher blends of ethanol in gasoline.
Ethanol is a fuel made from fermenting and distilling plant matter - mostly corn in the U.S. From the industry's earliest days, government has subsidized the fuel. The most important benefit for the industry today is the Renewable Fuel Standard.
The 2005 Republican-passed energy bill created the RFS, known as the "ethanol mandate," and the 2007 Democrat-passed energy bill expanded it. Under the law, oil refiners must purchase a set quantity of ethanol every year.
Thanks largely to cars' improving fuel efficiency, gasoline consumption has steadily fallen over the past few years, and so refiners aren't selling enough gasoline to blend with the ethanol. Under the complicated structure of the ethanol mandate, this will drive up costs for refiners, and thus drive up the price of gasoline.
The oil industry has never loved the ethanol mandate, which, among other things, adds to their costs. Many oil companies invested in ethanol - Koch Industries owns some massive ethanol distilleries, and Valero is a major ethanol player.
But current market conditions have driven the oil lobby to take up arms. The American Petroleum Institute is running radio ads attacking the mandate. The National Council of Chain Restaurants is attacking the mandate, too, arguing that it drives up food prices by shifting cropland to fuel production. Three Senators have proposed a bill to end the mandate.
So ethanol is fighting back. The Iowa Renewable Fuels Association flew into D.C. this month to defend the mandate. The National Biodiesel Board has retained a new lobbyist this month - former Republican Congressman Kenny Hulshof. Poet, the country's largest ethanol producer, hired a new top lobbyist, former House Science Committee staffer Rob Walther.
Ethanol's best asset may not be on K Street, but in the EPA: new administrator Gina McCarthy. McCarthy, confirmed by the Senate last week, is a consistent ethanol-industry defender.
Late last year, for instance, governors from both parties and five states petitioned the EPA to waive the ethanol mandate. The governors weren't petitioning on behalf of drivers or Big Oil, but on behalf of ranchers. Feed prices were going sky-high thanks to drought, and the ethanol mandate diverts corn from cattle feed to gas stations.
"Severe economic harm is being experienced by the State of North Carolina and many of its agricultural regions, as well as important economic sectors in the state, as a direct result of the implementation of the applicable volume requirements of the RFS," wrote Democratic Gov. Bev Perdue in late 2012, as reported in CQ.
McCarthy, then assistant administrator for EPA's Office of Air and Radiation, denied the request.
In the past four years at EPA, McCarthy's most important work was probably approving higher blends of ethanol in gasoline - a fight where ethanol is on the free-market side.
Too much ethanol in gasoline can damage car engines. Current law prohibits blends of more than 10 percent ethanol, or "E10." McCarthy spent more than four years working out rules to allow blends as high as E15 - trumping the objections of automakers and oil companies.
This summer, the rule allowing E15 cleared some important hurdles. It could go into effect soon.
Given this record, it's no surprise the ethanol industry applauded McCarthy's nomination back in March.
The American Coalition for Ethanol announced at the time, "We appreciate President Obama nominating Gina McCarthy as administrator of EPA, a step which shows the president's continued commitment to ethanol and other renewable fuels."
"President Obama has made an outstanding choice in his decision to nominate Gina McCarthy to be the next administrator of the EPA," declared Tom Buis, president of Growth Energy, another ethanol lobby. The Renewable Fuels Association and the Advanced Ethanol Council also applauded her nomination.
In Washington, most policy fights are really battles between industries. These days, ethanol is on the defensive, but it still seems to be warding off big oil.