It might be headed for your gas tank.

Photographer: Scott Olson/Getty Images

Enough With Ethanol

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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With the Iowa caucuses now blessedly behind us, we can discuss a more serious subject: The engine-destroying, food-burning, anti-free-market program that is corn-based ethanol.

Why we still subsidize turning food into an inefficient fossil-fuel substitute is anyone’s guess -- but mine is that the first-in-the-nation Iowa caucus has been the main reason. Anyone who wants to be president simply can't risk pointing out how ruinous and wasteful ethanol is, lest they get punished by the Iowa corn producers.

Yet there are some promising signs that the ethanol industry's grip on the political process has been loosened. This was made clear on Feb. 1, when Senator Ted Cruz won the Republican Iowa caucus. Although he later waffled a bit, he voiced opposition to ethanol subsidies on "Meet the Press. This was a contrast with other candidates who lent their support, and particularly Donald Trump, who called for higher ethanol mandates. As Bloomberg News observed, “Senator Ted Cruz’s victory in the Iowa Republican caucuses emboldens other critics of federal biofuel mandates just as the U.S. Senate is poised to consider a measure that would gut the decade-old program.”

That is potentially great news for taxpayers, auto enthusiasts, small-equipment users and boaters -- literally anyone who uses gasoline, almost all of which is mixed with much more ethanol than is needed.

Here is a stunning factoid: Iowa grew 2.4 billion bushels of corn on 13.2 million acres of land in 2014. Much of that corn is used as feedstock for animals and for ethanol plants. Less than 4,000 acres out of those 13.2 million are used for sweet corn-- the tasty variety humans eat, and the kind you see at roadside stands and farmer's markets across the state. In total, 40 percent of the U.S. corn crop, the world's largest, is used to produce ethanol.

Robert Bryce, senior fellow at the Manhattan Institute, observed that ethanol “costs more than traditional fuel, and it’s worse for the environment than traditional fuel. It’s a terrible, terrible deal.”

What are the problems with ethanol? It leans on a subsidy that smacks of a giveaway to a narrow, special-interest group. It is inefficient and expensive. It has been blamed for increasing food costs. It puts toxic pollutants into drinking water. It makes water bills for Midwestern residents higher. Runoff from the vast quantities of fertilizer used to grow all that corn each summer creates a huge algae bloom and dead zone in the Gulf of Mexico.

Nor is ethanol even a green energy source -- it barely generates more energy than it takes to produce it, which is only a marginal improvement from when it was a net negative source of energy. That improvement is courtesy of more productive farming techniques and more efficient methods of converting the biofuel into burnable alcohol. But it still increases emissions of nitrogen oxides, a main ingredient in smog, and other hazardous pollutants. The Environmental Working Group argues that ethanol causes more environmental problems than it solves.

Ethanol doesn't even reduce our dependency on imported oil. Perhaps worst of all to me, it does lasting damage to engines.

Drill into the specifics and you find many problems for anyone who owns something powered by a gasoline engine: Ethanol is hydrophilic, meaning it holds water -- and that isn't good for internal combustion engines. Since it begins life as a biologic, it isn't very stable or long lasting. It shouldn't be stored for long periods of time due to how quickly it deteriorates. Motorcycles aren't supposed to use ethanol fuels, and people who fuel their boats with it (something they may not have a choice about) often regret the expensive repairs it can cause, especially in craft used in saltwater. This is why equipment manufacturers only warranty their engines for gasoline blends containing no more than 10 percent ethanol. Beyond that level, they say the engines may be damaged or destroyed.

Perhaps the most perverse aspect of the ethanol mandate is that gasoline refiners have been required to mix ever-more alcohol into their blends. But as U.S. vehicles become more efficient and gasoline consumption stagnates or drops, fuel blenders are under pressure to exceed the 10 percent mix.  

The inherent problem of ethanol even has Archer Daniels Midland, which pioneered ethanol's use as a fuel, looking to boost corn’s use as a food.

There are many reasons to dislike ethanol. This year’s presidential election gives a glimmer of hope that this misguided and outdated program will be eliminated.

If Ted Cruz can accomplishes nothing else but that, he will have done his nation a huge favor.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Barry L Ritholtz at britholtz3@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net