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Talking About Scrapping The Ethanol Gas Mandate (For Now)

Posted by: Bell Performance

ethanol mandateThe national drought has wrecked corn harvests and catalyzed a political fight between three parties that each have a huge stake in the ethanol issue.  Meat producers, ethanol refiners and corn farmers are all looking to protect their own interests amidst calls from some parties to rescind the mandate for ethanol gasoline.

The key part of the mandate that's causing so much trouble is the requirement to increase the total volume of ethanol used, at a time where a large portion of the corn harvest isn't going to be available to be used in fuel.  As it is, more than 40% of corn in the United States goes to making ethanol.  With less corn available because of the drought, competition for the existing supply is more intende. Hence the price for corn shoots through the roof and everything made from corn gets more expensive.

Each of these three parties would be affected in different ways if the ethanol mandate were suspended.  As you may expect, the anticipated effect is coloring their response. 

What's At Stake?

Meat producers and poultry farmers lead the call for suspending the mandate.  They're suffering because they have to use corn as animal feed, and the tight corn supply causes feed prices to shoot up. They argue that removing the mandate will cause feed prices to go down because there will be more corn available for others uses than in fuel.

On the other side of the aisle, ethanol producers want things to stay the same.  Removing the ethanol mandate would remove the automatic demand for ethanol and would surely hurt their business.  They also argue that they're not using as much corn as before, forecasting to use 10% less corn next year than this year.

In the middle are corn farmers who serve both parties (apart from the corn farmers that own ethanol refineries). Whatever direction is taken, they urge caution and restraint on the part of the government.

The Federal government itself is more aligned with the ethanol producers than anyone else, as evidence by speeches given by the Secretary of Agriculture, Tom Vilsack, who characterizes calls for removal of the mandate as some kind of well-organized vendetta to hurt the ethanol industry.

What's  Going To Happen At The Pump?

We can't see this kind of debate having any real effect on gas prices. The effect is going to be on the cost of related goods that have to use corn products.

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This post was published on August 24, 2012 and was updated on July 7, 2016.

Topics: Ethanol, Fuel Policy