SYNOPSIS: Pipeline problems and Ethanol subsidies are to blame for the price spike in gas.
There's something almost reassuring about how predictably our politicians have reacted to those high gasoline prices in the Midwest. The president, oddly unwilling to criticize his own Environmental Protection Agency, hints broadly that oil companies are rigging the market. The governor of Texas, oddly unwilling to criticize oil companies, blames excessive government regulation. Major Strasser has been shot -- round up the usual suspects!
But a sober report from the Congressional Research Service blames neither the E.P.A. nor the oil companies -- though a close reading suggests that both deserve a slap on the wrist for being caught unawares by a shortage they should have seen coming. And the report also answers the obvious question raised by other theories -- why this is happening in Chicago and Milwaukee, but not in New York.
What's special about the Midwest? Well, for one thing, it's a long way from the ocean. (No!) So the preferred method of delivery for petroleum and petroleum products is by pipeline. And as it happens two important pipelines have had problems -- a fire in one, a leak in the other -- whose aftereffects are still disrupting supply. The C.R.S. report attributes about half of the 50-cent differential between gasoline prices in the Midwest and elsewhere to pipeline troubles.
The other thing that's special about the Midwest is that it is America's agricultural heartland, where the corn is as high as an elephant's eye -- and the ethanol lobby is even more powerful than it is elsewhere. And the C.R.S. thinks that the other half of the differential is due to local rules in corn-belt cities, which force refiners to meet new federal environmental regulations using ethanol rather than other, technically less demanding gasoline additives.
The use of ethanol -- the same stuff that gives beer its buzz -- as a fuel is one of those bad ideas that just won't go away. Back in the late-70's ethanol produced from corn was promoted as the perfect answer to the energy crisis: it was renewable, it was domestic, and it was supposed to be less polluting.
A couple of decades and quite a few billion dollars in subsidies and tax breaks later -- gasoline that contains 10 percent ethanol still pays lower taxes, amounting to a 54-cent subsidy per gallon of ethanol -- it is clear that the fuel's virtues were exaggerated. For one thing, modern farming is an energy-intensive business, and still more energy is needed to convert corn into ethanol. So this is a fuel that requires almost as much energy to produce as it releases when you burn it. True, ethanol is an "oxidant" that helps gasoline run cleaner; but other oxidants are easier to deal with. Those other oxidants pose pollution problems; but so does ethanol, which tends to make gasoline evaporate too easily, contributing to smog in the summer months. Put it all together and you have a product with no special virtue to recommend it, certainly no virtue that warrants a billion or so dollars a year in tax breaks and subsidies.
But the political influence of the ethanol producers has proved untouchable. Or perhaps I should say "producer" rather than "producers." Most of the benefit from ethanol's special status goes not to the farmers but to those who turn corn into ethanol, and about half that business is controlled by one company: Archer Daniels Midland, the company that runs all those ads during news programs. Actually, those ads are a giveaway: when people spend large sums trying to convince you of how wonderful they are, without then trying to sell you something, you ought to suspect that they are up to no good. And in the past, A.D.M. -- one of the nation's biggest political contributors -- was up to quite a lot of no good: price-fixing, influence-buying, you name it.
To be fair, the Midwest gasoline squeeze wasn't a predictable result of the ethanol lobby's efforts. Were it not for the other factors -- extremely low inventories, surging demand from a booming, S.U.V.-driving economy and all that -- the rules that force Midwestern refiners to use ethanol wouldn't have had such spectacular consequences. Still, perhaps this summer of discontent will have a good effect, by alerting the public to a large, ongoing, bipartisan example of really bad policy.
Originally published in The New York Times, 6.25.00