Report argues ethanol mandate raises consumer costs

A Missouri law that took effect in January requires unleaded gas lower than 91-octane that’s sold in the state to contain 10 percent ethanol – known as E10 – when ethanol is cheaper than gas.

Missouri, Minnesota and Hawaii are the only states in the country with an E10 standard, which was signed into law by Gov. Matt Blunt two years ago. Blunt has been a staunch proponent of parlaying Missouri’s corn crop into ethanol, which he has said will lower carbon emissions and reduce dependence on foreign oil.

In April, the corn merchandising council – a lobbying group for the state’s corn farmers –released a study claiming that Missourians will save more than $285 million by buying E10 this year and nearly $2 billion during the following decade. On average, the council estimated a savings of 9.8 cents per gallon.

A report released by the Show-Me Institute today, however, suggested that the MCMC study ignores important effects of the E10 mandate, namely the documented decrease in fuel efficiency of ethanol-blended fuel and the taxpayer cost of government subsidies. Ethanol blenders receive a federal tax credit of 51 cents per gallon.

“Government officials cannot simply take tax dollars from the public, give those tax dollars to ethanol blenders, and then have ethanol supporters tell the public that … ethanol is saving them money with cheaper fuel as though the subsidy never existed,” according to the Show-Me Institute study, which was authored by policy analysts Justin B. Hauke and David Stokes.

After figuring in subsidies and the decreased fuel efficiency of ethanol, the Show-Me Institute – a Missouri-based public policy think tank – concluded that Missourians will spend an additional $118 million a year on E10, or about $29 annually per driver, during the next decade.

“We find that accounting for these costs … would result in a net loss to Missouri consumers of almost $1 billion during the next decade,” the institute said in the release.

Click here to read the Show-Me Institute’s complete study.

In late April, a bill repealing the E10 edict was fiercely debated in Jefferson City at a committee hearing that pitted corn growers against livestock farmers, who are reeling from record corn prices. The bill never moved out of the committee.