Bob Collins
For all the talk about the ruin to be caused by the gas tax increase in Minnesota, comparatively little is said in the state these days about the “ethanol tax,” which has had a significant impact in the cost of operating a vehicle and may, according to some people, have a role in rapidly increasing food prices.
For the last few months, I’ve been conducting an unscientific experiment: filling up my car with regular gasoline and comparing the performance with the ethanol blends I’m required to use in Minnesota.
Although Wisconsin drivers get a choice, lawmakers are considering an ethanol mandate, which would require 10 percent of gasoline to be a blend of ethanol, rising to 25 percent by 2025. Here’s a copy of the legislation. Minnesota, on the other hand, requires all gasoline sold to be at least 10 percent ethanol.
I snuck across the border several times to fill up the 2004 Chevy Cavalier (the official car of News Cut) with ethanol-free gasoline. The result? My car got about 32.6 miles per gallon. The Minnesota blend gave me almost 29 miles per gallon, a 12% drop in performance.
Calculating current prices (the average price of gasoline in Minnesota now is $3.235. In Wisconsin it’s $3.40), driving 1000 miles on Minnesota gas costs $111.55 (11.2 cents per mile). On Wisconsin gas, 1,000 miles costs $104.29 (10.4 cents a mile), a $7.26 savings, even though the difference in the price of a gallon is almost 17 cents. The “ethanol tax” works out to 2.3 cents a gallon.
In addition to the increased fuel costs to consumers, taxpayers also support ethanol producers with a 20-cents-a-gallon subsidy. The feds chip in another 51 cents a gallon.
My little experiment showed me that I spend an additional $80 or so a year at the pump because of ethanol. It’s not a huge deal, although some of the rhetoric surrounding similar numbers in the gas tax debate suggested it’s the difference between me keeping and losing my home.
But the “tax” is about to go higher. In 2005, there was no bigger supporter of a 20-percent mandate than Gov. Pawlenty. He signed a bill raising the requirement for ethanol in a gallon of gasoline to 20-percent by 2013.
Six Republicans in the House this year ran into trouble for supporting an increase in the gas tax. In 2005, however, 48 Republicans voted for what’s turned out to be “the ethanol tax.”
The concerns about the ethanol mandate, of course, are years old. An MPR story in 2002 documented the steamrolling of politicians by the ethanol lobby.
As MPR’s Cara Hetland reported last fall, the ethanol mandate is an economic development program for farmers. And Cargill today reported an 86-percent jump in profits. Good for them. Consumers? Not so much.
But there is plenty of dispute about the effect of ethanol on food prices and, hence, its role — if any — in inflation. Last week, Texas A&M released a report that suggests that corn prices — corn is used to make ethanol — would have risen substantially anyway as petroleum-based costs — fertilizer, for example — went up. The report said higher corn prices “do have a small effect on some food items.”
Update Mon. 10:14 p.m. – An article in Tuesday’s New York Times doesn’t let ehtanol/biofuels quite so easily, and invokes the U of M’s C. Ford Runge:
C. Ford Runge, an economist at the University of Minnesota, said it is “extremely difficult to disentangle” the impact of biofuels on food costs. Nevertheless, he said there was little that could be done to mitigate the impact of droughts and growing appetites in developing countries.
“Ethanol is the one thing we can do something about,” he said. “It’s about the only lever we have to pull, but none of the politicians have the courage to pull the lever.”
