Donald Trump

Free Market Principles Missing in Ethanol Rule Changes

Trump's trade policy is leading to bad politics and terrible outcomes.

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The list of losers from President Donald Trump's trade war is long and likely only to grow. Consumers of washers and dryers, metal-consuming industries and their customers, and American industries caught in the crossfire from retaliatory tariffs have all been hit hard. These losses have been compounded by subsequent moves to compensate the most politically powerful of those—e.g., farmers—harmed by Trump's protectionism.

In July, the Trump administration announced plans to provide farmers with $12 billion in taxpayer subsidies to quell the uproar over costly retaliatory tariffs on American goods such as pork, beef, and soybeans. That apparently wasn't enough, so now the administration is selectively easing regulations on ethanol at the expense of across-the-board energy policy reforms that could prioritize fiscal responsibility and market neutrality.

A few weeks ago, the White House asked the Environmental Protection Agency to end its prohibition on the sale of E15—fuel that is 85 percent gasoline and 15 percent ethanol—during summer months, when the pollution from evaporative emissions is highest. The limitation was imposed to meet requirements under the Clean Air Act, though it allows for standards to be waived under certain circumstances, which the White House wants to utilize.

Some are even hailing the move as a form of energy deregulation. Accepting this view, however, ignores why ethanol is blended with gasoline in the first place. Namely, the government demands it. Yet that isn't stopping the administration from touting the new rule as "providing consumer choice" and "propping up the free market." Something is being propped up, all right, but it's not a free market.

Starting in 2005, the Renewable Fuel Standard compelled refineries to blend billions of gallons of ethanol into gasoline each year. To help with the higher cost of production, Uncle Sam provides a quota trading system to alleviate some of the pain, but that hasn't stopped a number of independent refineries from going under thanks to soaring costs.

The RFS also created an artificial demand for corn and soybeans, causing temporary increases in prices. Those hikes doubled because of what was effectively a mandate to farmers to convert some 16 million acres of wheat, sorghum, and other crops into land for corn and soybean production, which took time and caused the supply to be less.

The beneficiaries are corn and soybean farmers and the ethanol industry, which now possess a captive market thanks to RFS mandates. The losers are not only the refineries forced to carry out the mandate at their (and their workers') own expense but also livestock farmers, who have to pay higher corn prices for feed, along with the consumers who purchase meat and dairy products. The result has been a depression of farm incomes and higher prices for consumers.

That's not what consumer choice looks like. That's what cronyism looks like.

The year-round sale of E15 has long been a holy grail for the ethanol industry. It's the sort of thing that can provide leverage and force negotiation between opposing sides and lead to much-needed reforms of wasteful programs such as the RFS. But unless Trump reverses course and stalls the new regulation, pending an agreement over additional reforms, he's sacrificing that valuable piece and leaving RFS untouched to make up for the damage of his tariffs. His bad trade policy, in other words, is leading to bad politics and thus the perpetuation of other bad policies.

Were it not for the president's need to placate a constituency feeling the pain of his trade war, the administration might have approached energy policy reform in a more comprehensive way, and with a real focus on market-based solutions that avoid picking winners and losers as the RFS mandate does. Instead, we're seeing how his protectionism is not just making the economy worse but also hindering efforts to fulfill his oft-stated goal of draining the swamp.

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7 responses to “Free Market Principles Missing in Ethanol Rule Changes

  1. But unless Trump reverses course and stalls the new regulation, pending an agreement over additional reforms, he’s sacrificing that valuable piece and leaving RFS untouched to make up for the damage of his tariffs.

    Don’t worry, the old tactician’s got a plan. For the transportation that is. The president doesn’t know how he’s gonna keep his coiffure in order.

  2. Keep promoting an open door immigration policy Reason, that will be sure to make your free market principles get voted for.

  3. So explain how this move is not deregulatory. Gov’t imposes a requirement, allows certain ways to satisfy it, then allows more ways to satisfy it. How is allowing more ways to satisfy it not deregulatory?

    Like for instance if they laid a tax but said it had to be paid in chicken feed, & then later gave people the choice of paying it in $, wouldn’t that be deregulatory & an increase in freedom? Sure, you could say it’d be better still if they got rid of the tax, but is anything less than that no good?

  4. Let’s not forget yet another downside to blending alcohol into gasoline – every gallon of blended fuel has less energy potential than unblended fuel. A gallon of pure gasoline has more BTU’s than a gallon of blended fuel. So we get less energy for our dollars along with the downside of cronyism and inefficient market choices. It’s lose all around unless you’re a corn farmer.

  5. Does anyone know what else is long and likely only to grow?

  6. “The list of losers from President Donald Trump’s trade war is long and likely only to grow. Consumers of washers and dryers ”

    Everyone who might ever buy a washer or a dryer is worse off in Trump’s America. Truly.

    Don’t let a stock market boom, GDP growth, low unemployment rates, and rising wage rates fool you.

    YOU ARE WORSE OFF, because TRUMP!

    1. How are farm subsidies conservative?

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