Two sides of Ethanol
By Dan Juneau -
Jun 01, 2006
Legislation mandating that 2 percent of gasoline and diesel fuels sold in Louisiana must soon contain ethanol and bio-diesel blends will probably be on Governor Blanco's desk shortly. She has committed to signing the legislation in order to promote an alternative market for Louisiana farmers.
In addition to providing a new market for farm products, ethanol and bio-diesel blends are being promoted as an alternative to imported foreign oil. Certainly, anything that can help our agricultural industry and, at the same time, reduce our dependence on foreign energy sources should be an element in our drive toward more energy independence.
The farm belt states of the Midwest have long been leaders in the alternative fuels industry. The ethanol industry in states like Nebraska, Iowa, and Kansas is a huge enterprise with strong political influence in state politics. Interestingly, those states do not mandate the use of ethanol or bio-diesel within their boundaries. They promote the industry and provide incentives for it, but do not force their consumers to use the products. Those states let the marketplace dictate what is sold and what is bought.
Unfortunately, that won't be the case in Louisiana if HB 685 is signed into law. The 2 percent mandate will begin six months after production of ethanol and bio-diesel is determined to be at an annual rate of 50 million and 10 million gallons, respectively. Consumers can then expect to pay higher prices for motor fuel. The reason why is simple: Ethanol is currently priced about $1.10 a gallon higher than gasoline on the commodities market. In a 90-10 blend, that would cost 11 cents per gallon more than the cost of gasoline. Once blending and transportation are included, the actual cost per gallon will be higher.
The mandate language in the legislation is confusing and contradictory. Originally, the bill required that refiners, wholesalers and retailers produce and sell enough fuel with ethanol and bio-diesel to meet the mandate. Faced with a backlash from putting the mandate so close to the consumers, the House (over the objection of the bill's supporters) removed the mandate on retailers. The bill allows the Commissioner of Agriculture to determine exactly how 2 percent of our state motor fuel supply "shall" be from renewables when no one is required to sell it. The retailers may not have a direct mandate to sell the blends, but if that is all they are offered from their supplier, they either sell it or turn off their pumps.
The proposed law clearly mandates that 2 percent of all gasoline produced in Louisiana and 2 percent of all diesel fuel must contain the bio-fuel blends and must be sold within the state if Louisiana producers are going to get credit for meeting the mandate. That means higher prices for Louisiana consumers.
Elected officials could have copied other states and offered incentives for the industry or reduced the state gasoline tax on domestically produced bio-fuels blends to make the products more cost competitive. They could have used some of the huge revenue increases recently included in the budget to offset the loss of those gasoline tax revenues. Instead, our state officials are opting to promote the industry on the backs of consumers in Louisiana. They want to help the agriculture industry, but they don't want to redirect any of the new spending in the current budget to do so.
Consumers in Louisiana should carefully watch the cost of fuel at the pump once the mandate kicks in-and if prices go up, they can credit the extra cost to the mandate in the bill.