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The latest run-up in gas prices, to the $4 a gallon range, is causing some Wisconsin drivers to change their travel habits.
Gas prices have slid back since touching a recent high of $4.13 a gallon on May 4, 2011, according to Wisconsingasprices.com. When Memorial Day weekend began, they were in the neighborhood of $3.88 a gallon, though prices varied some throughout the state.
But that’s still a big jump since the beginning of 2011, when drivers were paying around $3 a gallon for regular unleaded.
With the pain at the pump setting in, the corn growers and ethanol industry are trying to make the best of a bad situation. In a radio ad, the Wisconsin Corn Growers Association tells drivers that prices would be even higher without ethanol in the mix.
One version of the ad uses a fake host, "Filler Up Phil" who takes calls from people concerned about high gas prices. He tells one caller that ethanol adds to the nation’s fuel supply, and tells another that the fuel additive helps save consumers money.
"Without ethanol, gas prices would be at least 15 percent higher," the fake host says. "With gas at four bucks, that means you’re saving 12 bucks on a 20 gallon fill-up."
That’ll get your attention, no matter what kind of car you drive. It’s a specific claim but -- as with political ads -- carries a broader message: Ethanol is a boon for your wallet.
So, let’s husk it.
First, a little background.
Most gasoline is blended with 10 percent ethanol, a fuel made from corn. That’s part of federal legislation pushed by the corn growers, the ethanol industry and renewable fuels supporters that seeks to boost the amount of ethanol we burn in our cars. The industry is encouraged -- and propped up -- by a controversial $6 billion package of tax credits, production mandates and tariffs.
A key argument in favor of ethanol is that each gallon burned means less oil that needs to be imported.
The federal law seeks to boost ethanol production over time. The goal is to reach 36 billion gallons of renewable fuels in the U.S. market by 2022. Production was about 13 billion gallons in 2010, according to the Energy Information Administration.
The effort is driven by a variety of tax breaks and incentives, including a 45 cents a gallon tax credit paid to refineries and a 54 cent a gallon tariff on imported ethanol. The feds also require ethanol to be blended with conventional gas, and since last year when demand fell, they’ve come up with new ways to boost ethanol consumption.
But ethanol subsidies are under attack on a variety of fronts, including those who see the system as a wasteful industry handout. The Wall Street Journal editorial board in January launched a major attack on the fuel -- and ethanol backer GOP presidential candidate Newt Gingrich.
The newspaper said four of every 10 rows of corn in the U.S. are grown for ethanol, an argument that fed complaints that a food crop was being wasted in our gas tanks. Still others condemn ethanol’s poor fuel efficiency and pollution impacts. And others blame ethanol for driving up the cost of food.
So, what about the claim in the ad?
The group based its claim on a 2008 report from the Center for Agricultural and Rural Development at Iowa State University. The researchers found that ethanol reduces the cost of gasoline by about 40 cents a gallon.
They issued an updated report in April 2011 that factored in 2010 data for oil prices and increased production of ethanol. That report delivered an even more startling conclusion: Ethanol cuts gas prices by 89 cents a gallon.
It’s even higher if you live in the Midwest -- $1.37 a gallon, the new report says.
And the latest report from the center goes one step further. The researchers looked at what would happen if ethanol production stopped immediately. A gallon of gas would cost up to $7.20, or $144 for that 20 gallon fill up.
So when you do the math, the savings is even higher than described in the ad.
But there is another side to the issue -- one that carries its own costs.
The ethanol industry is supported by those aforementioned tax incentives. And federal law requires the industry to brew more, and burn more.
Including all of those factors, the Natural Resources Defense Council says it costs taxpayers $4.18 to produce each gallon of ethanol. Oil companies will be forced to buy more of the fuel that taxpayers have paid to brew, the group argues.
There’s also the question about burning food for fuel, and the impact that ethanol has on food prices. More corn burned means your cornflakes cost more.
Iowa State University economist Bruce Babcock last year estimated that ethanol policies drive up the cost of food by at least 1.5 percent.
"I don't see why we can really justify subsidies, when all that does is raises cost of producing food," Babcock told National Public Radio.
So where does that leave us (other than relieved we’re not paying $7 a gallon for gas)?
The corn growers say we’re paying less at the pump, thanks to ethanol being blended into gasoline. The study they cite provides support for the claim -- indeed, an updated version suggests the radio ad actually low balls the savings per fill-up.
But there is a cost to taxpayers to support the ethanol program -- $6 billion a year -- which goes unmentioned in the ad. And using food for fuel drives up the cost of your grocery bill, even as the price at the pump is offset by the program. And there are pollution and fuel efficiency concerns tied to the additive. Those are also unmentioned.
So, while generally true, the claim leaves out important information. On our gauge that’s a Half True.
Center for Agriculture and Rural Development, Iowa State University, "The Impact of Ethanol on U.S. and Regional Gasoline Prices, and on the Profitability of the U.S. Oil Refinery Industry," authored by Xiaodong Du of the University of Wisconsin-Madison and Dermot Hayes of ,Iowa State, April 2008
Center for Agriculture and Rural Development, Iowa State University, "The Impact of Ethanol on U.S. and Regional Gasoline Markets: An Update to May 2009," April 2011
National Corn Growers Association, "Ethanol Helps Keep Gas Prices Down, Money Stateside, April 11, 2011
DTN/The Progressive Farmer, "The Cost Savings of Ethanol is Clear; Well, Maybe Not," May 3, 2011
Renewable Fuels Association
National Association of Convenience stores website
Wall Street Journal, "Fight Over Ethanol Subsidies Heats Up," May 3, 2011
Wall Street Journal, "Gas Stations Get Aid to Sell More Ethanol," April 9, 2011
Wall Street Journal,"Amber Waves of Ethanol," Jan. 22, 2011
American Coalition for Ethanol, "Response to the WSJ: Ethanol is Not Reducing the Amount of Corn for Food," Jan. 26, 2011
National Public Radio, "Fuel vs Food: Ethanol Helps Boost Meat Prices," Dec. 22, 2010.
American Farm Bureau Federation report, "Ethanol Impact Studies Part 3: What The Critics Don’t Want Consumers to Know about Ethanol."
Natural Resources Defense Council, "Study Shows Tax Payers Subsidizing Ethanol at $4.18 a Gallon," March 10, 2010
University of Missouri Food and Agricultural Policy Research Institute,"U.S. Baseline Briefing Book: Projections for Agricultural and Biofuels Markets," March 2010
SFGate, "Feinstein, GOP senator fight subsidies for ethanol," May 7, 2011
Wisconsin Corn Growers Association radio ad
Emails, Ken Colombini, director of communications, for the National Corn Growers Association
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