Fuel Price Rise – Blame It On Corn


by Grant Madden, Eugene Daily News

Fuel prices are expected to climb higher until the end of summer, and the cause of the rise may be sitting at home in your cupboard disguised as a can of corn.

In the United States, ethanol fuels are classified as gasoline derived using a combination of fuel and field corn. The technology to create this mixture, originated during the Carter Administration’s gasoline shortage, and has been in use since the late 1970’s. Touted as being more environmentally friendly that traditional gasoline, these “biofuels” have been welcomed by state legislators across the nation, and progressively, mandated  in an attempt to reduce carbon dioxide into the earth’s atmosphere.

In 2007, the Oregon Legislative Assembly passed House Bill #2210 which included a renewable fuel standard (RFS). On April 1 2011,  the Oregon Department of Agriculture increased the standard for biodiesel blend from 2% to 5%, while legislating ethanol mixtures to remain at 10%.

In other parts of the country, particularly the mid-west states, biofuels have had success on the strength of the government subsidy. Corn growers across the nation had a captive market for their product, and fuel refiners were able to produce a competitive product to gasoline, at a subsidized price.

In Eugene, ethanol fuel has become the backbone of several industries,  including the SeQuential retail biofuel station on the McVay Highway. Stations such as these have seen success, in part because the State Government’s Renewable Fuel Standard forced the use of these “green fuel” on motorists. Their success  has occurred despite the fact that there is evidence that biofuels produce questionable emission results.

Until December 31, 2011, ethanol blends previously received a $0.45 a gallon tax credit, prior to the Federal Government declining to renew the existing thirty year old subsidy. The decision to do so is staggering given that the United States is the largest producer of ethanol fuels in the world, and has been since 1986. In 2008 the United States produced 138 billion US gallons of ethanol fuels, slightly in front of the nearest producer, Brazil.

The end of the fuel subsidy to biofuels also casts a giant shadow of the $6B a year research and development that has been put into these “green” fuels. With the governments decision to end the subsidy, the cost of producing these fuels will rise to be comparable with the traditional automotive fuels. With many states, like Oregon, in the unenviable position where these alternative fuels are now mandated, the consumer will be forced to reach into their own pocket to maintain flex fuel and bio fuel vehicles.

At the same time as ending the ethanol fuel subsidy, the Federal Government also eliminated the import tariff on ethanol fuels. This paves the way for the Brazilian government to ship their ethanol fuel to the United States, at a lower price than American refineries could make. This move has angered lobbyists who have campaigned tirelessly to reduce American the dependency on foreign fuel. The argument has been made that 30 years of research and development of local technology for alternative fuels, has been thrown aside in favor of cheap foreign imports.

In January 1 2012,the average price of gasoline in Eugene was $3.41 a gallon.  Gasoline prices have continued to rise, spiking on February 4 at $3.59 a gallon.  In 2011, the highest price of gasoline in Eugene was $4.02 a gallon on May 1.  Comparatively, ethanol fuel began the 2012 calender year at $3.29 a gallon for an E85 ethanol mix. With the withdrawal of the subsidy, the price per gallon quickly closed on traditional gasoline, reaching a peak on February 3 at 3.49 a gallon. A consumer poll at Eugene Gas Prices, an internet site that tracks the prices of gasoline as reported by consumers, shows that more than 50% of almost 9000 respondents believe that gasoline prices will reach or exceed, $5 a gallon by summer.


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