The Iowa Corn Growers Association applauds a new study from the Consumer Federation of America that explores the advantage to consumers in expanding the production of liquid fuels like ethanol.
"We've seen a lot of misinformation that is being peddled by various organizations about ethanol and gasoline," says Jim Meyer, a corn grower and ICGA director from Odebolt in western Iowa. "It's refreshing to see a consumer-focused group like the CFA setting the record straight."
The CFA study, "Big Oil vs. Ethanol: The Consumer Stake in Expanding the Production of Liquid Fuels," finds that current record gasoline prices are due to a shortage of refinery capacity, not the price of crude oil and that the oil industry is contesting the growing support for ethanol because ethanol poses a challenge to the oil industry's market dominance.
Oil industry threatens ethanol production
The oil industry's threats to offset ethanol production with cuts in refinery expansion and with policies that limit ethanol distribution should be taken seriously, the study concludes. It says the threats "demonstrate the oil industry's unchallenged power and its ability to limit competition," says Meyer. "Corn growers have promoted ethanol for 30 years, and we've seen plenty of evidence of the myths circulated about ethanol. It's good to get this confirmation about energy pricing from a group known for putting consumer interests first."
The CFA report says consumers have a powerful stake in the rapid expansion of the ethanol and biofuels industries. The study documents that the growth of U.S. ethanol production should help lower gasoline prices for consumers as more ethanol is blended into the nation's supply of gasoline.
The CFA finds that oil companies have used their market power to limit the supply of gasoline, and keep consumer prices and profits high while opposing policies that would increase fuel supplies and lower prices.
"In late July when they announced their profits, the major oil companies once again reported huge windfalls at the expense of consumers who are paying record prices at the pump," says Mark Cooper, an economist who is CFA's director of research. "The major oil companies have not only failed to increase their refining capacity to meet the growing demand for gasoline, but now, threatened with competition, they are fighting hard against policies to expand production of ethanol and alternative fuels."
Why cutbacks in oil refinery capacity?
According to the report, "Major oil company threats to offset increases in ethanol production with cutbacks in refinery expansion plans and company policies that restrict ethanol distribution are serious and demonstrate their unchallenged market power and their ability to limit competition which could help consumers obtain lower prices for gasoline and diesel fuel."
Cooper also says oil company mergers and refinery closures have skewed the market in favor of a handful of big companies that now have the ability to keep gasoline supplies tight. "As the oil refining business has become a tightly held shared monopoly, the opposite has happened with ethanol. With entry of new ethanol firms and construction of new ethanol plants "the ethanol industry has become highly competitive."
Oil company refining profits in the United States have reached dramatic highs in the last few years. "In fact," says Cooper, "refinery profits in the U.S. are now three times more than in some other parts of the world. The companies are doing everything they can to keep these extraordinary profits rolling in. That is why they have no compunction when threatening U.S. policymakers about reducing their investment in new refinery capacity if Congress passes legislation to increase the production of ethanol."
The report also points out, "Ethanol capacity equaled spare petroleum refinery capacity in 2006. The projected growth in 2007 and 2008 would result in ethanol capacity exceeding spare capacity in the refining sector by a substantial amount. Combining these factors, ethanol production certainly appears to pose a competitive threat to Big Oil's long-term strategy of keeping the refining sector tight to maximize profits."
To read the complete report, go to www.consumerfed.org/pdfs/Ethanol.pdf.