Good Ideas Gone Bad

History is littered with examples of ideas that seemed to be good for a while, but were later discovered to have unpleasant consequences. The pharmaceutical industry is full of cases of promising drugs that went through testing, received FDA approval, and then when they were rolled out on a large scale were found to have serious side effects.

In the energy business, for example, the addition of MTBE to the fuel supply at one time seemed like a good idea. It served as an oxygenate and provided another market for natural gas, but as we now know there were negative consequences.

Indeed, it is possible that with the benefit of hindsight, we will decide that hydraulic fracturing (fracking) to recover shale gas was a bad idea. There is certainly controversy surrounding the practice, with many accusations of ground water contamination linked to fracking.

I often wonder whether we will look back at our great ethanol experiment as a bad idea. We have already seen some of the consequences. While die-hard ethanol supporters may still try to argue that expanded ethanol use has not impacted food prices, that argument is simply not credible. It isn’t believable that using a major fraction of the corn crop for ethanol production hasn’t contributed to the run-up in corn prices. Proponents may argue that the overall run-up in energy prices has a larger impact on food prices (and I would agree with that). They may argue that the impact from using corn for ethanol is only a few percentage points, but even a 1% increase in food prices amounts to $12 billion a year in the U.S. alone given our $1.2 trillion annual food expenditure.

A Transfer of Wealth

That leads me to sometimes wonder whether our ethanol mandates have resulted in true net wealth creation, or whether it simply amounts to a transfer of wealth from around the U.S. (and even the world) into the corn-growing states. I can recall a discussion I had with my dad on this several years ago. He is a cattle rancher in Oklahoma who also farms a little. In fact we grew a fair amount of corn when I was growing up there. In 2005 I was about to give testimony to the Montana State Legislature on a proposed ethanol mandate. My position was that the mandate wouldn’t do much to benefit Montana farmers, because Montana isn’t exactly prime corn-country.

My dad asked me at the time why I wanted to testify against farmers. I explained that it wasn’t farmers I was testifying against – or even ethanol per se – it was the idea of a mandate which would limit choices and have potentially unpleasant consequences. A few years later — in response to much higher feed prices — he had to sell his entire cattle herd. Money had been transferred from his small cattle operation into the hands of Midwestern corn farmers, and he understood first hand the meaning of unintended consequences.

Corrosion is Complicated

That preamble brings me to the topic of this essay. Talk to an ethanol proponent about methanol, and they will cite corrosion as a serious issue. But mention that ethanol is also corrosive, and they will insist that testing has proven that it isn’t a concern. But corrosion is a problem that often takes some time to manifest itself. Corrosion testing in the petrochemical industry is an important, but time-consuming process. Despite testing, we often see corrosion where we thought we had corrosion-resistant materials.

It may take a decade or two before we can really evaluate the overall impact that ethanol had on contributing to corrosion in automobiles and in our fuel infrastructure. Already we hear of anecdotal tales of people complaining that they had to spend money repairing a component whose failure was blamed on ethanol, but over time it should become clearer whether these issues are more common than they were before ethanol started making up 10% of the national gasoline pool.

UL Looks at E15

And while ethanol proponents assure us that there are no corrosion concerns, a report that was released last November — but that got almost no media attention — should have raised some warning flags. The study was conducted by Underwriters Laboratories (UL) for the National Renewable Energy Laboratory (NREL). The purpose of the testing was to expose various pieces of fuel dispensing equipment that were UL-approved for E10 service to 15% ethanol blends (E15) to assess compatibility.

The results — especially given repeated reassurances that E15 poses no risk — are surprising to say the least. But then perhaps because of the highly politicized nature of the ethanol debate — plus the fact that they did the report for NREL, which is pro-ethanol — the authors sugarcoated the findings:

The overall results of the program were not conclusive insofar as no clear trends in the overall performance of all equipment could be established. New and used equipment such as shear valves, flow limiters, submersible turbine pumps, and hoses generally performed well. Some new and used equipment demonstrated a reduced level of safety or performance, or both, during either long-term exposure or performance tests. Dispenser meter/manifold/valve assemblies in particular demonstrated largely noncompliant results. Nozzles, breakaways, and swivels, both new and used, experienced noncompliant results during performance testing. Responses of nonmetals, primarily gaskets and seals, were involved with these noncompliances.

This is the point where we have to go to our due diligence handbook. What do they mean when they write that there were “no clear trends in the overall performance of all equipment?” Which pieces of equipment showed “a reduced level of safety or performance”, and why hasn’t this gotten more coverage? Finally, what exactly do they mean by “noncompliant results” and “noncompliances?”

To get answers to these questions, I had to read through the report to understand exactly what they were saying. The pieces of equipment — consisting of valves, hoses, pumps, etc. — were subjected to a series of tests to simulate long-term usage in the field. These pieces of equipment are in widespread use today in our fuel infrastructure. In this case, I think a picture is worth well over a thousand words, so I am copying the table of results from the tests:

Summary of Underwriters Laboratories Testing of Fuel Dispensing Equipment for E15 Compliance

I don’t know about you, but to claim that there were “no clear trends in the overall performance of all equipment” is quite a stretch. There appears to be a very clear trend, and that is that much of the equipment tested showed that it was not compatible with E15.

If you are keeping score, only three of eight categories of new dispensing equipment tested — fewer than 40 percent — passed all compliance tests. When used equipment was examined — that is to say the equipment found in our existing fuel infrastructure — none of the categories were shown to be fully compliant. Bear in mind that this is equipment that is certified to be E10 compliant, and likely the sort of equipment that would be contacted by E15 were it to be broadly adopted. And this isn’t anecdotal evidence; this is Underwriters Laboratories.

How About More Transparency?

Now perhaps it is a bit clearer why automakers have sued to stop implementation of E15. If fuel dispensing equipment is failing tests in E15 service — and we are not being informed about that — how likely is it that there will be huge numbers of issues in cars that were not specifically designed for E15? I would put that probability as quite high, and I don’t expect that the ethanol industry is standing by prepared to cover those repair bills. It also leads me to wonder more about the long-term implications of E10. If we eventually determine that automobile component lifetimes have been shortened by a year or two due to exposure to ethanol, there will have been a very heavy cost to consumers.

An issue that fellow energy blogger Geoffrey Styles picked up on is that in approving automobiles for E15 service, the EPA didn’t assess whether cars would suffer damage from E15. Rather the waiver was granted on the basis of those cars not emitting more pollutants when using E15. That leads me back to the automobile manufacturers for assurance, and if they won’t assure us that putting E15 in our vehicles won’t harm them, then E15 has no business being put in our fuel supply.

Of course this doesn’t mean that equipment can’t be designed to be E15 compatible. If you are putting in new infrastructure or building a new car, there is no reason that all of the parts can’t be constructed to be E15 compatible. But one thing is clear: Existing equipment has shown to be incompatible with E15, and that information has been kept quiet.

Can My Choice Be E0?

The ethanol industry has recently claimed what it really wants is for consumers to have a choice. I can support that. If consumers want to put E15 in their cars, then they should be allowed to do so if they are prepared to assume the risk (and understand the risks). But I wonder if that choice extends to me choosing to put E0 in my car? I wonder if the ethanol industry would back blending pumps that would allow me to put any concentration of ethanol in my car, give up their mandate, and let the chips fall where they may? I suspect the result would be as it has been in Germany, where consumers have simply refused to buy ethanol blends over similar concerns. So I suspect what the industry really wants is choice — as long as that choice still involves putting ethanol in your car.