Two senators from farmland states are calling on the Federal Trade Commission to investigate allegations that oil companies pressured gas stations to rig the system to bump ethanol fuel out of the picture.
The allegations claim oil companies targeted independent gas stations, convincing them to allow oil companies to work around federal standards that require ethanol, a byproduct of corn, switchgrass or other renewable crops blended with gasoline to provide a ‘cleaner’ form of energy, to be offered at the pump.
Instead, gas station owners allege oil companies are using their monetary muscle to manipulate the market, taking away consumers’ option for more affordable ethanol fuel and replacing it with the more expensive premium gasoline.
“Consumers deserve to have access to homegrown renewable fuels that only lower costs at the pump but also help boost our energy security,” Sen. Amy Klobuchar (DFL-Minn.), who filed the complaint along with Sen. Chuck Grassley (R-Iowa), said in a statement. “It is imperative that the Administration investigate any possible anti-competitive behavior by the oil companies that might limit consumers’ access to renewable fuels.”
Allegations of market manipulation
The Renewable Fuel Act, created through the Energy Policy Act of 2005, instituted a program mandating that 7.5 billion gallons of renewable fuel (ethanol) be blended into gasoline by 2012.
For the oil industry, the inclusion of ethanol in fuel supplies meant its market share for its product was threatened.
In 2011, 13.9 billion gallons of ethanol produced meant 485 million fewer barrels of oil needed to be imported, according to Iowa Corn, a trade group representing Iowa’s ethanol industry.
Gasoline stations typically have two tanks. To produce the E15 gasoline blend, which includes 15 percent ethanol and is designed to fuel E15-friendly vehicles, the station must designate one tank for ethanol only. Blender pumps are used to mix the ethanol and gasoline, producing E10, which can be used in most vehicles, and the E15 special blend.
The allegations claim oil companies have been pressuring independent stations to allow both pumps be used for gasoline, eliminating room for ethanol and adding more room for high-priced premium gasoline.
This, according to Sens. Klobuchar and Grassley, amounts to anticompetitive practices by oil companies that work against the 2007 Energy Independence and Security Act, created to level the playing field and allow domestic clean and renewable fuel.
In a letter sent to Attorney General Eric Holder and Federal Trade Commission Chairwoman Edith Ramirez, the senators called for an investigation into the allegations.
“The promise of renewable fuels is rapidly becoming a reality and introducing much needed competition to the transportation fuels sector,” the letter states. “Given the implication these alleged activities, if true, could have on competition in the marketplace, we urge you to investigate them and consider whether any action is necessary.”
The lawmakers’ call for justice is one applauded by those in the ethanol industry and those who own independent gas stations. Ron Lamberty, senior vice president of American Coalition for Ethanol, is also a gas station owner — for him, the stakes of the allegations are high.
“As a fuel station owner, every time I hear some Big Oil mouthpiece saying we should ‘let the market decide’ how much ethanol is used, I think of these kinds of restrictions the oil companies have been jamming down station owners’ throats for decades, making sure only one decision is possible — oil,” he told Ethanol Producer. “Senators Grassley and Klobuchar are right.”
If the allegations prove true, the oil companies would be responsible for altering the market to lock out clean energy alternatives, ethanol in particular.
Oil companies rally against ethanol
It’s no secret that oil companies have long opposed EISA, which was intended to allow for fair market introduction of cleaner fuels with the ultimate aim of reducing costs for consumers. The oil industry has never rallied behind EISA.
“Faced with growing competition from new sources of fuel promoted by the (renewable fuel standard), the oil industry has publicly
In July, the American Petroleum Institute launched an advertising campaign spanning print, TV radio and online platforms with the message that the 2007 Renewable Fuel Standard is bad news for consumers.
The advertising campaign depicted the mandate as one that leads to higher food prices, low mileage and engine damage — a claim that’s already advertised at the pump for those opting for E15, the higher ethanol-content fuel intended for ethanol-friendly cars only.
Large oil companies also have refining companies on their side, who say they have seen their share of the market dwindle after the introduction of ethanol.
Meeting muscle with muscle, the clean energy industry vowed in August to fight back against the pro-oil campaign blitz, with plans underway to launch a multimillion campaign that will take on the oil industry’s claims point-by-point.
It’s called the “You’re No Dummy” campaign, already set up online with sections pointing out “the lies” of the oil industry.
“If the oil industry was concerned about your food prices they would lower the prices of fuel because a recent World Bank study showed that high fuel prices are the cause of higher food prices,” the campaign site states. “In actuality, the ethanol industry only uses the starch in the corn kernel to produce ethanol and the valuable proteins and micronutrients are returned back to the food chain. So the net effect is that the U.S. ethanol industry uses 17.5 percent of the net U.S. corn crop for ethanol production.”
This is in direct contrast to the American Petroleum Institute campaign, which states the ethanol industry uses up 40 percent of America’s corn crops — a move they say is leading to higher food prices.
The campaign is also calling out the oil industry’s expenditures — and tax breaks. In 2012, more than $140 million was spent by the oil industry in lobbying efforts alone. Shell spent just shy of $16 million, followed by Exxon at just over $12 million.
With every $1 contributed to the lobbying pool, the top oil companies received $30 in tax breaks, according to the campaign.
In 2011, subsidies for the oil industry rose to $7 billion. In 2012, British Petroleum received task breaks worth $300 million, according to figures provided through profit reports and the Joint Committee on Taxation.
What happens now?
The Federal Trade Commission has taken up the suggestions by Klobuchar and Grassley to move forward with an investigation, yet the consequences, if oil companies are found guilty, aren’t yet clear.
For the senators, it’s a matter of protecting an industry that flourishes within their states, while constituents are looking to their lead as they struggle against an oil industry that has long controlled the game. Ramirez did not follow through with calls for a full investigation, but told the senators in a letter that the Federal Trade Commission will make every effort to persecute those violating competition rules.
“I’m pleased to see the Federal Trade Commission is taking steps to investigate whether certain practices by oil companies may be impeding competition, and I will continue to work to ensure that Americans can continue to realize the benefits of cheaper, cleaner renewable fuel,” Klobuchar said.
Klobuchar comes from Minnesota, a key ethanol producer. Al-Corn, an ethanol cooperative, puts the amount of ethanol produced in the state at 862 million gallons. The number of ethanol plants sits at 21, with more than 1.1 billion gallons of production capacity in 2010. The state’s net ethanol export is roughly 619 million gallons, with 243 million gallons consumed by Minnesota drivers.
Grassley’s state of Iowa ranks sixth in ethanol production, producing nearly 30 percent of the nation’s ethanol supplies. According to Iowa Corn, the industry supports more than 50,000 jobs and accounts for more than 5.4 percent of the state’s gross domestic product.
“The allegations from retailers about possible anti competitive practices from Big Oil are disheartening, but not surprising, knowing the lengths Big Oil will go to in order to keep biofuels out of the fuel supply,” Grassley said in a statement. “It’s going to take an ‘all-of-the-above’ approach to wean the United States off of foreign sources of oil, so it only makes sense that we all work together. I appreciate the FTC … taking a look at the allegations and look forward to their conclusion.”
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