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Analysis: Missouri ethanol mandate automatically enforced by elementary economics

Monday, October 12, 2009 | 12:01 a.m. CDT

JEFFERSON CITY — Missouri mandates that gas stations sell ethanol-blended fuel whenever it costs no more than regular gasoline.

But the state has no means of ensuring that Missouri's roughly 4,000 gas stations are following the law on a day-by-day basis. Instead, compliance is left largely to the pressures of the marketplace.

So far, state regulators say, that seems to be working fine.

Missouri's unusual ethanol requirement began Jan. 1, 2008. It requires nearly all fuel sold by retailers to contain a 10 percent blend of ethanol, but only when it is cost-effective to do so.

If the price of ethanol is more than regular gasoline, then tanker trucks do not have to distribute it to retail gas stations. But ethanol must be hauled to the pumps if its costs are less than or equal to those of regular gasoline.

That makes Missouri's law a little quirky. But it gets far more complicated.

According to the state Department of Agriculture, which regulates fuel, there are about two dozen refined fuel terminals located either in Missouri or just across the border in neighboring Illinois and Kansas. And each terminal may sell several different brands of ethanol and regular gasoline — each at a different price.

So whether a fuel distributor must buy ethanol varies depending on the price of the particular brand of gasoline being purchased at that particular terminal on that particular day.

The Agriculture Department's Division of Weights and Measures subscribes to a service that provides daily prices of the various blends of gasoline sold at terminals. But the department does not have personnel who review every sales receipt to see whether tanker truck operators follow Missouri's price-dependent ethanol mandate.

Nor does the department have enough personnel to check daily — or even monthly — at each retail gas station to see whether it follows the ethanol law.

In fact, legislators didn't give the Agriculture Department any additional staff to enforce the ethanol requirements they passed.

Fuel inspectors get to each gas station about once every 18 months, said Ron Hayes, director of the Weights and Measures Division. They check the fuel's octane rating, volatility, sulfur content, cleanliness and its ethanol composition, among other things. If tests show the fuel contains little or no ethanol, then state employees may ask the gas station to prove the price of ethanol was too high when it filled its tank, Hayes said.

State regulations give power to both the Agriculture and Revenue departments to examine the records and financial books of gasoline sellers to determine if they are complying with the ethanol law. Violators can face misdemeanor charges punishable by up to a year in jail and a $1,000 fine. But it never has come to that.

The Revenue Department has done nothing to enforce the ethanol mandate, said agency spokesman Ted Farnen. The Agriculture Department has asked for price documentation in only a few cases, Hayes said.

Of 421 gas stations tested from July through September, just one — in rural Cedar County — had no ethanol in its fuel, Hayes said. That case is under investigation.

"We're not really having to go in and do any enforcement actions. It's taking care of itself," Hayes said.

That's because there is little incentive for gas distributors to violate the ethanol law. It doesn't make sense in a competitive market to buy regular gasoline when ethanol is cheaper.

Regardless of how aggressively the state is enforcing the law, "my guys comply with the ethanol standard each and every day, each and every time their tankers pull up to a terminal," said Ron Leone, executive director of the Missouri Petroleum Marketers and Convenience Store Association. That's "because we're always pulling the cheapest product."

Last week, ethanol-blended gasoline generally was several cents cheaper than regular gasoline at Missouri's fuel terminals. But that's not always the case.

In the first quarter of this year, the price of regular gasoline was significantly cheaper than ethanol, the agriculture department said. Yet the department said 90 percent of its test samples showed the ethanol-blended fuel.

Perhaps because of the hassle of switching between ethanol-free and ethanol-blended gasoline, some Missouri gas stations continued to sell the ethanol version even when they were not legally required to do so.

Similarly, fuel suppliers at terminals always keep ethanol on hand — even when it is more expensive than regular gasoline, said Ryan Rowden, executive director of the Missouri Petroleum Council.

A permanent "straight mandate would have made more sense for our guys at the end of the day, because we would have had a consist product," Rowden said.


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Comments

Mike Sykuta October 13, 2009 | 10:29 a.m.

So in other words, the market works just fine and we don't need the government ordering gas stations to sell the product they'd choose to sell anyhow.

(Report Comment)
John Schultz October 13, 2009 | 12:23 p.m.

Amen that that, Mike. I always chose the 10% ethanol at BreakTime before the state mandate. They offered it at the same price as the straight gasoline (and still do now).

(Report Comment)
Ayn Rand October 13, 2009 | 1:15 p.m.

Isn't premium gas exempt from this requirement?

(Report Comment)
John Schultz October 13, 2009 | 1:42 p.m.

I believe you are correct.

(Report Comment)
Ellis Smith October 13, 2009 | 2:09 p.m.

Of the 50 states, Iowa probably has the highest tax break for gasoline containing 10% ethanol, to the point of almost being breath-taking. That state's tax on regular gasoline is and has for years been higher than here in Missouri.

My point is that states can manipulate taxes to suit agendas. Iowa's agenda is all too obvious.

I would also like to bring up another point. What does your owner's manual say you should use for fuel? I believe Nissan says you may void your warranty if you use ethanol-containing fuel. How they would determine this I don't know (spark plugs? engine tear down?).

However, manufacturers may be hedging their bets, so to speak. Earlier in this new century I leased a Mercedes-Benz from our local dealer, and the owner's manual enfatally stated that I must only use 91 octane fuel. The local dealer said that 89 octane was okay - but not 89 octane with 10% entanol. Octane ratings can be calculated using more than one formula, and I was given to understand that 91 octane equaled 89 octave in North America, yet the owner's manual specifically stated that it was written for North American customers! The car ran fine on 89 octane.

(Report Comment)
Ayn Rand October 13, 2009 | 2:52 p.m.

If you can better mileage from Ethanol-free premium, as some vehicles can, then it's almost worth it to pay extra for premium because you'll go farther than with regular.

(Report Comment)
Charles Dudley Jr October 13, 2009 | 4:27 p.m.

Wont Ethanol-free premium put more hydrocarbons in the air though? Just a serious question.

(Report Comment)
Mark Foecking October 13, 2009 | 4:58 p.m.

With modern catalytic converters, very few hydrocarbons make it into the air anyway. In engines that don't have converters, 10% ethanol gasoline might burn a little cleaner because of the extra oxygen the ethanol has. It's not enough of a difference to worry about, however.

DK

(Report Comment)
Charles Dudley Jr October 13, 2009 | 5:39 p.m.

Mark Foecking do ya have a graft chart that shows stats over 5 years to prove that Mark?

Just curious.

(Report Comment)
Mark Foecking October 13, 2009 | 7:07 p.m.

What's a graft chart, Chuck?

Here's some info on what catalytic converters do, and how they've modernized them:

http://www.catalyticconverter.org/design...

Since engines don't completely convert their fuel to CO2 and water, they use the cat converter to do it. In metro areas over 100,000 population, EPA requires that your car be tested for emissions. A properly running modern car emits little else but CO2 and water.

DK

(Report Comment)
Ellis Smith October 14, 2009 | 2:52 a.m.

Mark Foecking:

A graft chart is a chart displaying the severity of graft and corruption. This varies across the United States, but the chart peaks occur at four locations: Chicago, New Orleans, Jersey City and District of Columbia.

Don't they teach that at MU? I'm quite shocked!

(Report Comment)
Charles Dudley Jr October 14, 2009 | 4:29 a.m.

Ya it's too bad the most intellectually educated at M.U. ie: a chemist and an engineer cannot come up with the gist of what I was talking about now can they?

Hey folks there is your higher form of education working for you. Imagine what other kind of high educated individuals your higher educational institutions are forcing out into your nation.

God help us all. ^_^

What is a graph Chart:
http://www.google.com/search?hl=en&q...

OMG a Graft Chart for you old folks losing your hair:
http://www.marqueehairtransplant.com/hai...

Imagine that.

For the so called higher educational long hair types.

(Report Comment)
Ellis Smith October 14, 2009 | 6:37 a.m.

I do not enjoy being slandered. I never attended MU nor do I ever plan to attend MU. Get your university campuses straight, Charles. We're the little campus (number of students) with the big engineering school. :) MU is the big campus (number of students) with the smaller engineering school. Thus it has been and thus it may always be, blessed and all omnipotent is the power of the Curators!

(Report Comment)
Mark Foecking October 14, 2009 | 8:22 a.m.

Um, Chuck, I know what a *graph* chart is, but that's not what you wrote. I never attended MU either.

I thought we were talking about auto exhaust emissions. Was the link I provided helpful?

DK

(Report Comment)
John Schultz October 14, 2009 | 10:50 a.m.

Chuck, let me tell you what I learned but not necessarily from Mizzou:

When you type coarse, you mean course.
When you type damn, you mean damn.
When you type backround, you mean background.

Thank you, my wife the English major can probably stop cringing now.

(Report Comment)
Charles Dudley Jr October 14, 2009 | 10:58 a.m.

Ellis Smith and Mark Foecking either way neither of you so called highly educated individuals could come up with anything close to what I asked for.

Here is a lesson for you both on how to build a Bar Graph Chart:
http://www.google.com/search?hl=en&s...

I bet it comes complete with pictures too.

I'm really loosing faith in the so called older and smarter generation by the day. No wonder our society is all boogered up and government too. ^_^

(Report Comment)
Mark Foecking October 14, 2009 | 11:24 a.m.

Why should we? I answered your question about exhaust emissions. Cars in large metro areas are required to be tested yearly to make sure they do not exceed the emissions requirements in effect when they were manufactured. Whether they burn straight gasoline or 10% ethanol makes very little difference in the hydrocarbon content of the final exhaust, and in a modern car, those hydrocarbons are almost non-existent as long as the catalytic converter is working. Please stick to the subject, which is not about making a graph in Excel (which I do all the time).

I'm done...

DK

(Report Comment)
John Schultz October 14, 2009 | 11:28 a.m.

Chuck, I'm pretty sure Mark and Ellis have done their fair share of graphing. Your inability to communicate does not fall upon their shoulders.

(Report Comment)
Charles Dudley Jr October 14, 2009 | 12:30 p.m.

Mark Foecking I asked you to post a chart over 5 years of figures so that we all may see how "your conjectures" match up with the numbers so a graphical composition can be seen.

That is all and I did ask nicely even though the word was spelled wrong.

Obviously you are not as smart Mark as you put yourself out there to be for some one employed by M.U.

Your link shows me nothing at all but a bunch of words. How about something with colors to show the highs and the lows of this issue over the last five years.

(Report Comment)
John Schultz October 14, 2009 | 12:47 p.m.

Chuck, one does not need a graph with pretty colors if one reads and comprehends the link Mark posted. It plainly states that catalytic converters, as well as the engines themselves, have become more efficent and better at reducing pollution over the past couple of decades.

(Report Comment)
Ellis Smith October 14, 2009 | 4:57 p.m.

Yes, I have seen my fair share of graphs, linear regression plots and process control charts. One bonanza from the computer age is that we no longer need to draw them, laboriously, by hand.

Engineers work visually as well as mathematically. For example, a situation may be drawn as a "box" with inputs and outputs, then mathematics are applied to the situation. These "box" drawings have occasionally been made on cocktail napkins. :)

As for the comment about losing faith in the older, smarter generation, I am reminded of an old adage:

A wise man knows he doesn't know it all.

An fool is certain he knows it all.

[Please note that no particular age group is specified.]

(Report Comment)

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