Imagine driving into a service station. At one pump, conventional gasoline costs $3.25. Right next to it stands a pump with ethanol-blended fuel selling for $5.20. And since you are a savvy fuel buyer you are aware of the fact that numerous studies have shown that the fuel costing $5.20 is worse for the environment — in terms of water quality, water availability, and carbon dioxide emissions — than the fuel costing $3.25.

Given those factors, which fuel would you purchase?

The answer is pretty obvious. And yet thanks to Congressional mandates and subsidies for corn ethanol, the real cost of the ethanol scam has been hidden from taxpayers for years. But a new report by the Baker Institute for Public Policy has underscored some of the more outrageous aspects of the corn ethanol scam. The report, “Fundamentals of a Sustainable US Biofuels Policy,”should be required reading for federal policymakers, particularly given the fact that the Environmental Protection Agency has delayed making a decision regarding the breaking of the “blend wall” a move that could allow gasoline producers to use up to 15% ethanol in their gasoline blends. Current regulations limit the blends to no more than 10% ethanol.

The Baker Institute report, along with a recent paper on the water quality impacts of biofuel production published in the Journal of Environmental Monitoring, provide yet more reason for taxpayers to be outraged about the continuation of the corn ethanol madness.

First, a few more details from the Baker Institute report. It concludes that in 2008, the federal government “spent $4 billion in subsidies to replace about 2% of the U.S. gasoline supply. The average cost to taxpayers for these ‘substituted’ traditional gasoline barrels was roughly $82 per barrel, or $1.95 per gallon on top of the gasoline retail price.” Let’s put those numbers in perspective. In 2008, the average price of gasoline, according to the EIA, was $3.25. Thus, given the Baker Institute’s numbers, when all of the federal subsidies are added in, the actual cost to taxpayers of ethanol-blended gasoline was $5.20 per gallon.

While that finding alone is remarkable, those numbers are still a little misleading. Ethanol may be displacing 2% of US gasoline, but it didn’t displace 2% of US oil consumption. Remember, ethanol only displaces some gasoline, not the entire barrel of crude. Furthermore, gasoline accounts for less than half of US oil consumption. Therefore, the corn ethanol scam actually displaces less than 1% of US oil consumption. And even though US ethanol production has climbed dramatically over the past decade, US crude oil imports have not declined at all, a fact that Robert Rapier detailed on this site in October. I made the same points in a story published in Slate in 2008.

A few other points from the Baker Institute report:

Regarding greenhouse gas emissions: “it is uncertain whether existing biofuels production provides any beneficial improvement over traditional gasoline, after taking into account land use changes and emissions of nitrous oxide. Legislation giving biofuels preferences on the basis of greenhouse gas benefits should be avoided.”

Regarding water quality: ‘Without major reforms in the regulation of farming practices, increases in corn-based ethanol production in the U.S. Midwest could cause an increase in detrimental environmental impacts, including exacerbating damage to ecosystems and fisheries along the Mississippi River and in the Gulf of Mexico and creating water shortages in some areas experiencing significant increases in fuel crop irrigation.”

Regarding the use of E-85 and flex-fuel vehicles: “At present, no automobile manufacturer will extend an engine or parts warranty for vehicles that use more than 10 percent of ethanol content in fuel, except for vehicles specifically designed to run on E- 85 fuel. This means that the majority of cars on the road today in the United States are not under warranty for anything other than gasoline containing 10 percent ethanol or less. E-85 flex-fuel vehicles stood at only 3 percent of the car fleet as of March 2009 and the availability of E-85 refueling stations is mainly limited to only one region of the United States (Styles and Acosta 2009). The use of E-85 or flex-fuel vehicles is not likely to be extensive enough to counterweigh the number of markets that cannot achieve E-10 saturation.

The Baker Institute report came out shortly after three scientists from the University of Texas at Austin published a report on the deleterious effects that increased biofuels production will have on water quality, and therefore on energy consumption. Kelly M. Twomey, Ashlynn S. Stillwell, and Michael E. Webber, published a paper called “The unintended energy impacts of increased nitrate contamination from biofuels production” in the Journal of Environmental Monitoring.

The three conclude that by increasing biofuels production, particularly from corn ethanol, the US will likely increase the amount of energy needed to treat its drinking water because of increased nitrate concentrations in surface and ground water supplies. Just removing the nitrates, they conclude, may “require an additional 2,360 million kilowatt-hours annually (for nitrate affected areas only) – a 2,100% increase in energy requirements for water treatment in those same areas.”

Webber told me that “We do things for energy with the left hand that cause problems for energy production in the right hand. In this case, we are doing biofuels, in theory, to solve problems like foreign oil use and greenhouse gas emissions. Corn ethanol production increases the use of fertilizer and increases erosion. As we ramp up soil erosion and fertilizer use and therefore water pollution, that means we have to treat the water more. And that’s an energy-intensive process.”

The real insanity of the corn ethanol policy, said Webber, is that “We are making energy policy that, in fact, increases water pollution. And at the same time, regulators are tightening water quality standards. So corn ethanol undermines both energy policy and environmental policy.”

I couldn’t have said it better myself.