Economy

Presidential candidates’ date with destiny: Ethanol subsidies expire Dec. 31

Sooner or later, they will all obediently troop to Iowa. Presidential wannabees of all stripes will march through diners and farms, pressing the flesh and taking the ethanol pledge. Flip-flops may occur, depending on whether someone is 1) leading in the polls, 2) trailing badly, 3) outside Iowa, or 4) speaking after the Iowa caucuses.

We need to support ethanol. Al Gore said that. In fact, he’s always saying that.

I support ethanol and I think it is a vital, a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse gas reduction effects. John McCain said that in 2006.

But in a 2000 debate with George Bush, McCain said: We don’t need the subsidies and if it wasn’t for Iowa being the first caucus state no one on this stage would support ethanol. To which Bush replied: I support ethanol, I completely support ethanol, John. And I’d support it whether or not Iowa was first. But McCain elsewhere said this: Ethanol makes a lot of sense.

These little kernels here will take us about ten years down the road. Joe Biden said that. And Rudy Giuliani? We’ve got to get serious about ethanol.

What we need to think about now is how we create energy farms. Hillary Clinton said that. And this: Ramp up the availability of ethanol.

Yep, presidential candidates will head for Iowa and probably tout ethanol as the answer to every energy crisis America will ever face. I doubt, however, that these candidates really believe that the conversion of corn to ethanol is the answer to energy independence that many ethanol supporters — and investors — blindly believe it is. More urgently, Dec. 31 looms large in Corn Belt politics.

Iowa is King Corn. Iowa is Queen Ethanol. For more than 30 years, subsidies from the federal government have flowed to Iowa to support an industry that, without subsidies, would collapse under its own weight. (VeraSun Energy opened an ethanol plant in Dyersville, Iowa, in September 2008 and closed it two months later.) In 2007, as gasoline prices began their heady climb to a 2008 midsummer high of $4.11 per gallon, Congress faced great pressure to place a huge bet on ethanol.

Congress was “on the verge of writing into law one of the most ambitious dictates ever issued to American business: to create, from scratch, a huge new industry capable of converting agricultural wastes and other plant material into automotive fuel,” reported The New York Times in December 2007. Earlier, in 2005, a new energy bill had “set off a frenzied buildup of ethanol plants across the Midwest.”

Two particular subsidies, stretching back three decades, have kept the ethanol industry alive and corn farmers in the Midwest, particularly Iowa, keenly attuned to whether politicians, especially presidential candidates, will take the “I support ethanol” pledge. Those subsidies — a 54-cent-per-gallon tariff on imported ethanol and 45-cent tax credit for every gallon blended with gasoline — expire on Dec. 31. The competition limiter and the blender credit cost taxpayers about $6 billion a year. Another estimate places the cost at nearly $9.5 billion in annual subsidies to farmers and corn producers.

Congress could extend the subsidies if it wishes. But given the incoming Republican majority in the House, a majority that has made reduction of government spending its calling card, that’s not a given. Congress can, through mere inaction, simply let the subsides die.

And that brings us back to the presidential wannabees who wish to fare well in the Iowa caucuses. Are they yea or nay on burying ethanol subsidies permanently?

The political calculus now differs greatly from 2005. Yes, ethanol industry lobbyists are hard at work to extend the subsidies. Lobbying groups such as The Renewable Fuels Association, The National Biodiesel Board, Growth Energy and POET PAC have spent at least $22 million to keep taxpayers’ money pouring into ethanol research and production.

But fluctuations in food prices, high unemployment, fears of larger deficits, and the heavily subsidized industry’s failure to produce an economically viable product make further support, in much of the public’s mind, untenable.

That’s not good news for Iowa, which produces a quarter of the nation’s corn, or the rest of the Corn Belt states — Missouri, Wisconsin, Illinois, Indiana, Nebraska, Minnesota, North Dakota, Iowa, South Dakota, Kansas, and Michigan.

So Gov. Mitch Daniels of Indiana, Sen. John Thune of South Dakota, former House speaker Newt Gingrich, and Arkansas Gov. Mike Huckabee, the most discussed GOP presidential hopefuls, ought to be thinking hard about what to do or say. Thune, a Corn Belt senator, makes his position clear on his Senate website: “As part of the solution to lowering gas prices, I support increasing the use and availability of E-85 ethanol …”

Daniels, too, is clear: He set a strategic Indiana goal of producing a billion gallons of ethanol annually.

And Newt? (Note that he’s been an adviser for a pro-ethanol lobbying group, Growth Energy.) He toured a Nebraska ethanol plant 14 months ago and urged ethanol backers to counter opposition to subsidies. In 2008 he urged “[t]he federal government should put up a monetary prize for the development of ethanol with dramatically higher energy return on investment.” But, writing in The Washington Post in April, Gingrich opposed the Obama “secular-socialist machine,” calling the GM bailout an “anti-market intervention.” How is that different from protecting the ethanol industry from what the free market would do to it without subsidies?

Let’s not leave out Mitt. Romney’s been to Iowa, toured an ethanol plant, and declared the importance of alternative energy supplies so “so we can free ourselves from the nonmarket OPEC stranglehold on energy in this country.” And, three years ago, he said this: “The economics of ethanol make more and more sense.”

No doubt more Republicans will emerge as potential presidential contenders: reality-show star Sarah Palin, Gen. David Petraeus, Giuliani again, Louisiana Gov. Bobby Jindal, former Florida Gov. Jeb Bush, and South Carolina Sen. Lindsey Graham come to mind.

Keep on eye on their travel schedules. Note any trips to the Corn Belt, particularly Iowa. Track what they say about ethanol — and whether they said it before or after Dec. 31.

President Obama won more than half of the Corn Belt states in 2008. The national impetus to subsidize ethanol with taxpayer money may be waning in the face of a $13.8 trillion national debt and a congressional freshman class with cut the fat on its mind.

What potential presidential candidates and water-testers do and say about ethanol — and when — will be of great interest to the 38 million Corn Belt residents who voted in the 2008 election.

7 replies »

  1. Right. And ethanol has a lower fuel value, if I understand correctly, so the lifecycle winds up not being any more efficient, right?

    I personally am also bugged by the fact that in a world where people are going hungry we’re working to turn food into gas. Not my area of expertise by a long shot….

  2. Even without the lower energy in ethanol, most fuel cycle estimates have found that ethanol takes as much fossil fuel input per unit of energy as you get out of the ethanol. This comes from the diesel that powers the plows and harvesters, the fossil fuel feedstock for the fertilizer, and so on. Corn ethanol is not the worst (that would be palm oil used for biodiesel), but it’s close.

  3. Ethanol has ruined 3 lawnmowers, 4 outboards, and 2 automobiles for me. I hate the stuff.
    I tried an experiment with my present vehicle. I ran it on 10% ethanol gasoline and recorded the mileage, then I filled it up with pure gasoline from a marina (no ethanol). I got 12.23 mpg with ethanol, and 19.5 mpg with pure gas. This was with a V-8 engine.
    I pay 31 cents more a gallon for marine gas, but it saves me money in the long run.

  4. Yes and no on ethanol’s lower fuel value. It is alcohol. If an internal combustion engine is tuned for it, ethanol produces massive amounts of power (think top fuel drag racers pushing well more than 100hp from a V8 and doing 0-100 in a few seconds). But it needs higher compression rations, etc. to achieve that. If we were to switch to all alcohol fuels, the same power could be gotten from smaller engines which means lower displacement which means less fuel. But that’s not the case, nor will it be. So it’s a boondoggle.

    We’d be better off promoting conversions to LPG/LNG. That doesn’t increase mileage, but it does mitigate tailpipe effluence (basically zero emission), and reduces other dirtiness like disposing of so much used motor oil (which turns black because of unburnt carbon from the combustion process; LNG engines can go tens of thousands of miles without oil changes.

    The scary part is one of the plans to up the efficiency of ethanol is to find ways to turn more of the corn plant into fuel…instead of just the kernals, the leaves and stalks too. But that just means that the soil mining of modern corn agriculture is made even worse…meaning that more inputs will be needed to grow future corn because none of it is getting tilled under at the end of the season.

    It’s such a terrible plan/process/idea that we can be assured that a majority of politicians will remain firm supporters.

  5. Aaarggghhh! The only thing that drives me crazier is farmers and the elderly railing against entitlements and income transfers. The politics of the moment always overcomes principle and usually overwhelms common sense.

    Years ago, I worked in a plant with a very aggressive union. They fought tooth and nail against losing a single job, so finally management gave them the choice–four hours a week less overtime or fifty jobs. The vote was overwhelming to keep the overtime.