Ethanol's Big Win

Corn may not be the best source for energy, but in Washington it’s a major source of power.

Just this summer it seemed as though the great American ethanol experiment might be running out of steam. The industry faced a number of looming regulatory decisions and expiring economic incentives that threatened to significantly curtail the $6.7 billion a year it receives in federal subsides. What’s more, oil prices were and continue to be relatively low, diminishing the limited fiscal gain the fuel offers consumers at the pump.

The political headwinds didn’t appear to be blowing in ethanol’s favor either. The Obama administration had refused at several points to intervene on behalf of the industry in pressuring the EPA to deliver a long-delayed ruling on whether to increase the allowable blend of ethanol in gasoline from 10 to 15 percent. Meanwhile, little action was being taken by an increasingly skeptical Congress to protect the billions of dollars in blender’s and production credits that are scheduled to expire at the end of this year.

But over the past few months, ethanol’s fortunes seem to have turned around considerably. In September, reported on an obscure trade publication interview with Brent Erickson, an executive vice president with one of the industry’s largest lobbying groups. In the interview, Erickson referenced extensive meetings his group had recently held with lawmakers, and affirmed his confidence that the government would give biofuels companies the help they had been seeking.

This help, Erickson predicted, would come in the form of a “big bio-energy title” in the next farm bill, the extension of billions in annual tax credits, and an E15 ruling that the executive hinted he “wouldn’t be surprised” to see in the near future.

The Comeback

Three weeks after the interview was published, the EPA announced that it had given the green light to E15, representing what will eventually be 50 percent increase in amount of ethanol blended into the U.S. fuel supply each year. The timing of the decision came as somewhat of a surprise given how long it had been delayed and how many conflicts—ranging from labeling to liability—remained unresolved.

Since the E15 announcement, Secretary of Agriculture Tom Vilsack has also emerged to carry the flag for ethanol and pressure lawmakers on its behalf. In a pointed editorial in Tuesday’s Wall Street Journal, the Secretary defended the fuel against a scathing column published in the paper the previous week.

Then there was Vilsack’s recent appearance at the National Press Club, where he announced hundreds of millions of dollars in new measures intended to stimulate the corn and cellulosic ethanol industries. Among them:

  • A $461 million program to pay up to 75 percent of farmers’ costs in growing and harvesting biomass for use in nearby cellulosic ethanol plants.
  • Funding for 10,000 new ethanol fuel pumps at a total cost of $250 million, to replace older models that may be damaged by 15 percent ethanol blends.
  • A call for sufficient federal assistance to build at least one new cellulosic ethanol plant in each region of the country by 2011.

Cornfield Politics

In July, Iowa ethanol plants were losing 6 cents for every gallon they produced. Today, they’re turning a profit of 27 cents.

Though it’s never been much of a secret that biofuels have enjoyed an unusual amount of government favor through the years, the White House’s apparent reversal on ethanol in the months leading up to the November elections has been particularly striking. Politico called the timing of the EPA’s E15 decision “Corn Belt pandering,” suggesting that it had been motivated by a need among Democrats to shore up political support in the Midwest.

A more cynical eye might also look to recent congressional campaign finance filings, which aren’t yet final for this election season, but suggest record levels of support from the agribusiness sector for Democratic candidates this year.

Yesterday, representatives from three major biofuels trade groups met with a senior White House energy and climate advisor to discuss the possible tax credit extension. And with Senate agriculture chair Blanche Lincoln expected to lose her seat to a Republican this fall, the two favorites to replace her—and preside over the drafting of the all-important farm bill—are Ben Nelson of Nebraska and Debbie Stabenow of Michigan, both longtime ethanol supporters.

Still, with the fiscal responsibility in vogue and the Congressional Research Service estimating “the cost to taxpayers of biofuel subsidies could rise from $6.7 billion this year to $27 billion in 2022,” the power of the corn and biofuels lobbies could be put to test again soon. Luckily for the industry, the Iowa caucuses are just around the corner.

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  • Rong544

    What a boondoggle! Take a bunch of politicians, add large agribusiness dollars and stir. What you get is this obscene type tax payer ripoff. Since I am forced to use 10% ethanol my car gets 11% less gas mileage. What a deal.

  • 55mpg

    “Since I am forced to use 10% ethanol my car gets 11% less gas mileage” and you have to pay for this reduction in mileage thru taxes.

  • Anonymous

    Cheap Oil has gone and Light Crude Oil has produced.
    So there is no other go, but to accept Biofuels and E10 in the mix.
    Soon we will see E15 and if you want more mileage, buy a more fuel efficient Car.

    Its the Oil Companies that tried to block the E15, but the world saw the ugly face of Oil Spill in the Gulf and the Big Oil kept quite before E15.

  • Anonymous

    Americans shooting another Financial hole in their feet. Dumbasses………….

  • Anonymous

    Every day nearly $1 billion is going away from this country for Buying Oil. By using more Ethanol, we can keep some money here itself.

  • Rong544

    Great logic Anonymous. It that really your name? Bio fuels cause lower gas mileage and consume large quantities of fuel to create. It is a net looser even when compared to refined gas without alcohol. So, if I complain about poorer gas mileage due to this politics based fuel, I should spend tens of thousands to get better mileage? Even if the new car will still be negatively effected the same way as my current car?

    I think that burning corn (a food needed by millions of very poor people around the world) is part of the problem not a solution.

  • BAM

    Why is the US still pursuing biofuel that is ALREADY obsolete? We know the tax payer subsidizes it. We know it is using Ag land that should be used for eating crops. We know it is using way too much precious water. We know is takes fuel to produce this fuel…so WHY are we so stupid as to think this type of fuel should be used? We need to stop thinking in the liquid fuel arena and look at sustainable alternatives. OK, call me naïve, but thinking along the same lines as we are following would be considered idiotic (keep doing the same thing over and over expecting a different result.).

  • Jabo

    Burning our food in our cars is complete insanity. Supply vs. demand for corn has forced the price of tortillas up–what are poor people supposed to eat? Now the price of breakfast cereal is going up–what am I supposed to eat? And we gain nothing. It requires more resources to produce ethanol than are saved. Producing ethanol is so economically unsound that it has to be propped up by government subsidy in order to compete with gasoline. The only purpose for burning ethanol in cars is to feed the greed of the multi-million dollar corn processors who lobbied Congress to get into this giant boondoggle. For shame, Congress!

  • Priusmaniac

    When the volt has to turn it’s engine on for extending the range you need a liquid fuel. Since gasoline is not sustainable in the long run, we will need some ethanol in the future. The same is true for long distance cargo ships and for airplanes. Biofuels will not replace oil as a one for one because oil will mainly be replaced by electricity, but you will still need to replace the equivalent of about one tenth of the oil we use today.