Obama's Sellout to Big Corn

December 24, 2008

Last Wednesday, President-elect Barack Obama announced former Iowa Governor Tom Vilsack as his choice to be the next Secretary of Agriculture. The appointment has fueled growing concern from ethanol critics, who worry that the Obama administration may expand subsidies to an industry that they feel has already received more than its fair share of generosity from Washington.

About Ethanol

For years, ethanol has been touted by politicians and trade groups as the green fuel of the future, but many scientists and environmentalists see ethanol as a dead end. A recent study by Dutch Nobel prize winner Paul Crutzen found that the production of corn ethanol had a “net climate warming” effect compared to unblended gasoline. Using corn for fuel also drives up food prices, and according to the Food Policy Research Institute, recent ethanol mandates have caused corn prices to increase 29 percent, creating a significant strain on food supplies in developing countries.

Ethanol opponents have always held out hope that a President Obama would distance himself from allegiances to the ethanol lobby once the political pressures associated with winning an election subsided. But with the appointment of Vilsack, who was once named “Governor of the Year” by the Biotechnology Industry Organization, those hopes are beginning to fade.

$5 Billion Won’t Necessarily Buy You Lower Emissions

Federal ethanol subsidies currently total $5 billion a year, and many states supplement that federal money with their funds. One such state is Iowa, where as Governor, Vilsack approved $50,000 tax credits to companies aiding in the expansion of E85 Ethanol fueling infrastructure under his $500 million “Grow Iowa Values” initiative. The fund also provided tax incentives for ethanol producers such Poet, which runs the second largest plant in the country. Poet recently received $80 million in federal money to expand the Emmetsburg, Iowa-based operation, increasing its production capacity four-fold.

Not all federal ethanol funding is for corn. Recently, much of the money has been geared toward stimulating the birth of a cellulosic ethanol industry. Though cellulosic ethanol has a greater potential to cuts net carbon emissions, its production is still extremely expensive. If gas prices remain as low as they’ve been in recent months, it would require large sums of federal dollars to jumpstart cellulosic ethanol production, which currently remains in the experimental phase.

A Corn-Lover From the Start

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In June, political cartoonist RJ Matson satirized Obama’s ties to the ethanol industry for the St. Louis Post Dispatch.

Obama’s support for ethanol dates back to his early days as a politician in Illinois, which produces nearly 17 percent of the nation’s corn. Though he has never been among the top recipients of campaign money from agribusiness—and the $2 million dollars he raised from the sector during the presidential election pales in comparison to money he raised from other interests—Obama flew on agribusiness giant Arthur Daniels Midland’s (ADM) corporate jet at least twice as a senator. He has also consistently surrounded himself with energy and environmental advisers who favor ethanol.

Governor Vilsack and chief of staff, Rahm Emanuel—who is influential in Obama’s cabinet selection process—have both been closely linked with the industry for some time. Vilsack has developed a reputation for flying around in the Monsanto corporate jet, and as a congressman, Emanuel typically received maximum contributions from ADM in each election cycle.


In 2007, Senator Obama introduced a piece of legislation calling for the creation of a National Low Carbon Fuel Standard, which would force fuel refiners to reduce emissions from their products by 10 percent, by 2020. The result of such a mandate would be an increase in the American ethanol market from around 7 billion gallons per year to an estimated 40 billion. Critics of the legislation say it amounts to nothing more than a giveaway to corn producers and ethanol refiners, and Obama justification for the bill doesn’t do much to deter that impression:

“Expanding the renewable fuels market in the United States will reduce our dependence on foreign oil, revitalize our agricultural sector, and provide a sustainable means to combat global warming. A homegrown solution to the international climate crisis lies in America’s fields and farms.”

Barack Obama

A Bailout on the Horizon

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President-elect Obama speaking at a VeraSun ethanol facility.

Representatives from the Renewable Fuels Association (RFA) went to the Obama team and members of congress last week with quite a Christmas wish list. The RFA is one of at least three major trade groups lobbying Washington on behalf of the ethanol industry. The lobbying has been ratcheted up to an all time high in light of the financial challenges currently facing the industry due to low gas prices and a shortage of capital.

According to the Wall Street Journal, the RFA has asked the administration for $1 billion in short-term credit, and a $50 billion federal loan guarantee program to stimulate future investment and infrastructure expansion. Furthermore, the industry has requested that any automaker receiving federal bailout money be forced to produce only vehicles that are capable of running on blended ethanol. If Obama were to grant these requests, it would signify a major commitment to ethanol on the part of the administration, and likely indicate that further investment and mandates for corn ethanol are just down the road.


Posted in Environment, Fuels, Incentives and Laws, News, Oil Dependence
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  • Haque

    Leave corn as food for the living not turn it into ethanol fuel !

  • Mike M

    No surprise here, we saw this coming years ago.

    And for the record we (humans) don’t eat most of that corn directly, it’s fed to animals to support high density feed lots or as an artificial alternative to sugar. The corn industry is one of the biggest threats to our health and our environment so I’ve never understood why liberals and lefties supported Obama without even a commitment to kill the Farm Bill, the sugar tariffs and bring some actual regulation to genetically modified crops.

  • Beth

    I, too, have been disappointed in corn ethanol as a solution to our dependency on oil and gas. However, might it not be a reasonable short term solution while we work very hard to get other alternative fuel technologies up and running? As a private timber farmer who has seen prices plummet due to the big corporate timber growers moving to Brazil and growing pines on rainforest land, I am very excited about cellulose ethanol. It would be an excellent use for the stumps and tops left after a thinning and would stimulate the local economy here in Georgia. Lots of agricultural products besides corn can be used to make ethanol.

  • Ross Nicholson

    Corn is not ‘artificial’. Corn sweeteners are not harmful to health at all; neither is sugar. (Just eat a balanced diet.) Having an abundant food supply is not a problem for the USA, it makes America part of any solution. Reducing emissions from oil company products is accomplished with ethanol additives, true, but we replace foreign oil with domestic ethanol nearly at par.

    We do need to get rid of our sugar tariffs that cripple our food, candy, and beverage industries. However, an increase in corn prices (far less than the recent increase in oil prices) is not always a bad thing. The farmers in developing countries are pleased that the price of American corn rose. Our American efficiency allows us to give away food, wrecking the incentive for sustainable agriculture in developing countries.

    Obviously corn to ethanol for fuel has a net warming effect, modern human harvesting of anything always will, duh. Given the inputs necessary to stimulate corn’s economical growth and the reduced economies of scale of corn vs. Arab oil, that is hardly surprising. After all, the Arabs would make money at $3.00 a barrel, they have such an efficient operation.

    The increasing availability of American ethanol is an important factor driving oil prices down so far so fast. (The other is ending government foolishness subsidizing petroleum consumption in Iran, India, China, and perhaps even one day, Iraq (gas will always be in short supply at 27 cents a gallon, Secretary Gates–econ 101?)) Our petroleum consumption is down less than 10%, remember.

    Paul Crutzen should not have received a Nobel prize since he badly underestimates the effects of externalities, especially the externalities of petroleum pollution (crime as well as respiratory disease) and inherited petro-wealth (anti-democratic, anti-freedom, anti-fairness political influence).

    So we can pay a small subsidy to get Ethanol over the hump right now and just for the time being, or we and our entire civilization can subsidize terror forever.

  • Nathan Schock

    I work for POET and just came across this article. I thought I’d correct a few of your facts concerning the federal money received by POET for the Emmetsburg facility. That facility exists today as a corn-starch ethanol plant producing 50 million gallons per year. We received an $80 million dollar grant to add cellulosic production capacity to that plant so that we can produce cellulosic ethanol from corn cobs, an agricultural waste product. The total cost of the project is at least $200 million, most of which will be paid for by POET and our private investors. When complete, the facility will produce 100 million gallons of starch ethanol and 25 million gallons of cellulosic ethanol.

    At POET, we believe that the real problem is our country’s addiction to foreign, fossil energy. We welcome anything that lessens that addiction, whether it be biofuels, hybrid vehicles or other technologies.

    Merry Christmas.

  • Bryce

    The government is for the most part putting its money into cellulosic now making corn ethanol a temporary stop over in the fuel world, so I am not sure whate everyone is so worried about. Sugar and celulosic are solid bases for fuel and have been identified so by the government, which is where they are putting their resources. Problem solved.

    As for the evil “big corn” thing….

    those subsidies allow us to produce more food than is necesary for us. This allows A) We will always have cheap food B) if there is a big disaster, and food is scarce around the world, we will have plenty for ourselves C) we can give tons to people who really are starving (ie Darfur region of Sudan, Zimbabwe, Ethiopia, just to name the ones we are donating to right now) Corn is a silly base for a fuel, but it is a damn good grain for eating and those subsidies allow us to feed the worlds poor and maintain our own food independence. All that doesn’t sound to bad to me.

  • David Bard

    Corn ethanol ranks among the largest scams foisted upon the American public! President-elect Obama will betray his trust and goodwill if he, as seems likely, abets Gov. Vilsak in his attempts to subsidize and increase corn ethanol production. Hopefully, the new Congress will not allow this travesty.

  • David Bard

    The corn used for ethonol production is not of the edible kind! Even if it were, it still would not be available for export nor domestic use, since this subsidized corn would be removed from food and cattle feed stocks to be processed into ethanol, thus creating a shortage and driving up food prices. U.S. citizens will then be paying twice: once for the subsidy, and once for additional cost of the corn.

  • Ronald S.

    Bryce needs to read up on ethanol policy before writing more posts like the one above. He states that “The government is for the most part putting its money into cellulosic now making corn ethanol a temporary stop over in the fuel world, so I am not sure whate everyone is so worried about.”

    Um, Bryce, the vast majority of government subsidies for ethanol are still supporting the corn variety. The tax credits for blending corn ethanol have been extended and extended, and extended again. On 1 January they will drop slightly, from $0.51 per gallon to $0.45 per gallon. But corn ethanol is not about to disappear from the scene soon. The Energy Independence and Security Act of 2007 mandates that 9 billion gallons of ethanol be blended with gasoline in 2008, growing to 15 billion gallons a year by 2015 … and then continuing at (at least) that level indefinitely.

    http://www.ethanolrfa.org/resource/standard/

    That makes corn ethanol hardly “a temporary stop over”. Problem NOT solved!

  • Corn Pone

    Do the government subsiidies carry over to grasses that are being grown for cellulosic production?

  • NB

    Haque says:

    Leave corn as food for the living not turn it into ethanol fuel !

    ****************

    The whole fuel vs food thing is a bogus claim invented by NGOs and green squads. The third world never complained about the West sucking off the market corn and wheat to produce fuel. Just the opposite is the case. The third world was saying for years that the West is massively overproducing in terms of agriculture and clears its markets of these surpluses by dumping them on global markets through subsidized exports destroying producers in the third world.

    The block of developing nations led by Brazil and India staged several walkouts because of this during the last rounds of global trade talks. And if we are talking about environmental impact of growing corn, then we should check how much water and other stuff is going into growing cotton which is one of those subsidized crops that raise most controversy.

    Not only ethanol is not a problem, it’s the solution. Western governments should stop this farm subsidies nonsense and switch all those farmers to biofuels. This is what the third world is expecting from us. They don’t want to be fed, they want us to let them produce. The third world is a major producer of agricultural stuff and as such it’s not interested in low prices.

  • CLD

    Nice polemic, hybridcars.com. My, haven’t we become cynical as of late.

  • Dan L

    Farmers have a disproportionate amount of political power in our system of government. If you want to pass legislation (as Obama does) you can’t afford to have them as enemies. So they will get yet another government subsidy this year. I just hope that Obama will keep it as small as possible, and focus on better ideas, with more potential.

  • upwithbiofuels

    In the last few months during the economic downturn all grain prices have dropped by over 50% and during the same period food prices have remained high. Now you folks who are so antagonistic toward biofuels should be able to look at these trends and, conclude, maybe corn prices don’t affect food prices that much after all.
    By the time you pay retail prices for a grocery product the part that the farmer received is miniscule.
    We as a nation are sending too many dollars over seas for oil, foreign cars, clothes from China etc. and we are now feeling the results of those lost dollars.
    One of the best solutions I can think of to remedy the situation is to buy American made Flex fuel cars and fill them up with American made E-85 fuel. This will produce new tax paying industries, jobs producing tax revenue and keep some of those dollars home. It will also encourage the second and newer generations of biofuels which won’t be made from corn.

  • AL

    Cars are not the only oil burners. For example ships contribute quite a lot to oil consumption and there is already a very effective method of partially returning ships to the wind power without huge investments. See http://www.skysails.info/index.php?id=472&L=2.

    I think it would have been much more effective if Obama would have spent some money on fitting this systems to the military and civil fleets.

  • Bryce

    Well, anyways Mr. Arnold, I was referring to tax incentives for the creating of refineries and most certainly not referring to the incentives directly made for the fuels themselves. That still continues, however, for the amount of corn ethanol there is in this country, (not even 10% of our fuel consumption) it is not harming the world all too much. The run-up in prices, much like that of oil, can be largely attributed to the retreat into commodity markets by investors once the overall market startedd to go down, made possible by the deregulation of the early 1990s. Even with prices up though, remember, the worlds poor that everyone here seems so concerned about are largely rural farmers managing small plots. I doubling in prices is a doubling of their income and a real boon to their purchasing power. Notice in Haiti, and other such countries, it was the urbanites rioting for lower food prices, not the rural majority, which actually was doing rather well. Back to corn though, it has been outlined by big bad gov’t that the initial production of ethanol fuels would be based in corn because the technology for celulosic wasn’t at mass production scale yet, but incentives and a volume mandate were in place for when they are ready. The govt is certainly not goinig to out and out pull the incentives for the corn ethanol out from under them, because a lot of production would essentially be instantly lost. Once the overall ethanol market is established, I would expect most if not all of these incentives to be removed making corn based fuels largely not viable, and replaced gradually by alternatives, celulosic and what not.

  • AP

    Why are we using taxpayer money to promote specific products like corn-based ethanol? If we just taxed petroleum-based fuels more, ethanol would likely become viable on its own, without us paying for it.

    The crime is that we are wearing out land, causing more erosion, depleting groundwater, and using chemical fertilizers to do little more than break even on fossil-fuel usage.

  • NB

    I noticed some repeating factual inaccuracies on this thread. One of them is a belief that there exists some corn ethanol subsidy. This is not correct. There exists a subsidy that is paid to blenders per gallon. It does not reach farmers growing corn who benefit mostly from expanded demand.

    This is also one of the reasons why the regulators slapped such a huge tariff on Brazilian ethanol. This is not so much to protect US corn growers but to avoid paying subsidy to oversees ethanol producers. If the US farmers were receiving this subsidy directly, there would have been no reason to have such a tariff at all since the subsidy would have made US corn growers fully competitive vs sugar cane ethanol.

  • NB

    Though I agree that the subsidy is bad. In its place there should exist a biofules tax. The regulators should impose a 100% tax on 20% of the content of every gallon, means 20% tax all in all. But gas stations should be exempted from the tax if they are blending 20%. If a station is blending less by selling say e10 then it should pay the tax on the missing 10%.

  • Shines

    I think there are much better ways and we could replace foreign oil. Ethanol is expensive to make and burns inefficiently. E85 is a poor substitute to gasoline.
    With oil now cheap we should be redoubling our efforts with solar, wind and other alternatives that would ultimately replace burning hydrocarbons.

  • NB

    Ethanol is not very expensive. Solar is more expensive and more difficult to scale up. The same goes about wind energy. And there is no way to store energy produced by either solar or wind which is a huge drawback. And ethanol is a transition technology. Nobody is expecting the ethanol market to remain the same within next 5 years. Even non cellulosic ethanol will see dramatic reductions in production costs thanks to genetic engineering and introduction of new crops – http://www.kansascity.com/105/story/937292.html . I don’t even mention cellulosic ethanol for which non cellulosic ethanol is preparing the ground.

    If anything, the correct decision should be indeed to reform the taxation system with a big fuel tax and cuts in income tax, VAT and other taxes – http://happyarabnews.blogspot.com/2008/12/making-sense.html . However, given that this is politically impossible, a choice should be made, and biofuels is a correct choice.

  • Progress

    Give him a break already!!! He’s exploring and trying to develop alternative forms of energy. Thousands of farmers are paid to warehouse surplus corn in warehouses. Right now, the corn is going to waste! At least we can make good use of it. YOUR article is BIASED towards YOUR interests! Although I support hybrid technology, I support ALL forms of alternate energy.

  • Bryce

    I have to admit, the title was a bit admonishing……just saying….

  • aaron bird

    You my be one of them fools that think its ok to make fuel from feed stock. ( i pose this too you how much run off from nitrogen goes into our lakes and rivers from the over growing of corn) That is one thing we pay no mind too. ( Two the fertilizer that is used to grow that great yellow feed stock is a product of ( OIL ) you have no idea how much oil is used to make that fertilizer product ( Three ) Its not cheap and you need alot of it for corn to grow. ( four) Have you checked the global food bank as of late its way down the world is one bad harvest away from starvation…. (FIVE) to fill your SUV that you drive with E85 would feed a family of 4 for a month thats how much corn is used to make 1 tank of fuel. Im 47 and i think we may see the killing of our lakes and river in my time , The Ocean is alredy well on its way. And as for you sir you and your closed mind are part of the problem. WAKE UP AMERICA ………….

  • NB

    Aaron

    Suggesting that other people fools or calling on them to wake up require writing smarter comments than that. In particular when in previous comments your points have already been thoroughly debunked. Arguments like you don’t know how much it costs or you don’t know how much oil is needed to produce it, don’t count as well, because this is not an article about developing emotional intelligence.

    From 2005 to 2009 the share of ethanol in the autofuel market was expanded from zero to be 10% next year. At the same time the avalanche of subsidized agricultural products from the US and Europe was laying waste to whole agricultural sectors in the third world.

    The issue of the Western agricultural overproduction has not just become an issue, it’s become THE ISSUE over which have collapsed all last rounds of global trade talks.

    All this was happening while the US was blocking with a massive tariff entry to Brazilian ethanol that provides 40% of Brazil’s autofuel while taking barely 1% of the country’s arable land.

    And on top of this half a billion was invested in ethanol production in Northern Peru in anticipation of the FTA between Peru and USA taking effect next year. Brazilian ethanol is competitive with no subsidies at $40 per barrel, but that from Peru is even cheaper and unlike Brazilian ethanol it will enter the market tariff free because of the FTA agreement. All this while there is a massive overproduction of ethanol in the US market.

    There is no fuel vs food competition and there is no shortage of ethanol. Just the opposite is the case.

  • Samie

    Shines has it right…
    Fuel for Fuel is not a solution but a problem even in cellulose production. Short-term solutions easily become annoying long-term counterproductive self-interest problems. Markets can’t efficiently support these fuels for fuels even biofuels or CNG without heavy subsidies or imports from countries that don’t always support U.S. interests.

  • hamilton

    Here’s the national security argument that’s missing from the thread so far:

    Unfortunately, we’re stuck with a transportation system based on liquid fuels for awhile… batteries, fuel cells etc are getting closer by the day, but not yet ready for mass production.

    From the standpoint of (transportation) energy security, hedging our bets with a short-term alternative to imported petroleum is pretty compelling: it wouldn’t take much for the global oil supply chain to be brought to a screeching halt (for a real scare, look at http://www.eia.doe.gov/cabs/World_Oil_Transit_Chokepoints/Background.html).

    Hats off to the US Navy and other forces that keep the flow of cheap oil going (why doesn’t that count as a subsidy?); the security part of Obama’s job description in fact mandates that he develop a “Plan B” beyond the strategic oil reserve.

    Aside from opening up offshore drilling or stimulating ethanol production, Obama’s alternatives for safeguarding our “transportation security” become truly nasty, both in terms of immediate environmental impacts and carbon-emission – stuff like cracking almost-petroleum from shale, steaming it from Alberta’s oil sands, or converting coal to diesel…

    It appears that Obama’s higher order strategy remains centered on moving to renewable sources of electricity delivered via a more robust grid. Encouraging faster deployment of hybrid, biofuel, diesel, and combo hybrid/biofuel vehicles are tactics that help us reduce oil reliance in the interim.

  • hamilton

    disclosure: I work for General Motors.

  • Bryce

    The alternative to ethanol is…..more oil you guys. Hybrids are fuel efficient….but they have to run on something. As for electric….well, I have heard enough complaints from you guys that a $35k Volt is too expensive, and other electric would follow this pricing….so what do you guys propose…..hmm?

  • NB

    The fundamental problem with ethanol is actually the subsidy itself. There is no logic in paying it. This is not to say that the regulators should not impose mandatory blends or fine stations that blend below the RFS standard. But the subsidy does not make any economic sense. During the last boom huge quantities of ethanol were blended way above the RFS because ethanol was cheaper than gas. When the price of oil is collapsing as it’s happening right now, there is again no reason to subsidize ethanol as it becomes the only component of the blend that keeps its price from hitting the floor and setting the consumption on rampage. The ethanol part is the stabilizing part of the blend and the subsidy basically deprives ethanol of its main advantage – the ability to hold back the price when the market is on fire and provide the floor for the price when the bottom drops out of the market. Besides this technicality, the regulators should push ethanol forward as hard as they can.

  • Old Man Crowder

    Is it possible that Obama nominated Vilsack as Agriculture Secretary simply because he’s from an agriculture state and therefore might be more in-tune with agricultural needs?

    What if the Secretary had come from, say, New Jersey? We’d all be saying “WTF?”

    Perhaps not everything has a hidden agenda. Maybe we’re just not used to having intelligent decisions being made anymore.

  • Bryce

    wtf mates….intelligent…decisions….no way……definetly a lobby…

    Just maybe……

  • Samie

    Not sure I get the point of using other fuels to replace petroleum. So many are stuck on replacing oil but fail to see the problems that other fuels can cause. Were stuck with ethanol, self-interests don’t stop just because someone says lets use it for a few years until we get to a electric system, No that does not happen! Who cares about oil reliance if we create a monster out of other fuels which may actually have no benefit in reducing Co2 or loaded with taxpayer $$$$ or better yet fooling ourselves with false claims of supply while actually world implications ranging from starvation to continuing security risks with possible new power players like Russia.

  • Bryce

    well, ethanol, once oil is removed from the equation is a net zero carbon polluter with its fuel base coming from a product that sequesters carbon…..so that knocks out the co2 problem in the long term. Worrying about places like Russia won’t be such a big problem when hydrocarbons derived from crude isn’t so important making their “resurgance” a joke. The point of cellulosic ethanols is to use things that people don’t eat…..like grass…..do u eat grass….no because it is too cellulose heavy. The only things that eat cellulose heavy foods are termites and cows. So don’t worry, that way you aren’t starving anyone. Does that satisfy all of everyones problems???

  • B

    Just quickly, people eat cows bryce.

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