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.
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
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.”
A Bailout on the Horizon
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.