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.

xpost: Scholars and Rogues

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