The Corn Ethanol Juggernaut

Oil isn’t America’s only fuel addiction. Inefficient and environmentally damaging, the corn-ethanol boondoggle will nonetheless be hard to stop.

The huge corn ethanol mandates imposed by Congress a few years ago may be the single most misguided agricultural program in modern American history. That’s saying something, but consider the program’s impact: higher global food prices, increased air pollution from burning ethanol-spiked fuels, spreading dead zones in the Gulf of Mexico from a surge of fertilizer use, and strong evidence that growing a gallon of corn ethanol produces just as many greenhouse gases as burning a gallon of gas.

Why then, given these many problems, hasn’t Congress rolled back the mandates and stopped this boondoggle?

The answer can be boiled down to a few salient realities of American politics and agricultural policy. First, even in the subsidy-rich world of U.S. agriculture, corn is king. Second, the power wielded by the farm state lobby remains enormous. Third, Iowa is Ground Zero for corn, and its pivotal presidential caucuses leave even supposed change agents like Barack Obama bowing before the altar of corn ethanol.

And, finally, once a juggernaut like corn ethanol gets rolling with massive federal support and mandated production levels, bringing it to a halt is enormously difficult — even when study after study shows that relying on corn ethanol as a cornerstone of an alleged renewable energy policy is folly.

The corn sector has long enjoyed staunch backing from Congress. According to the nonprofit Environmental Working Group, between 1995 and 2006, federal corn subsidies, which are provided through a myriad of programs, totaled $56.1 billion. That’s more than twice the amount given to any other commodity, including American mainstays like wheat and cotton, and 105 times more than was paid to tobacco farmers.

Corn ethanol production has long been a favorite of farm state legislators in Congress, who have promoted the fuel as an alternative to the evils of foreign oil. Congress approved the first ethanol subsidies in 1978, just a few years after the Arab oil embargo of 1973. “It makes for a good public image — supporting the farmer, supporting the rural economy,” says Thomas Elam, an Indianapolis-based agricultural economist. The problem, he says, is that “it’s a special-interest program that spreads the cost of the program across the rest of the economy.”

Elam says that the farm lobby collects tens of millions of dollars a year to lobby lawmakers at the state and national levels. States like Iowa and Ohio have their own ethanol associations, which work in tandem with national groups like the Renewable Fuels Association. In 2006 alone, that group collected about $3.7 million in dues from its members and paid its president, Robert Dinneen, a salary of $300,000 to push the ethanol-is-good message on Capitol Hill.

Additional support for the ethanol mandates comes from groups like the American Corn Growers Association and its larger cousin, the powerful National Corn Growers Association (NCGA), which reported 2006 total revenue of $8.6 million. The NCGA has some 33,000 dues-paying farmers spread among 48 of the 50 states. On its Web site, the NCGA makes it clear that it aims to “increase ethanol demand” by establishing a federal program that is “part of a comprehensive energy policy.”

These interest groups will spend millions of dollars “to keep the mandate where it is,” says Jan Kreider, a professor emeritus of engineering at the University of Colorado, who has been studying motor fuels for three decades. “It’s a massive political battle to even slow it down,” says Kreider. “Once the mandates are in, it’s almost a one-way street. It could take decades to whittle down the size of the mandates.”

It’s a massive political battle to even slow it down… It could take decades to whittle down the size of the mandates.”
The staying power of the ethanol mandates is largely due to the decades-long influence of the farm state delegations on Capitol Hill. As former Sen. Bob Dole of Kansas once explained to Texas oil baron T. Boone Pickens, “There are 21 farm states, and that’s 42 senators. Those senators want ethanol.” And the influence of those senators — 15 states now have ethanol production capacity of at least 200 million gallons per year —will be hard to overcome.

Cutting the ethanol mandates will require jousting with two of the most powerful members of the Senate, Republican Charles Grassley and Democrat Tom Harkin. Both are Iowans. Both are ardent ethanol boosters. And Harkin is the chairman of the Senate Agriculture Committee. Harkin’s position gives him tremendous leverage over any ethanol-related legislation that comes before the Senate.

Which brings us to the Iowa Imperative. Any candidate who wants to win the White House must have a good showing in the very first presidential primary — the Iowa caucuses. “Candidates have to come here and suspend all critical judgment,” says David Swenson, an economist at Iowa State University. “There is a knee-jerk reaction in Iowa that if you don’t support our special interests then you don’t love us and we won’t vote for you — and that’s true even though the vast majority of Iowans don’t have anything to do with farming and wouldn’t know a crop if it fell on them.” The imperative can be explained by looking at the numbers: Iowa now has about one-third of the ethanol production capacity in the U.S., and those ethanol plants provide jobs for several thousand Iowans.

Barack Obama understood the Iowa Imperative. And his strong support for ethanol helped him win the Iowa primary. That win validated his campaign and was a key factor in assuring that he won the Democratic nomination. And the farm lobby is rewarding Obama. On Aug. 22, the American Corn Growers Association endorsed Obama.

On the Republican side, John McCain, a long-time ethanol critic, tied for third in Iowa. In August 2006, six months before the Iowa vote, McCain switched sides in the ethanol debate, telling a crowd in Grinnell, Iowa, that ethanol “is a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse gas reduction effects.”

McCain has since switched sides again and is now co-sponsoring a bill — introduced in May by Texas’ Kay Bailey Hutchison and 10 other Senate Republicans — to freeze the ethanol mandates. Hutchison argued that the ethanol mandates needed to be limited because they were driving up the price of corn and were “clearly causing unintended consequences on food prices for American consumers.” Her bill would limit the volume of corn ethanol to be blended into gasoline to no more than 9 billion gallons. But current federal rules mandate far greater production: U.S. oil refiners must be using at least 15 billion gallons of ethanol per year in their gasoline by 2015 and 21 billion gallons by 2022. Such a sharp increase by 2022 would principally be reached by making ethanol from other materials like switchgrass and wood chips. But this “cellulosic ethanol” has never been produced in commercial quantities.

Hutchison’s bill, S. 3031, is stuck in the Senate Environment and Public Works Committee. A hearing has not even been scheduled.

In early August, the Environmental Protection Agency denied a request by Texas Gov. Rick Perry to allow his state to opt out of the federal ethanol mandates. Lower corn prices are a critical issue for livestock producers in Texas who have been hit hard by soaring corn prices. In denying the request, E.P.A. Administrator Stephen L. Johnson said that the ethanol requirements are “strengthening our nation’s energy security and supporting American farming communities” and are not causing severe harm to the economy or the environment.

Furthermore, Congress has passed rules that make it hard to waive the mandates. The Environmental Working Group is one of several environmental groups that are fighting to slow or reverse the ethanol mandates. The group’s Michelle Perez, a senior analyst for agriculture, was not overly surprised that the EPA rejected the Texas request. “Congress set the bar pretty high for states to demonstrate environmental and economic harm in order to get the mandate waived,” says Perez. She points out that Texas applied for a waiver based only on the economic harm being done by the mandates. The state would likely have made a stronger case had it sought a waiver based on both economic and environmental harm, Perez says, noting that her organization has begun providing testimony to the EPA on the environmental impacts.

Any sustained attack on the ethanol mandates would have to counter the enormous amounts of capital that have been invested in the corn ethanol sector. The industry’s momentum can be measured in the billions of dollars. According to the Renewable Fuels Association, the trade group, some 168 ethanol distilleries with an annual capacity of 9.9 billion gallons are now operating in the U.S. Those plants are spread among 26 states, and another 43 plants are under construction or are being expanded. If you assume that each of those 200-plus plants costs $75 million to construct (a conservative estimate), the total cost of those distilleries is about $15 billion. If the federal mandates are eliminated or rolled back, the owners of the ethanol plants could seek compensation from the federal government.

So the mandates continue, despite at least 10 studies — including one this spring by the World Bank — showing that the surge in U.S. corn ethanol production is forcing up global food prices. On the environmental front, a spate of studies has shown that the production of corn ethanol likely creates more greenhouse gases than conventional gasoline. Due to the energy-intensive nature of the cultivation and distillation processes, ethanol produced from corn yields very little, if any, benefit. Clean-air advocates also contend that the growing use of ethanol in gasoline is increasing the amount of smog in America’s cities. William Becker, executive director of the National Association of Clean Air Agencies, which represents air pollution control authorities across the U.S., said Congress “decided to mandate ethanol without first analyzing the air-quality impacts.” Gasoline that has been blended with 10 percent ethanol may be more volatile than conventional gasoline, which means more light hydrocarbons — and ground-level ozone — are emitted into the air. For Becker, the conclusion is crystal clear: “More ethanol means more air pollution. Period.”
“More ethanol means more air pollution. Period.”
Corn ethanol production has negative impacts on water quality. Researchers say that a key reason for the growing “dead zone” of oxygen-depleted water in the Gulf of Mexico is the increased planting of corn to meet the soaring demand from ethanol distilleries. That additional acreage has resulted in increased applications of fertilizers like nitrogen and phosphorus, which are then washed into the Mississippi, helping create the algal blooms that cause dead zones.

The controversy over the ethanol mandates will undoubtedly go on for months, or years, to come. But even if Congress repeals the mandates and eliminates the subsidies for ethanol production, the ethanol industry will not shut down. Even without federal supports, some distilleries will still be profitable. And their profitability will be directly linked to the price of oil: As the price of oil continues to rise, some of the most efficient ethanol producers will be able to compete with high-priced gasoline.

No matter what Congress decides to do in the future with regard to the ethanol mandates, it has birthed an industry that has an incentive to burn food in order to fuel cars. And the ramifications of that move — in food prices and environmental effects — are likely to reverberate throughout the global economy for years to come.