It's been a rough season for corn ethanol on Capitol Hill.
A winter that began with a tougher-than-expected battle to win congressional approval for a one-year extension of the ethanol blenders' tax credit is delivering more harsh doses of reality to an industry that benefits from notable government support. With a House Republican majority newly emboldened to trim ethanol mandates and a bipartisan Senate majority eyeing subsidy reform, the political obstacles facing conventional biofuels appear steeper than ever.
Even corn ethanol's strongest allies acknowledge that the 45-cent-per-gallon tax credit, the 54-cent tariff on imported biofuels and a federal renewable fuel standard (RFS) that calls for 36 billion gallons of production by 2022 merit scrutiny -- particularly in the current political moment, when fiscal austerity is a watchword.
"If the government has a mandate, it has to be a mandate that can be reached," said Sen. Chuck Grassley (R-Iowa), perhaps the Capitol's biggest ethanol stalwart, in a recent interview. Of the long-term RFS target set by lawmakers in the 2007 energy bill, he added: "The extent to which it is realistic, I think, is legitimate to look at."
But despite the rising voices of critics who see the industry's benefits as too generous for taxpayers to afford, ethanol has a substantial political advantage: Subsidies for all energy producers are under the microscope. By emphasizing the "R" in its RFS, then, corn ethanol can position itself as aligned with solar or wind rather than Big Oil.
"Everyone in the industry, or at least those who are realistic about it, understands that the tax incentive as we currently know it will be reformed," said Matt Hartwig, spokesman for the ethanol trade group Renewable Fuels Association, in an interview. "The question is, what does that reform look like? And does such reform come with similar reform efforts for other fuel subsidies?"
Major oil companies, Hartwig added, "make $50 billion a quarter in profits, yet still get billions of dollars of permanent subsidies in the tax code each and every year. Is that a wise use of taxpayer dollars?"
House Democrats raised similar questions during debate over their chamber's seven-month government funding bill, forcing a vote on an alternative plan that would cut back oil industry tax breaks. That effort fell short, however, while two amendments to the funding bill limiting federal ethanol support passed easily -- including one, from Rep. John Sullivan (R-Okla.), with a potentially veto-proof majority.
Sullivan's amendment blocking U.S. EPA from allowing the sale of fuel blended with 15 percent ethanol (E15) for newer vehicles, passed the House on a 285-136 vote, with 79 Democrats lining up in favor. That 67 percent majority should serve as a "wake-up call" to the Obama administration, Sullivan said through a spokesman.
Still, the next stage for the drama over ethanol's future will likely be the Senate Environment and Public Works Committee, which anticipates holding a hearing in April that takes a broad look at multiple facets of U.S. renewable fuels policy. The panel's chairwoman, Barbara Boxer (D-Calif.), was one of 17 upper-chamber members who signed a bipartisan letter in November calling for the phaseout of ethanol tariffs and blending subsidies.
And ethanol is one of a few issues that find Boxer aligned with her committee's ranking Republican, Sen. James Inhofe of Oklahoma, a longtime ethanol foe who is relishing his ability -- despite a reputation as a vocal climate change skeptic -- to build a partnership with environmentalists who want Congress to reduce support for the corn-based fuel.
"What we're trying to do is reach across the aisle" on ethanol, Inhofe spokesman Matt Dempsey said in an interview. "When you have Inhofe and Barbara Boxer and Friends of the Earth (FoE) on the same page, it's pretty understandable what's coming."
By the time of the April hearing, Inhofe aims to reintroduce his previously proposed bill that would allow states to opt out of the corn-ethanol portions of the RFS. His aides have even taken to Twitter to nurture what one green advocate dubbed an "unholy alliance" between her camp and the oil-patch Oklahoman.
Open season on subsidies?
Sen. Bob Corker (R-Tenn.), who joined Boxer on the November letter calling for the phaseout of ethanol tariffs and subsidies, described his stance as a simple matter of opposition to "artificially distorting the market."
"If ethanol, which is a very mature industry, wants to compete, that's fine with me," Corker said in a recent interview. "My guess is, in their heart of hearts, many folks who represent areas where ethanol [is made] think it's a bad policy. I certainly think it's a bad policy."
The Government Accountability Office lent some weight to that perspective last week in a report on extraneous programs that Congress could consolidate to reduce wasteful spending. "The ethanol tax credit and the renewable fuel standard can be duplicative in stimulating domestic production and use of ethanol, and can result in substantial loss of revenue to the Treasury," the office's independent auditors wrote (Greenwire, March 1).
"If we lose ethanol overnight, it would cause significant problems for us," said Sen. Ben Cardin (D-Md.), a senior EPW Committee member, in an interview. "The question is, how much energy do we net on ethanol, and how disruptive is it to the food chain?"
Some senators who did not join the 17-member letter, spearheaded by Dianne Feinstein (D-Calif.) and Jon Kyl (R-Ariz.), said they would welcome a debate on the effectiveness of government supports for ethanol during a political moment rife with deficit consciousness.
"We've got to reduce the cost to the American people, financially as well as environmentally, so I'd like to see a more serious look at what the consequences of our tariffs on ethanol are," said Sen. Frank Lautenberg (D-N.J.), another senior EPW Committee member, in a recent interview. "The taxpayer pays the price, and I don't think that's appropriate."
Nonetheless, Midwestern lawmakers can be expected to join ethanol producers in fighting hard against attempts to reduce federal support for the fuel without transitioning it to other types of benefits. Given that, the road map to a long-term shift in corn ethanol policy could rest on a gradual shift from tax credits to more spending on infrastructure, such as a long-term plan offered by biofuels trade group Growth Energy in 2009 that is gradually winning more favorable notice from its colleagues in the industry (Greenwire, Oct. 22, 2010).
Growth Energy's concept is also catching on with some of the Hill's strongest ethanol backers. A move from subsidies to investment in blender pumps, storage tanks and other projects "has to be our direction" in the long term, Sen. Mike Johanns (R-Neb.) said in a recent interview.
Describing the coming EPW Committee hearing as "an opportunity to make the case that this is the right course of action for our nation," Johanns put his support for ethanol in context.
The fuel is not worth backing "because it's going to solve all of our oil issues, but it is a piece of the puzzle," he said: "It's domestic, it's here, we don't have to worry about whether" Middle East unrest could jeopardize global supplies.
Ethanol industry representatives are now hammering out a proposal for how to reshape their businesses' federal benefits. That work recognizes the importance of presenting a "unified plan ... that moves forward in a fiscally responsible manner" to Congress and the administration, said Hartwig, of the RFA industry group.
"When you have even a perception of discontinuity in the industry and competing priorities, that's a problem," Hartwig said. If ethanol players of various stripes cannot present a united front, he added, "imagine how confused members of Congress [would] get who are managing a multitude of issues."
In another strategic shift from the industry, RFA created an Advanced Ethanol Council last month aimed at giving a stronger voice to companies involved in cellulosic ethanol and other emerging ethanol technologies. Whether that new emphasis can win over ethanol's critics, however, remains to be seen given the lower-than-expected performance of cellulosic (ClimateWire, Feb. 16).
"In the past, a lot of environmentalists were very high on cellulosic ethanol," said Frank O'Donnell, president of the green group Clean Air Watch, in an interview. "It's looking more and more like that's a mirage."
E15 and climate
Despite the lopsided vote count in favor of his anti-E15 amendment, Sullivan said after the House funding bill's passage that the administration had yet to reach out to him to discuss the level of resistance to blending more ethanol in order to meet the RFS.
"My amendment is not an attack on ethanol -- it's about making sure the EPA is not sacrificing consumer safety for the sake of pushing E15 to meet the RFS mandate," Sullivan said through a spokesman, pointing to former President Clinton's recent warning that an uptick in corn ethanol production could cause global unrest and higher food prices (E&ENews PM, Feb. 24).
O'Donnell of Clean Air Watch, a dogged opponent of the House funding bill's attempts to hamstring EPA, said that the level of support for Sullivan's plan deserved notice.
"On the merits of the issue, I think the vote reflects the fact that there's a very broad and real coalition that has concerns about this," said O'Donnell, whose concerns about blending more ethanol into fuel stem from the resulting potential for increased emissions.
Meanwhile, ethanol's growing primacy on the congressional agenda comes as the once-marquee fight to pass a comprehensive climate change bill becomes a defensive play by Democrats to preserve EPA authority to limit greenhouse gas emissions.
The demise of cap-and-trade legislation could yet create space for a bipartisan consensus on scaling back ethanol subsidies, but it also holds the promise of pushing the parties further apart during months of heated combat over emissions regulations.
One GOP aide working on the issue predicted that Democrats and green advocates would have "to figure out how much they want to be involved in this coalition" to closely examine ethanol but contended that having "cap and trade off the table" puts biofuels dealmakers at an advantage.