Ethanol allegiance no longer of primary importance for candidates

As the Iowa caucuses shape up for February, one thing is becoming clear: Support for ethanol is no longer a sine qua non for aspiring presidential candidates.

“I think, ultimately, we need to get to a point where there aren’t winners or losers based on subsidies or mandates or anything else,” Jeb Bush told Iowa Public Radio in a statement that didn’t even qualify as lukewarm support.

Presidential hopeful Ben Carson marked a milestone when he backed away from his previous support of ethanol entirely in the Republican debate in Boulder, Colorado, last week. Carson said he had been “wrong” in his previous position where he called for slashing subsidies to oil companies to pay for subsidies for ethanol. He now says he wants to eliminate all government subsidies, including ethanol subsidies.

Such positions probably reflect the growing nationalization of the primary process. In previous years, candidates have come to Iowa praising ethanol subsidies, hoping their position wouldn’t hurt them in other states. Newt Gingrich famously embraced ethanol in 2008 after being an outspoken opponent of government market interventions for many years.

But just because candidates no longer embrace ethanol does not mean the technology is not moving forward. At the same time candidates are backing away from subsidies, the U.S. Department of Agriculture has announced it will invest $210 million in 21 states to add more fueling pumps that dispense higher ethanol blends like E85 and E15. Calling the initiative the Biofuel Infrastructure Partnership (BIP), the USDA said it will require matching funds of around $100 million from the states and private partners.

“This major investment in renewable energy infrastructure will give Americans more options that not only will suit their pocketbooks, but also will reduce our country’s environmental impact and bolster our rural economy,” Agriculture Secretary Tom Vilsack said.

The states that will be participating are Florida, Colorado, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, Minnesota, Missouri, Nebraska, North Caroline, North Dakota, Pennsylvania, South Dakota, Texas, Virginia, West Virginia and Wisconsin.

E85 is available at many stations in the Midwest, but is more scarce in other regions of the country. There are an estimated 17.4 million flex-fuel vehicles on the road today, although only a small percentage of them use E85. Most of the use of E85 in FFVs has been confined to cars in the federal fleet. The Energy Policy Act of 2005, signed into law by President George W. Bush, required federal vehicles to use E85 wherever it was available, but only 130,000 of the 600,000 vehicles in the federal fleet use E85, because they do not have access to it.

The ethanol industry expressed dismay this past year when the Environmental Protection Agency cut back its ethanol requirement from the amount originally envisioned in the 2005 policy act. The reason EPA acted was because gasoline sales have actually declined since 2008, owing to improved gas mileage in new cars and with the recession (although there has been a recent uptick with the falling price of gasoline). The new standards are expected within the next few weeks and are bound to set off a similar controversy.

Nevertheless, the industry continues to produce ethanol at the rate of 14.53 billion gallons a year, a record high. In Nebraska, ethanol is now a $5 billion industry, exceeding the size of the $3.5 billion soybean industry and absorbing two-thirds of Nebraska’s $6.6 billion corn crop. Iowa has the largest ethanol industry, with 42 ethanol plants employing 2,000 people.

Despite all this, the industry’s future is uncertain. The falling price of oil has driven down ethanol prices, and refiners are facing a squeeze in profits. Exports to China are also flagging. Ethanol is now priced at $1.60 per gallon, the lowest in a decade. Top producer Archer Daniels Midland has begun favoring products with better returns, such as high-fructose corn syrup.

Many academic agricultural specialists have argued that wider availability of E85 is the solution to the problem. Ethanol now receives no federal subsidies but is governed by the requirement that 10 percent ethanol be included in every gallon of gasoline. With the continuing introduction of flex-fuel vehicles and the greater availability of pumps offering E15 and E85, however, the nation could easily absorb more of the product.

Still, criticism of the industry remains. Recently a study at the University of Tennessee said that the extensive subsidies and mandates that support ethanol have been misdirected, and that efforts toward producing cellulosic biofuels would have been more productive. (A few days later, DuPont opened the world’s largest cellulosic-ethanol plant, in Nevada, Iowa.) The study said that the economic prosperity that has come to farm areas fails to take account of the $50 billion in federal subsidies and mandates that have accumulated since 2005.

Thus, ethanol continues to take criticism. But the broader availability of E85 may be enough to keep the industry thriving.

(Photo credit: Daniel Holt, via Flickr)