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Energy and Iowa: The Declining Power of Ethanol

Corn Fuel Isn’t Key in the Caucuses but Could Be by Fall

Many a presidential dream has been plowed under the cornfields of Iowa during the past four decades. For a select handful of presidents — Barack Obama among them — the state’s caucuses have served as their singularly most important launching pad toward the White House.

In the race for either party’s nomination, winning the first contest affords an enormous boost, not only to a long-shot contender looking to break into the top tier (Mike Huckabee for the GOP in 2008) but also for a frontrunner hoping to cement his standing (Democrat John Kerry in 2004). And when it comes to the general election, Iowa remains very much up for grabs. Although Obama carried the state last time by a comfortable 9.5 points, the previous two campaigns in the state were nail-biters: George W. Bush won by 0.7 of a point in 2004 and Al Gore by 0.3 of a point in 2000. Altogether, each party’s candidate has prevailed there five times in the 10 presidential elections since 1972 — when George McGovern put the Iowa caucuses on the map by engineering a strong showing that propelled him toward the nomination.

And, when the spotlight turns to Iowa every four years, it’s no surprise that one parochial issue gets far more attention from the candidates and the voters than all the rest: federal policy toward ethanol, the fuel made from corn.

“I always said the biggest winner of the Iowa caucuses is the ethanol industry,” said David Yepsen, who spent three decades with the Des Moines Register as a political writer and editor.

More corn is grown in Iowa than in any other state — about 2.4 billion bushels in a decent year — and the state’s two dozen refineries turn so much of it into ethanol that the fuel has become a literal lifeblood of the Iowa economy: Renewable fuel production amounts to 9 percent of the state’s economic output, supports more than 80,000 jobs and generates $576 million in state tax revenue, according to the Iowa Renewable Fuels Association. And so, for years, it has made perfect sense for those presidential candidates who opposed federal ethanol subsidies to bypass the Iowa caucuses altogether and stake their fortunes in New Hampshire.

But the political potency of ethanol appears to be waning. Congress this summer set a course for ending the industry’s federal tax benefits at the end of the year as a way to shave projected deficits. Most of the current Republican presidential aspirants have expressed opposition to government assistance for the industry. And Iowa voters appear to be forgiving.

“It’s important for some, but I think less so than it used to be,” said Yepsen, now director of the Paul Simon Public Policy Institute at Southern Illinois University in Carbondale.

For one thing, ethanol was never the sacred cow that some on the national stage believed, Yepsen said. Still, he notices a shift that spans the political spectrum.

Ethanol has come under fire from free-marketers on the right who detest government subsidies and environmentalists on the left who say its production results in hefty greenhouse gas emissions. Voters from both parties are concerned with rising levels of government debt. All of which suggests opposing “big corn” in 2012 might not prove fatal.

And yet, with the presidential contest likely to be narrowly decided, each party’s candidate will be grasping for every electoral vote and any advantage he or she can muster. In the battle for Iowa, support for ethanol could still tip the balance.

A Declining Factor

Historically, presidential candidates who have supported assistance for the ethanol industry have fared far better in Iowa than those who opposed it. Notably, Sen. John McCain of Arizona, who ran for president in 2000 and won the GOP nomination in 2008, did not make any effort to win the Iowa caucuses either time — in large part because of his emphatically stated opposition to ethanol subsidies.

In June, Jon Huntsman announced he was taking a similar tack in his pursuit of the GOP nomination. “I’m not competing in Iowa for a reason. I don’t believe in subsidies that prop up corn, soybeans and ethanol,” said the former Utah governor, who has trailed far behind the rotating cast of leading candidates all year and so didn’t figure to be a factor anyway in the Jan. 3 caucuses.

In fact, Huntsman’s opposition to such subsidies would not place him out of step with most of his competitors. Businessman Herman Cain, Texas Gov. Rick Perry, Rep. Michele Bachmann of Minnesota, Rep. Ron Paul of Texas and former Sen. Rick Santorum of Pennsylvania all oppose ethanol subsidies.

That’s not the case for the two current frontrunners. Former Speaker Newt Gingrich of Georgia supports maintaining government assistance for the industry and so does former Massachusetts Gov. Mitt Romney — though he has sent some mixed signals of late and may now be now signaling the view that the industry has probably received all the federal help it needs to survive and thrive.

In May, Romney said bluntly, “I support the subsidy of ethanol.” But five months later, he told Iowans that he “supported the subsidy of ethanol to help get the industry on its feet,” adding, “I’m not running for office based on making promises of handing out money.”

The Republican race remains extraordinarily fluid, but a candidate’s position on ethanol does not appear to be a decisive factor for most Iowans likely to attend the caucuses. A Bloomberg News poll released three weeks ago found a statistical tie for the lead in the state among four candidates: two who oppose ethanol subsidies (Cain and Paul) and two who support them (Romney and Gingrich.) Each had 17 percent to 20 percent support. And just 28 percent of those surveyed said they would rule out a candidate who has advocated eliminating energy subsidies, including those for ethanol; 69 percent said they would not rule out such a candidate.

Veteran conservative activist Steve Scheffler, who is president of the Iowa Faith and Freedom Coalition, is not surprised. “A lot of the candidates are talking about getting rid of subsidies across the board, letting everything compete in the marketplace,” he said. “Support for ethanol subsidies is not a deal breaker like it has been in the past. People are concerned about the debt.”

The campaign trail is not the only place ethanol supporters have seen their influence wane. On Capitol Hill, the once-mighty industry has watched its political cachet dip in the new age of austerity. In June, with Congress consumed in its debate over how to pair deficit reduction with an increase in the federal debt limit, a bipartisan majority of 73 Senators voted in favor of eliminating $6 billion in government support for the ethanol industry during the next decade. (The proposal was to end the prized 45-cents-per-gallon tax credit that refiners get for blending ethanol with gasoline and a 54-cents-per-gallon tariff on imported ethanol.) That 33 Republicans supported the idea was a symbolically important sign that the party’s “no new taxes” orthodoxy now has certain limits.

The provision was attached to an unrelated economic development bill, which later died in the Senate. But the test vote was so lopsided that there’s virtually no chance the two provisions will be continued beyond their scheduled expiration at the end of this month.

For an industry that has tended to receive an increasing flow of federal assistance since 1978 and that largely owes its existence to the government, that is a major shift.

A Rural Touchstone

Still, it would be a mistake to overstate ethanol’s downward trajectory. The renewable fuel standard, which requires transportation fuel sold in the United States to be made up of an increasingly higher level of biofuels such as ethanol, remains in place. That mandate, first included in a 2005 energy law and expanded two years later, does not appear in danger and is considered far more important for ethanol boosters than the expiring tax and tariff benefits.

“Everybody involved understands there’s going to be some big changes. The big issue is the renewable fuel standard,” GOP Rep. Tom Latham of Ames said. “If that continues, we’re fine.”

And if the broader public is souring somewhat on direct subsidies to ethanol, it is still a crucial industry for Iowa, which produces nearly a quarter of the nation’s ethanol and counts on the making of ethanol and the growing of corn for those refineries for $11 billion in annual economic activity.

For those reasons, the state’s lawmakers on both sides of the ideological divide — from conservative Latham to liberal Democratic Sen. Tom Harkin — are convinced the presidential candidates’ ethanol stance will factor into the decisions of thousands of Iowa voters.

The president of the Iowa Farm Bureau, Craig Lang, said his organization will be working during the next month to make support for ethanol a key issue at the GOP caucuses — and will be back at it in the fall if the two nominees are on opposite sides on the issue. Iowans in both parties, he said, support federal help for corn refiners because they have done so much to prop up the state’s economy in recent years.

Obama has long been on the side of ethanol — not surprising, given that he was previously a Senator from Illinois, the No. 2 corn-growing state. And as president, his support hasn’t wavered. If anything, he has doubled down on his enthusiasm for the fuel by pushing for greater use of cellulosic ethanol, which is made from wood, grasses and nonedible plant parts. The president has set a goal of cutting the nation’s oil imports by one-third by 2025, with biofuels playing a major role in making up the difference. In August, he announced the departments of Agriculture, Energy and the Navy would spend about $500 million in partnership with businesses to boost the biofuels industry.

The administration is also helping to finance the first U.S. commercial cellulosic ethanol plant — in Emmetsburg, Iowa. Agriculture Secretary Tom Vilsack, who was previously Iowa’s governor for eight years, has been a vocal defender of ethanol. When the Senate was debating an end to the tax breaks, Vilsack warned the move would be “job killing” in rural America.

For many years, particularly when farm income was low, politicians seized on the issue as a way to telegraph empathy to that key constituency. “Ethanol used to be a touchstone,” Yepsen said. “That was code for, ‘I understand the plight of rural America.’”

Amid frustratingly high unemployment and fears of another economic recession, the state of the national economy is likely to decide next year’s presidential election. But commitment to ethanol remains a key test in Iowa, perhaps not only for its substantive effect but for its symbolic value.

When Obama and his Republican opponent go barnstorming across the state next fall they might be advised to remember not only the “It’s the economy, stupid,” cliche but also the aphorism that “All politics is local.” If that’s the case, the homegrown fuel, while less potent than it once was, could still power a candidate to victory.

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