Rumors circulated last week that oil industry representatives are ready to compromise with ethanol interests over additives for reformulated gasoline. Here's hoping they're not true.
Some compromises just aren't right. This is one of them. The oil industry can't benefit from any dalliance in the subsidized world of agribusiness.
Word of the possible compromise, reported by OGJ Washington Editor Maureen Lorenzetti, came from sources in Congress and environmental groups (see Newsletter, p. 7, and OGJ Online, Feb. 11, 2002). At this writing, none of the major oil groups had confirmed that a deal was imminent.
Temptation, however, was strong. The Senate looked ready last week to begin debating energy legislation. Contention over an ethanol mandate threatened to mire the work. And, with or without a mandate, most refiners already plan to blend increasing volumes of ethanol into gasoline in coming years to boost octane. So submission to content specifications, if they're reasonable, wouldn't be a huge sacrifice to make in exchange for, say, elimination of the oxygen mandate for reformulated gasoline and protection against a ban on methyl tertiary butyl ether.
Subsidies, protections
The problem is political association with agribusiness. Big-time agriculture is a business of subsidies and market protections bought by political contributions. It's a business that soon might win passage of a law raising farm subsidies by an unprecedented $171 billion over 10 years. It's a business whose political clout makes a laugh out of the influence over energy policy that beleaguered and bankrupt Enron Corp. is purported to have garnered from campaign contributions.
US agriculture is becoming a state enterprise. And the main beneficiaries aren't the small family farms of political lore. They're big companies able to take maximum advantage of subsidies-mostly for wheat, corn, cotton, soybeans, and rice-and price supports for sugar, peanuts, and dairy products.
Special treatment goes to ethanol distilled from grain and blended into gasoline. Fuel ethanol enjoys a tax credit without which it would be uneconomic. And politicians have used the Clean Air Act to create and guarantee markets for it.
This coddling occurs not because ethanol offers environmental or energy advantages worth suspending the tenets of commerce. It doesn't. The coddling occurs because ethanol's biggest producer, Archer Daniels Midland Co. (ADM), exerts political influence that Enron, in its heyday, could only dream about (OGJ, Jan. 21, 2002, p. 17).
And ADM is just one piece in a powerful political colossus. As the wildly generous farm bill gliding through Congress makes clear, the agribusiness lobby gets its way.
In a Feb. 12 report, the Heritage Foundation's Brian Riedl writes that the Washington, DC, office of the Federal Farm Bureau Federation, which supports farm subsidies, makes political donations of $4.5 million/year. Since 1999, political giving at the federal level by the National Cotton Council, seeking higher cotton subsidies, has totaled $304,400. In the same period, the highly protected sugar industry has made political contributions totaling $4.3 million. Two peanut groups wanting a change-proposed in current farm legislation-from market protections to government subsidies have given a total of $245,000 since 1999. And political giving during this period by the dairy industry, which wants to preserve an antique price-fixing system, totals $3.3 million, according to Riedl.
The payoff? Farm legislation that, with existing programs, would cost US taxpayers $191 billion over 10 years through subsidies and consumers $271 billion through artificially elevated prices.
Invisible monster
This is an economic monster swashbuckling across the political landscape. Yet, somehow, it stays invisible. Outrage focuses not on ADM or the farm lobby but on Enron, whose political generosity and presumption couldn't even keep it out of bankruptcy. And the wrong policy is in jeopardy. The looming transfer of wealth to American agribusiness raises barely a peep about campaign finance. But Enron's supposed influence might yet derail an energy proposal that started out properly oriented to supply and the development of US resources.
Oil and gas companies should be their customers' strongest advocates. They can't meet that standard in a compromise over ethanol. And they can't make the compromise without affiliating with political mischief and state dependency that they would be better off, in the long run, to avoid.
