Politics fuels ethanol
Presidential politics in the U.S. has been very good for ethanol. If it were not for presidential politics, in fact, there would be no ethanol in motor fuel.
Ethanol costs twice what gasoline does to make. It does not and cannot extend domestic fuel supplies to any significant degree. And its environmental benefits have offsetting disadvantages. Yet this fuel additive that serves no national interest and costs too much to be competitive receives a federal tax credit worth an estimated $750 million/year and favorable treatment from presidents, lawmakers, and regulators.
New favors
Presidential Bill Clintons Environmental Protection Agency, for example, cant do enough for ethanol. Having decided not to appeal a court setback to its ethanol mandate in reformulated gasoline, EPA now wants to raise the oxygen cap limiting ethanol concentrations in gasoline. It also may ask the National Academy of Sciences to hunt for some environmental reason to use the substance as a fuel.
Why do officials stumble over themselves like this on behalf of ethanol? The boundless generosity of ethanol makers, of course, especially Dwayne Andreas, chairman of Archer Daniels Midland Corp. (ADM). The Decatur, Ill., agricultural conglomerate makes more than half the ethanol sold in the U.S. and lavishes financial and other favors on politicians from both major parties.
Andreas and the ethanol lobby last month claimed a new prize: House Speaker Newt Gingrich (R-Ga.). After a meeting with colleagues from Iowa and Senate Majority Leader Bob Dole (R-Kan.), Gingrich declared his opposition to a House Ways and Means Committee measure trimming the ethanol subsidy. Not to be outdone, Sen. Phil Gramm (R-Tex.), whos competing with Dole for the Republican presidential nomination, wrote to Ways and Means Chairman Bill Archer (R-Tex.) opposing what he characterized as an effort to raise taxes on the ethanol industry.
When the Democrats controlled Congress, Republicans disparaged this kind of thing as politics as usual. And it most certainly is. But there are a few fresh wrinkles.
Dole, a cozy Andreas beneficiary and so far the leading Republican presidential contender, likes ethanol. So do many Republicans in Iowa, first stop in the presidential nominating gauntlet. Dole also has much to say about fate in the Senate of Gingrichs legislative initiatives. At least for now, Gingrichs place in history depends on how much of the Contract with America, the conservative set of promises that helped Republicans conquer Congress, ultimately becomes law. It looks like a deal: ethanol support for contract support.
Meanwhile, stakes have risen in the grain states. Until now, ethanol supports have been abstract benefits to farmers. Although they created a market for grain, to the extent they succeeded in raising overall demand and lifting prices they reduced direct farm subsidies. The ethanol supports mainly helped distillers, such as ADM.
Thats changing. Republican budget-cutters have set their sights on heretofore sacrosanct farm subsidies and may succeed in trimming some of them. As they do, the ethanol subsidys appeal to farmers will grow.
Hence the meeting at which Gingrich compromised market economics on behalf of Dole, the Iowa House delegation, and Iowa Gov. Terry E. Branstad. Acknowledging hopelessness, Ways and Means Chairman Bill Archer of Texas withdrew his proposal to cut ethanols tax subsidy.
The victims
When Gingrich, leader of the revolution against politics as usual, submitted to politics as usual, the victim was not the U.S. oil industry. The ethanol mandate doesnt particularly hurt U.S. producers. And refiners will find ways to make money on whatever product the government makes them sell. The victim in this latest auction for farm state presidential votes was, as always, any American who drives a motor vehicle and pays taxes. Copyright 1995 Oil & Gas Journal. All Rights Reserved.