Presidents desperate for reelection do desperate things. In his latest desperate act, U.S. President George Bush this month handed the ethanol industry an effective guarantee of growth in a market where its product can't compete without heavy subsidies already in effect.

Well, politics is politics. Politicians buy votes. Reinstatement of ethanol's volatility waiver buys votes in farm states, especially Illinois, where big ethanol maker Archer-Daniels-Midland Co. has its headquarters and where Bush probably must win next month to be reelected. And the refining industry and gasoline consumers will pay the bill. It's tempting to ask how many constituencies the President plans to sell out with ideologically rudderless behavior like this. But the answer is clear: as many as it takes.

MORE BROKEN PROMISES

More than a year ago, Bush's Environmental Protection Agency fashioned an agreement among refiners, environmental groups, and ethanol producers concerning implementation of gasoline regulations under the Clean Air Act Amendments of 1990. Aiming at fuel neutrality, the agreement excluded a volatility waiver ethanol needs in order to compete with other oxygenates during summer. Refiners, with oxygenated and reformulated fuels deadlines approaching and EPA specifications still unclear, thought they wouldn't have to make low volatility gasoline to blend with ethanol.

By overriding the agreement, Bush turned the tables on them. Oil companies thus have another reason to think that negotiating and signing agreements with the U.S. government is wretched business.

In this campaign, Bush has promised to never again raise taxes. But his famous lips said nothing about lifting business and consumer costs by regulation. That's what his ethanol move will do. It will raise costs by effectively mandating use of a substance with economically superior alternatives. The economic effects match those of a tax hike.

How much will this cost? Bush strategists say $25 million/year. American Petroleum Institute says at least 10 times that much. Who knows? By the time costs are clear the economic damage will have been done.

Bush also implies a distinction between himself and a Democratic rival who he claims will not only raise taxes but also push government into affairs best kept in private hands. Yet he points with pride to Clean Air Act Amendments that mandate motor fuel contents, then upsets the daunting process of implementing those mandates by shoving an uneconomic ingredient down the market's throat. Aren't modern Republicans supposed to scorn such government meddling? This time, Bush can't even cloak his mistake in environmentalism. Leading environmental groups oppose the volatility waiver for ethanol, correctly seeing smoke in the substance's "clean-fuel" press notices.

THE DEAL MAKER

Bush rode into office on the legacy of a predecessor motivated by clear goals: low taxes, limited government, strong defense. Ronald Reagan pursued those goals with mixed success but never lost sight of them and never failed to communicate his priorities. Bush, the consummate deal maker, has compromised that legacy away. Businesses overladen with environmental and other regulations, uncertainties, costs, and risks are jettisoning jobs. Yet the President proceeds with an ethanol fiat.

Requirements of the Clean Air Act Amendments already have forced refineries to close. And they have just become stiffer and more costly. Bush must consider the petroleum industry ideologically incapable of supporting Arkansas Gov. Bill Clinton. He's stretching his luck.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.

BUSH ETHANOL MOVE A SLAP AT INDUSTRY

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