What kind of Republican supports high tariffs on imports, dubious green tax credits, and consumption mandates to prop up unprofitable environmental darlings? The ethanol-loving midwestern kind, especially the ones running for president.
Currently, imported ethanol is slapped with a 54-cent-per-gallon tariff, while oil companies receive a 45-cent tax credit per gallon of ethanol blended into their gasoline. Both the tariff and the tax credit have just been extended for another year, thanks to a bipartisan push from Cornbelt politicians. In case these provisions aren’t enough to help the industry hobble its way to satisfying profits, lawmakers also decided to mandate that U.S. consumption of renewable fuels (which will certainly be almost entirely corn-based and cellulosic ethanol) reach 36 billion gallons by 2022. And that’s just the assistance provided on the federal level.
There are four potential midwestern 2012 Republican presidential nominees: Minnesota governor Tim Pawlenty, Indiana governor Mitch Daniels, South Dakota senator John Thune, and Indiana congressman Mike Pence. When it comes to doling out favors to the ethanol industry, none of them can credibly claim his attitude was “just say no.”
Does it matter? Absolutely: As this year’s tariff and tax-credit extensions showed, even a Tea Party–driven small-government surge can’t stop politicians from kowtowing to the ethanol lobby. Further, a Republican president who is willing to carve out exemptions for ethanol interests will lack credibility when he battles spending or tax breaks benefiting other special interests. And finally, while some claim that ethanol will allow our nation to achieve energy independence, the fact that the highest approved corn-gas blend is only 15 percent ethanol (and is approved only for certain automobile models from 2007 or later) suggests that an America running on corn is unlikely in the extreme.
Let’s examine some midwestern GOP politicians’ records on ethanol.
When Mitch Daniels was sworn in as governor in January of 2005, there was one ethanol plant in Indiana. Now there are twelve operating plants and a thirteenth set to start running early next year. This isn’t an accident: Daniels aimed to increase Indiana’s annual ethanol and biodiesel production to 1 billion gallons by 2008. Once that thirteenth plant begins producing, Indiana will have met the goal.
Under Daniels’s leadership, Indiana has aggressively courted the ethanol industry. “He’s been a huge supporter of building ethanol plants . . . and also [has tried] to encourage consumers to buy ethanol,” says Indiana political analyst Ed Feigenbaum, adding that much of the new industry “has come at the cost . . . of state subsidies.”
The Indiana Economic Development Corporation, which is chaired by Daniels, has offered ethanol plants tax credits and training grants. Consider the package offered to the Hartford-Bio-Energy ethanol plant. It included “up to $32,000 in training grants for Indiana resident employees, $100,000 in infrastructure assistance to the local community, and up to $1.4 million in tax credits based on anticipated employment and capital investment levels,” announced an IEDC press release. In 2006, Daniels signed SEA 353, which upped the maximum tax credit available for ethanol production and biodiesel production and blending from $20 million to $50 million.
As of this year, Indiana offers existing ethanol plants a tax credit of twelve-and-a-half cents per gallon produced, with production-based caps on the credit ranging from $2 million to $20 million.
Daniels has also actively promoted ethanol-based fuels. In 2005, he signed a law mandating that state employees operating government vehicles use ethanol or biodiesel fuel whenever possible. That same year, he announced the conversion of the rural town of Reynolds, Ind., to “BioTown, USA.” The plan was that BioTown would eventually use only renewable energy. The first phase included installing an E85 pump and encouraging residents to buy flex-fuel vehicles. Daniels hoped BioTown would become a model for other Indiana towns, but it’s now generally considered a failed experiment.
BioTown wasn’t the only way Daniels promoted E85. SEA 353 included a two-year, ten-cent sales-tax deduction per gallon of E85 sold. In July 2008, the state set up a $500,000 fund to reimburse gas-station owners 18 cents per gallon of E85. The fund was gone in three months. In 2008, Indiana created a nearly $1 million fund and offered up to $20,000 for gas stations that were willing to set up an E85 pump.
Despite his support for ethanol over the years, Daniels decried the continuing level of federal subsidy support for ethanol in a statement to National Review Online.
“I’m disappointed that the Congress did not begin the transition out of subsidies,” Daniels wrote. “I support the use of ethanol for both economic and national-security reasons, because it enables us to pay Americans for energy we’d otherwise import, much of it from hostile nations. By stabilizing grain prices, biofuels use can also enable us to phase out the broader agricultural price support programs, but the current triple subsidy can no longer be justified, and I regret seeing it extended.”
In 2008, Alaska governor Sarah Palin got the vice presidential nod, much to the disappointment of one group: the Minnesota Corn Growers Association (MCGA). The group had been hoping that John McCain would pick Pawlenty, according to the trade magazine Ethanol Producer. Pawlenty, the MCGA said, had “more moderate views towards ethanol” than most Republicans. It was a telling endorsement, particularly when compared with the tongue-lashing the MCGA gave the GOP platform that year, which it considered anti-ethanol to the point of being “devastating” to the industry.
The endorsement was well deserved. Throughout his time as governor, Pawlenty has been a friend to ethanol. In 2004, Pawlenty created the JOBZ program, an innovative way to subsidize ethanol. While Minnesota was no longer approving producer payments (13 cents per gallon of ethanol) for new ethanol plants, the JOBZ program offered “a new incentive, one that many investors find nearly as alluring,” gushed Ethanol Producer. JOBZ, the magazine continued, “provides relief from corporate franchise tax, income tax for operators or investors, sales tax on business purchases and capital gains tax, and property taxes. It also provides an employment tax credit for high paying jobs.”
A year later, Pawlenty signed legislation mandating that all gas sold in Minnesota contain 20 percent ethanol by 2013, up from 10 percent. (Since the EPA has not yet approved the 20 percent blend, the mandate will most likely not go into effect in 2013.) In 2005, Pawlenty also urged other states, at a meeting of the Governors’ Ethanol Coalition (which had 31 member states at the time), to mandate that all gasoline contain 10 percent ethanol by 2010.
The “E85 Everywhere” program, which promoted the 85 percent–ethanol fuel, was launched in 2006. Pawlenty wanted there to be plenty of stations where consumers could purchase E85. He requested $12 million in subsidies for gas-station owners to encourage them to offer it. State legislators balked at the sum; instead, the state began offering $1.75 million in subsidies starting in 2007. But even with the subsidies, Minnesota did not achieve Pawlenty’s goal of 1,800 E85 stations by 2010. As of 2009, the state had 351 gas stations that sold E85.
As a congressman representing Indiana, Rep. Mike Pence has not had the same opportunities to wield influence as Pawlenty and Daniels. But his voting record shows a willingness to buck the ethanol industry — sometimes. He was not willing to do so in 2003, when he voted for the Energy Policy Act “to create a renewable fuels standard and tax incentives for ethanol and biodiesel production,” reported his press release. Nor in 2005, when he voted for that year’s energy bill, which mandated that by 2012, 7.5 billion gallons of fuel in the U.S. be from renewable fuels, including (and probably primarily) ethanol — a mandate that Biofuels Journal noted was “nearly the 8 billion gallons many were dreaming of.” The Renewable Fuels Association, a powerful ethanol lobbying firm, called the bill “strongest biofuels legislation ever.”
But in 2007 and again in 2008, Pence voted against the farm bill, which extended the tariff on imported ethanol and the tax credit for U.S.-produced ethanol. It also included the industry’s beloved Biomass Crop Assistance Program. Pence also voted against the Energy Independence and Security Act in 2007, which increased the Renewable Fuel Standard to 36 billion gallons by 2022.
Sen. John Thune of South Dakota received the President’s Award from the National Corn Growers Association this summer. “I look forward to continuing to work together on . . . initiatives important to corn producers,” Thune said. The NCGA was enthusiastic. “Senator Thune has been an advocate for agriculture throughout his public career including work on such important items as the Renewable Fuel Standard and the 2008 Farm Bill. We are honored to call Senator Thune a friend of corn and look forward to continuing work with him and his staff,” said NCGA president Darrin Ihnen.
It’s no wonder there exists such mutual affection: To ethanol advocates, Thune is a dependable friend. Just last month, Thune signed a letter to Senate majority leader Harry Reid (D., Nev.) and Senate minority leader Mitch McConnell (R., Ky.) asking them to renew the current tax credit and tariff, which were set to expire at the end of 2010.
In 2006, Thune teamed up with then-senator Barack Obama to introduce legislation that would have provided gas stations with 30 percent of the cost of installing a renewable-fuel tank, up to $30,000. (The legislation died in committee.) In 2007, Thune supported the Energy Independence and Security Act, which included a provision mandating that 36 billion gallons of cellulosic and corn-based ethanol be used by 2022. In 2008, when the EPA denied an ethanol-mandate waiver sought by Texas governor Rick Perry, Thune praised the decision. “Allowing states to waive the Renewable Fuels Standard would discourage needed investment in renewable fuels, hamper the transition to cellulosic ethanol, and would assuredly result in higher fuel prices for consumers,” he said in a statement.
That same year, Thune worked to pass the farm bill, which extended the tariff and tax credit for two years, although the credit was cut from 51 cents per gallon to 45 cents per gallon. Also in the bill was the Biomass Crop Assistance Program, created by Thune, which dictates that the government pay farmers matching funds for the corn husks, leaves, and cobs they sell to cellulosic-ethanol producers.
Also in 2008, Thune introduced the Open Fuel Standard Act, which would have required all U.S. car manufacturers to make 50 percent of their vehicles flex-fuel or able to use biodiesel by 2012. By 2015, 80 percent of vehicles would have to meet these standards. Ultimately, the legislation died in committee.
Asked about Thune’s position on ethanol subsidies, spokesman Kyle Downey said in a statement to National Review Online that “Senator Thune remains a strong proponent of breaking the nation’s dependence on foreign dictators and promoting the development and production of domestic energy, which creates American jobs so that we aren’t fueling and funding extremists who seek to harm us.”
“Our energy policy should not remain static, however,” Downey added. “A number of leaders in the biofuels industry are seeking to phase out the ethanol blender’s tax credit in the coming years. Such ideas, which continue to advance the goal of promoting American energy independence, are welcome additions to the energy policy debate and should be part of a larger discussion on our nation’s energy policy.”