Washington Policy on Corn Based Ethanol

Understanding the clear drawbacks of Corn based ethanol the way it has succeeded legislatively in spite of its problems is of the upmost pertinence. The use of ethanol and its debate in politics could be said to have its beginning during the Carter Administration when he proposed his Gasohol program, garnering its name from a combination of gas and ethanol. Under the U.S. Energy Security Act of 1980, the program aimed to replace 10% of United States gasoline use with gasohol by 1990. This bill was motivated by the energy crisis’ of the 1970’s[1] , namely the crisis caused by the Iranian revolution in 1979 which on the whole was a market overreaction, but still demonstrated the unsettling dependence Western Powers had on the middle eastern oil cartel .[2] Carter felt some push back for his decision. An article written in the Journal of Regional Analysis and Policy in 1980 criticized Carter’s plans and the effect it might have on corn use as food. In addition, a Time magazine article from the same year, titled Gasohol Power, decried Carter’s plan as “ill conceived and unrealistic” citing ethanol’s high price tag and the limited ability of the United States to process it at the time as its main flaws.[3] Exxon, the nation’s largest oil company at the time, even went so far as to refuse to allow gasohol to be sold through Exxon credit cards.[4] With the election of Ronald Reagan many environmental changes Carter had made fell by the wayside, but not ethanol subsidies, they actually increased under President Reagan. In 1990, Congress passed the Omnibus Budget Reconciliation Act which extended the ethanol subsidies to the year 2000, but decreased the amount from a 6 cent tax exemption to a 5.4 cent tax exemption. [5] Ethanol subsidies have risen and fallen a few cents since 1990 ending at a 53 cent tax exemption in 2001[6]. In addition, the inclusion of ETBE, an ethanol blend, under the tax exemption was allowed in 1995.
Since 2001, major legislation has been passed expanding the scope and importance of ethanol but, as its use expands criticism against it grows more and more vocal, climaxing with the 2008 presidential campaign.
Beginning with the Bush (43) years, it appears his administration’s legacy on ethanol will be one similar to that of Reagan. While overall, alternative energy research decreased 85% from 1978 to 2005[7], President Bush passed significant gains for ethanol; including the passing of the Energy Policy act of 2005 which among its many provisions (much of which were subsidies for traditional energy producers) was a commitment to increase the amount of ethanol in our United States gasoline to 7.5 billion gallons by 2012. This bill, which was supported by 200 of his fellow house Republicans and 75 house Democrats,[8] came under much scrutiny by 2007 as a worldwide food shortage was blamed in part on the diversion of corn from food to fuel as Bloomberg authors Mario Parker and Kim Chipman put it “causing riots from Haiti to Egypt”[9]. Regardless of this, President Bush remained firmly in support of ethanol subsidies even expanding them in his 2008 Energy Independence and Security Act in which he sought to double ethanol production to 15 billion gallons by 2015. In addition, despite his plummeting public support he passed a tariff on ethanol imported from Brazil insulating the United States market.[10]
A. Interest Groups

The legislative history of Corn based ethanol makes clear that despite drawbacks maneuvering of Washington leadership has allowed development of ethanol mandates to continue unto the present day. The interests which fall on the side of Corn based ethanol are vast and powerful as well as highly connected. Understanding who they are expands understanding of why legislative actors have preceded as they have in regards to ethanol.

When we think about ethanol interest groups we need to be cognizant of what ethanol in the United States is derived and that is corn. As the largest producer of corn in the world, the United States corn industry including ethanol has a far reaching spectrum of interests and supporters.
These supporters and interest groups have changed over the years getting boosts from Washington when the price of oil or the state of pollution in the country made it advantageous. For example, ethanol subsidies grew under Carter when fears of Iran shutting off fuel supplies caused a spike in oil prices worldwide. Additionally, when pollution reached dangerous levels in many major U.S. cities, President Clinton responded with increased ethanol support. This response was highly criticized due to the evidence that gasoline/ethanol combinations actually produced more smog. Lastly, ethanol received revived attention with the current administration (Bush 43) as gas prices rose and criticism mounted over his refusal to sign the Kyoto protocol[11]. While popular support may have waxed and waned, the interest groups remained, as did their potency in Washington.
1. The Renewable Fuels Association
The primary lobbying group going back to Nixon’s presidency has been the Renewable Fuels Association. They were the chief organization bringing people together to pass the 2005 energy bill which created a renewable fuels standard. It has been pushed, since their creation in 1988, to expand and maintain the government’s support of ethanol. As a lobbying group, they claim to represent the ethanol industry as a whole, but Archer Daniel Midland, the largest ethanol producer historically, has held sway over the group’s actions. They have even gone so far as to oppose expanding the industry through the creation of new non ADM plants.[12]
2. Archers Daniel Midland
If the Renewable Fuels Association is the mouth of the ethanol industry, Archer Daniel Midland is the voice. In other words, they give the money that gets ethanol heard by Congress. At one point, ADM produced 85% of ethanol produced in the United States. A representative of the Clean Fuels Development Coalition said once, ''There's no industry in the world that's so dominated by one company.''[13] As of 2006, ADM’s market share has been reduced to about 1/6th of all ethanol produced, but remains the largest producer by a huge amount[14]. The influence of ADM in Washington is unquestionable. There is no better example of this than Bob Dole. Dole received a home from ADM’s president Dwayne Andreas for 150,000 dollars below market value and has been a tireless advocate for ethanol subsidies in congress.
3. Corn Growers Association
Support among farmers for ethanol was not initially enthusiastic. They had fears about its affect on the price of animal feed among other things. This changed, however, as ethanol’s role began to expand through federal subsidies. Also, the growing number of farmers invested directly in ethanol plants has led to a more direct understanding of the “rural benefits” of ethanol.[15] The result of more farmers involved has increased attention from the National Corn Growers Association. On average, the group expends about half a million dollars in lobbying efforts every year.[16] How much of this is spent specifically on ethanol is unclear, but what is clear is the power of such a group advocating for a specific cause.
4. Oil companies
The notion that oil companies would campaign for ethanol seems counter intuitive to most Americans, but beginning in 1988 that became the case. In fact in 2001, the American Petroleum Institute was part of a coalition that helped push congress to pass the Renewable Fuels Standard that mandated 7.5 billion gallons of renewable fuels by 2012.[17] The motivation for this support came with the invention of ETBE, an ethanol based fuel additive, that could be added to fuel and unlike ethanol could be added to gasoline at refineries and then travel through pipelines. Oil companies since the 1970’s had been required to replace lead as an additive in gasoline, and since MTBE, which had been the replacement additive of choice, had become less popular due to a lawsuit which found that MTBE contaminated ground water. [18]As a result, ETBE became the additive of choice for oil companies and any tax incentives for ethanol reflected positively for oil company profits.
B. Politicians

Through our historical analysis of the success of the ethanol industry a picture is developing. The legislative history has given a basic narrative of ethanol’s success and knowing the interests acting on behalf of ethanol tell us who stand to gain from its embrace by Washington. What is missing from this story is what drove politicians to embrace these ideas. The reality of that is not too far from what usually motivates politician’s votes and money.
1. Votes
In 1980, Senator Bob Dole introduced a bill to impose tariffs on Brazilian ethanol imports. When he was questioned on his motives for this action he replied, ''I'm a farm-state Senator.''[19] This rare moment of honesty from a politician sheds light on why so many politicians will not back off support of ethanol. They believe that if they do not support ethanol it will cost them votes in key farm states. A perfect example of this is Iowa, home of the first presidential primary, and a crucial deciding point for who will become president. Reflecting on the 2008 Presidential election, polling data from Iowa showed that John McCain’s loss in the state may have been due in part to his strong position against ethanol. This fear of losing votes that so many politicians have is what Walter Williams of Capitalism magazine calls “the stick” while he claims that campaign contributions in the form of large sums of money are “the carrot”[20]
2. Money
As mentioned previously, the president of ADM met Robert and Elizabeth Dole in the 1970s. He eventually would sell them a lovely beachside home for significantly below market price, and donate generously to both Elizabeth and Bob’s political campaigns. In 2008, Elizabeth Dole was the top recipient of ADM money. In the Senate, Bob Dole pushed for Gasohol subsidies and Elizabeth has been a tireless advocate for expansion of E85. The architect of gasohol, Jimmy Carter’s nominee to the Commodity Futures Trading Commission, received $72,000 in stock from ADM as a gift. Jimmy Carter himself sold his warehouse to ADM for 1.2 million[21]. Combine this information with the fact that ADM, the largest ethanol producing company, gave $220,950 in political contributions in 2008 compared to $63,700 from the largest solar company Sun Power Corps or $85,513 from the largest wind energy group, the American Wind Energy Association.[22] The clear conclusion from this information is that “the carrot” of campaign contributions is a serious factor in the success of ethanol in Washington.
C. Ethanol Wrap-up

The story of the success of ethanol is a compelling one. It gets right at the root of alternative energy policy in Washington. Through the presentation of the legislative rise of ethanol combined with a history of the key players both in and out of Washington, we begin to understand the causal factors which have driven the success of ethanol. The industry led by ADM combined with a powerful constituency of farmers was successful in wooing politicians to their interests through the use of “the carrot” and “the stick”. They were able to make Washington sufficiently fearful of losing rural votes, and greased enough palms with campaign contributions that powerful politicians like Bob Dole, Jimmy Carter, and Tom Daschle have been able to push forward their cause successfully. This only takes us half way in understanding the factors that lead to success and failure of alternative energies in Washington. We have established that ethanol as an alternative succeeded through a strong constancy and money, but what happens to good ideas that lack those things?
[1] Barnard, pg 1-12
[2] Hseih
[3] Gasahol power
[4] Exxon Puts Limits on Gasohol Sales
[5] North Dakota Department of Commerce
[6] Energy Information Administration
[7] Bush and Energy Policy: Looking for a Legacy, pg 1-2
[8] Bush
[9] Parker and Chipman
[10] H.R. 6385
[11] Barrionuevo
[12] Weiss
[13] ibit
[14] Yacobucci, pg 1-22
[15] Barrionuevo
[16] Open Secrets
[17] Barrionuevo
[18] Judy
[19] Weiss
[20] Williams
[21] Weiss
[22] Pick