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Wednesday, April 22, 2015

Ethanol and Politics 2016

Once again I was asked by a reporter about ethanol and the Iowa 2016 presidential elections. My answer roughly is the following:

Every state has interest groups that press candidates for office on issue of importance to them.

In Texas you can’t win a dog catcher race if you don’t support oil tax breaks "Over the past century, the federal government has pumped more than $470 billion into the oil and gas industry in the form of generous, never-expiring tax breaks. Once intended to jump-start struggling domestic drillers, these incentives have become a tidy bonus for some of the world’s most profitable companies”

In Massachusetts I assume it’s lobsterman tax breaks. In Georgia, peach tax incentives. In West Virginia it's coal.Washington State it would be salmon and apples.

In Iowa we remember that the federal government and the American people put out a call to save the environment, make the US energy independent, and create a renewable fuels industry. Iowa farmers, ethanol and bio diesel investors responded. Hundreds of millions where spent on ethanol plants and farmers planted the necessary corn and soy beans to make those fuels.

The tax break is gone but the RFS still drives demand for ethanol and helps keep the farmers and ethanol refineries solvent.

It would be strange if there were not a strong lobby to keep the requirement for 10% blend of fuels with ethanol in place. Yanking the plug on RFS would probably kill ethanol and drive corn and bean prices down disastrously.

The alternative is to go back to gasoline blended with Methyl tert(iary)-butyl ether (MTBE) which contaminated groundwater and had a huge negative impact, one reason why we switched to less harmful ethanol.

Of course ethanol and RFS is not the only issue contenders for the White House are facing in Iowa.

There is same sex marriage, the IRS, abortion, climate change, farm dust regulations, gun "confiscation" and of course the national debt.

Those opposed to “Big Government” mandating that American consume a product such as ethanol-blended fuels (mostly conservative Republicans) have a hard time siding with those mandates.

Oddly enough, the interest groups pushing for continued federal EPA mandates for blended fuels are mostly Republicans and conservatives. And they are simultaneously opposed to the EPA even as they demand that the EPA continue to require blending!

So politically for the caucuses it’s simply a matter of walking the fine line and each candidate has to do a “Full Joni Ernst” on this issue which means say EXACTLY what she did during her campaign and afterwards. Say that eventually subsidies will not be necessary because the industry can be economically profitable without big government mandates. But, don't say exactly when the industry including corn farmers can cut the umbilical cord to mandated fuel standards. Just not right now.

The perfect political balancing act!

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