The political calculations of ethanol in Iowa and in Washington

Source: By Herman Wang, The Barrel, Platts • Posted: Tuesday, July 22, 2014

Conventional political wisdom has held that given Iowa’s importance in US presidential contests as host of the first-in-the-nation nominating caucuses, the Renewable Fuel Standard is pretty much unassailable.

The federal biofuels mandate enjoys immense bipartisan support in the state, where corn is king.

Candidates hoping to curry favor with state voters would need to wholeheartedly endorse the RFS or at least pay lip service to the law while campaigning there. Iowa, after all, leads the nation in biofuels production, with 41 ethanol plants in the state, along with 18 biodiesel facilities.

But, if RFS opponents are to be believed, the political landscape could be changing.

The oil industry, which has long sought to overturn the law, now says a majority of House of Representatives members now support some kind of reform to the RFS. And depending on how the November midterm elections shake out, RFS opponents sense momentum is turning.

“There is a critical mass in Congress to effect change,” said Bob Greco, downstream director of the American Petroleum Institute. “How that change will shape up is to be determined. We’re in this for the long haul. If it can’t be changed this year, we’ll move into next year.”

Not so fast, says the ethanol industry.

“As I recall, I heard them say that last year and the year before,” said Tom Buis, CEO of ethanol trade group Growth Energy. “They’re really good at using misinformation out there, and I don’t believe for a moment they have 218 votes [for a majority in the House] for whatever they want to do.”

Buis has a point. The API had said in 2013 that repealing the RFS was its top legislative priority that year, and while some alarm got raised in Congress after prices of Renewable Identification Numbers spiked that summer, ultimately nothing happened to change the law.

And now, more than halfway through 2014, RFS opponents admit that it’s extremely unlikely any RFS reforms or repeal will come up in Congress.

Buis said that if any RFS reform measures are brought up, all other energy subsidies, including those enjoyed by the oil industry, are likely also to be on the table, as the Obama administration has tried time and time again to roll back oil and gas tax breaks.

“Oil better be getting 218 votes to protect their tax subsidies because all these things are going to be raised at some point,” Buis said.

But RFS opponents point to the 2011 expiry of the Volumetric Ethanol Excise Tax Credit, which included a 45 cent/gal credit for ethanol blenders, as well as the 54 cent/gal tariff on ethanol imports.

That tax credit, too, had been seen as sacrosanct in Iowa and other Midwest corn-producing states, but it ultimately fell due to lawmaker concerns over subsidizing what had become a mature ethanol industry.

“The VEETC expiring, five years ago that was seen to be a fool’s errand,” said Scott Faber, vice president of governmental affairs for Environmental Working Group, which has issued a study finding that use of corn ethanol actually increases greenhouse gases, compared to using straight gasoline. (The ethanol industry, naturally, is critical of those findings.)

“This is a regional fight, not a political one,” Faber said at a recent RFS briefing for reporters organized by the API. “There are only eight or nine states where lawmakers really care about preserving the status quo. The numbers are simply on our side.”

Whichever side is right, this November’s Senate race in Iowa could shape up as an interesting test case for how crucial RFS support is to a candidate’s chances in the state.

The closely watched battle for the open Senate seat features Democrat Bruce Braley against Republican Joni Ernst, and polls indicate a dead heat between the two.

Braley has been unabashed in his support for the RFS, while tea party-backed Ernst has been more coy, saying that while she philosophically opposes all subsidies, she would defend the RFS as long as other subsidies exist.

The Iowa Democratic Party and other Braley supporters have hammered Ernst for her squishy position on the RFS, and come election day on November 4, we will find out whether the issue plays a sizeable role in the race.