On Tuesday afternoon after the Senate failed to back an amendment that would have put an abrupt end to $6 billion a year of subsidies for corn ethanol, the president of the Renewable Fuels Association, Bob Dinneen, savored the moment.
“Sometimes your opponents give you a gift,” he said, referring to the strategy of Sen. Tom Coburn (R-Okla.), who introduced the amendment and unsuccessfully pressed for an end to debate on the matter. “The way Coburn went about this didn’t help his cause,” Dinneen said.
But next week, the foes of ethanol subsidies are planning to try again in what could prove to be one of the toughest battles ever for the ethanol industry. Some oil industry lobbyists, never fans of the ethanol subsidy, say around 20 Democrats, who this week opposed Coburn for largely procedural reasons, could join with Republicans to eliminate the subsidies in a measure being drawn up by Sen. Dianne Feinstein (D-Calif.).
If successful, it would end a long streak of success for ethanol proponents, an odd assortment of a few big companies, Midwest corn farmers and national security strategists eager to reduce American reliance on imported petroleum.
Ever since the Carter administration, the makers of ethanol — who use a souped-up version of the liquor distilling process — have received tax breaks and other support from the federal government. Over the past decade, they have won a 46-cent-a-gallon tax credit and a 51-cent-a-gallon import tariff that helps keep Central and South American products at bay. In 2005, the ethanol lobby secured a federal mandate ordering refiners to blend increasing amounts of ethanol into motor fuel; a 2007 law doubled those amounts.
As a result, since 2001, the U.S. ethanol industry has grown more than seven-fold. Its biggest players are commodities giant Archer Daniels Midland, the big oil refiner Valero (which bought up facilities from the bankrupt Verasun) and a private firm called POET. The big three account for more than a quarter of the output from an industry that last year produced 13.2 billion gallons, or about 900,000 barrels a day. Thousands of Midwest corn farmers, an influential bloc, also reap the rewards.
But the cost of the subsidy has grown, too, reaching $6 billion a year, a tempting target.
“They’ve been incredibly effective over the years,” said Frank Maisano, a lobbyist at Bracewell & Giuliani who represents some oil companies.
It hasn’t hurt that Iowa, host of an early caucus in the presidential primary campaign, is the country’s biggest producer of corn used to make ethanol. Not a single senator from a major corn-growing state, Republican or Democrat, voted for Coburn’s measure. Presidential hopefuls still tiptoe around the issue.
“If we didn’t have an Iowa primary, we wouldn’t have an ethanol mandate,” says Stephen Brown, a government relations executive at Tesoro, an oil refiner.
“But,” says Maisano, “a lot of the shine has fallen off the industry. . . . We’re in a different subsidy environment right now when it comes to . . . whether we can afford them or not. It’s different from where we were five years ago.”