Congress’ ethanol affair cools; subsidies tied to food deficit
Members of Congress say they overreached by pushing ethanol on consumers and will move to roll back federal supports for it — the latest sure signal that Congress’ appetite for corn-based ethanol has collapsed as food and gas prices have shot up.
House Majority Leader Steny H. Hoyer said Democrats will use the pending farm bill to reduce the subsidy, while Republicans are looking to go further, rolling back government rules passed just four months ago that require blending ethanol into gasoline.
“The view was to look to alternatives and try to become more dependent on the Midwest than the Middle East. I mean, that was the theory. Obviously, sometimes there are unforeseen or unintended consequences of actions,” Mr. Hoyer, Maryland Democrat, told reporters April 30.
Only a year ago, Congress and President Bush seemed to view ethanol as a near-magic solution to the nation’s dependence on oil and counted on it to make a dent in greenhouse gas emissions. Republicans and Democrats together piled up the incentives and mandates that pushed farmers into planting corn for ethanol and consumers into buying gasoline blended with it.
But as farmers switched crops, they left a dearth in other foods — which, coupled with higher worldwide living standards and higher demand — has caused food shortages. Food riots have erupted in some nations, while even in the U.S., some stores have said they will ration sales of staples such as rice.
Now the most common phrase when lawmakers talk about ethanol is “unintended consequences.”
“This is a classic case of the law of unintended consequences,” said Rep. Jeff Flake, Arizona Republican, who introduced a bill last week to end the entire slate of federal supports, including the mandates for blended gasoline, the tax credits for ethanol producers, and tariffs that keep out cheaper foreign ethanol.
“Congress surely did not intend to raise food prices by incentivizing ethanol, but that’s precisely what’s happened. A jump in food prices is the last thing our economy needs right now,” Mr. Flake said.
Meanwhile, Sen. Kay Bailey Hutchison, Texas Republican, is working on her own plan to freeze the ethanol-renewable-fuel-replacement mandate at this year’s levels.
“I’ve talked to cattle producers, I’ve talked to pig producers. They are all saying the same thing: The cost of food and the cost of fuel is just killing their ability to continue to operate,” Mrs. Hutchison told radio talk show host Rush Limbaugh on April 30, taking her case to the airwaves. “I think it’s going to get worse, and I’d like to try to do something that might mitigate this and not cause the crisis.”
Her state’s governor, Rick Perry, two weeks ago asked the Environmental Protection Agency for a waiver from 50 percent of the replacement fuel mandate, calling it “a well-intentioned policy” but one that’s distorted the market and driven up prices.
He said that 25 percent of U.S. corn production went to ethanol last year and that up to 35 percent will be devoted to ethanol this year.
“With ever increasing mandates of corn crop diversions to ethanol production through 2015, the impact on food prices globally, and to Texas specifically, will only worsen,” he wrote in a letter to the EPA.
Sensing the tide turning against them, those who support the government mandates say blaming ethanol for food prices is misplaced.
“A complex set of factors are at work helping to drive food prices higher around the world,” former Secretary of Agriculture John Block said. “Singling out biofuels like ethanol for all or even the majority of the blame misses the boat.”
Farmers and corn growers, a powerful lobby in many states, said corn is being scapegoated and urged Congress to go after oil companies instead, arguing that the increasing price of energy is driving up food prices.
“To put things into perspective, in 1999 a barrel of oil cost $10, compared to $120 today. Consumers lose when the oil industry plays a cat-and-mouse game with the American people,” said National Corn Growers Association Chief Executive Officer Rick Tolman. “Truth be told, Americans are actually saving $69 billion each year at the pump thanks to biofuels.”
The White House on April 30 could not say whether Mr. Bush would be open to the efforts to reduce supports; although on April 29, Mr. Bush seemed enthusiastic about increasing use of ethanol.
“The high price of gasoline is going to spur more investment in ethanol as an alternative to gasoline. And the truth of the matter is it’s in our national interests that our farmers grow energy, as opposed to us purchasing energy from parts of the world that are unstable or may not like us,” he said at a press conference.
He cited statistics that only 15 percent of world food price increases were because of demand for ethanol.
Lawmakers acknowledge those other factors but say there’s still room for action.
The Democrats’ farm bill plan would reduce the subsidy paid to corn-based ethanol producers and increase the subsidy paid for cellulosic ethanol made from other sources, such as wood chips or switchgrass.
The fate of Republican plans is less clear, with support for subsidies and mandates breaking along regional rather than party lines. For example, it pits the corn-growing regions of the Midwest against cattle-raising states such as Texas.
Top congressional aides said they were wary of predicting whether Congress would go beyond the tinkering in the Democrats’ farm bill.
‘Unintended consequences’: House Majority Leader Steny H. Hoyer said ethanol subsidies will be reduced in the farm bill.