Advancing a Free Society

Senate Fails to Kill Corn Ethanol Subsidies: But there’s More Here than Meets the Eye

Wednesday, June 15, 2011

Yesterday’s vote in the Senate that failed to kill $6 Billion in annual subsidies to corn ethanol might seem like a defeat for market-oriented energy reformers—But there’s a lot more here than meets the eye.

The bill, sponsored by Oklahoma Republican Tom Coburn, would have eliminated ethanol blender subsidies  while striking the  import tariff on foreign ethanol  (typically cheaper Brazilian ethanol derived from sugarcane).  It failed 59-40, falling 20 votes short of cloture,  but a closer look reveals that the  defeat had as much to do with inside-the-beltway maneuvering as it did with fundamental untouchability of ethanol subsidies.

In fact it is revealing that opposition to ethanol subsidies has recently become a mini-trend among GOP potential presidential candidates with everyone from Tim Pawlenty to John Huntsman to Sarah Palin implying that corn ethanol subsidies  should be eliminated either now or in the near future.  The strong support of the Club for Growth, Jim DeMint and even Koch Industries for Coburn’s position also has added to the momentum for the removal of these subsidies, spurring a unique alliance of conservative deficit hawks and alternative-energy skeptics with liberals who, while far more favorable to alternative energy, believe that corn ethanol is the wrong way to go.  Meanwhile, farm state Republicans like John Thune (SD) and Chuck Grassley (IA) have joined with their farm state Democratic colleagues like Tom Harkin and generally blocked the more serious  reform efforts while offering a weaker alternative.  But even Grassley and Thune can see the writing on the wall, and it is becoming increasingly clear that some sort of reform to corn ethanol subsidies is very likely to be in the offing.

In fact, the defeat of this particular bill may say as much about Coburn’s famous contempt for Senate proprieties and procedures as it does about the popularity of corn ethanol subsidies. Coburn is often styled “Dr. No” for his lone wolf stands on issues – and personal friction with colleagues on both sides of the aisle probably cost this measure votes, particularly among the Democrats. Yet it is notable that the very conservative Coburn co-sponsored this bill with California’s own Dianne Feinstein.  And in a move that shows just how tortuous the Congressional politics of ethanol have become,  Feinstein ultimately voted against her own Amendment, due to partisan issues related to Coburn’s pushing for a vote without Majority Leader Harry Reid’s blessing.

Meanwhile, Coburn framed the ethanol issue in stark terms declaring: “What part of stupid are we? This is a historic vote that is a signal to the American people: Either people in Washington get it and are going to stop wasting money and start acting in the best interests of the country, or ... they won't."

Yet in addition to farm state foes, Coburn faced powerful opponents from his own party including  Grover Norquist, head of Americans for Tax Reform, who argued that eliminating ethanol’s favorable tax treatment would constitute a tax increase, something the GOP caucus has pledged to avoid—But significantly 34 of 47 GOP Senators were not swayed by this argument, marking a potential shift on the caucus’ view not just of corn ethanol, but on whether eliminating special-interest  tax breaks in the tax code (so-called tax expenditures) qualifies as a tax increase.

 

Beyond these issues of politics and semantics, the entire ethanol quandary illustrates a powerful point about the current climate for energy subsidies and innovation—money tends to flow to politically popular but inefficient programs such as corn-based ethanol production—But even if, on their own terms, they could address energy security needs (and one should be very  dubious of corn ethanol’s role here) as soon as they actually are implemented at large scale, they become too politically visible to continue.

In other words, our current system of energy subsidization—from solar energy to corn ethanol,  only works as long as the subsidized forms of energy are small enough to be irrelevant to our energy security.  Given that energy security (along with climate change, for some)  is the prime driver of the supposed need for these technologies,  this seems like a perverse result, to say the least.

What is needed is a fundamentally different approach to the federal role in energy—one that emphasizes sustained energy R&D on basic and early applied research—particularly in higher-risk, higher-reward, longer-term technologies that are too early for angel or venture capital funding.   The federal government has a long and fairly distinguished track record in basic science and engineering R&D, including the development of the Internet on which you are reading these words. We need a lot more of that—and a lot less corn ethanol.