Ethanol subsidies: Do Iowans even care about them anymore?

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June 7 2011 7:44 PM

Kernel of Truth

Even Iowans don't care about ethanol subsidies anymore.

Tim Pawlenty. Click image to expand.
Tim Pawlenty in Des Moines, Iowa

DES MOINES—Iowans think of themselves as particularly discerning voters. They like to tell reporters how they like to meet candidates a few times before coming to an opinion—on this trip I hadn't even gotten to my rental car before someone made this point—and candidates tell this story back to voters at nearly every stop as a way of buttering them up. But Iowa also has another political truth that is supposed to be equally iron-clad: Voters are so wedded to ethanol subsidies that if you oppose them, it won't matter how many times you shake a voter's hand and look him in the eye—he won't support you.

John Dickerson John Dickerson

John Dickerson is Slate's chief political correspondent and author of On Her Trail. Read his series on the presidency and on risk.

The first truth may be overblown, and the second one is wrong, or at least more complicated than portrayed. The politics of ethanol have changed in Iowa from the days when ethanol was regarded as some kind of newfangled invention. Unwavering support for ethanol tax credit is no longer the secret password required for success in Republican politics.

You wouldn't know this from the Republican candidates running for president. Two weeks ago, Tim Pawlenty came to Iowa to announce his candidacy and call for the phasing out of ethanol subsidies. He said it was a sign of the hard truths he was willing to tell the voters. Ambassador Jon Huntsman said it wasn't even worth campaigning in Iowa because he opposes the subsidy, and as a result voters won't even consider him. "I understand how the politics work there," he said. Mitt Romney said he supported the subsidies and was quickly denounced by former Sen. John Sununu of New Hampshire for "pandering" to voters.

Rush Limbaugh said Pawlenty was "politically gutsy" for his stance on the corn-based fuel. He stood before the voters of the corn-growing state and told them something they didn't want to hear. But how brave was it? It is the mainstream Republican position in Iowa that ethanol subsidies must be phased out. Chuck Grassley, the state's senior senator, has authored legislation that calls for a gradual decrease in the subsidy. The state's Republican governor and the state's agriculture commissioner support the reduction. Even the Iowa Renewable Fuels Association—also known as the ethanol lobby—supports this position. "It used to be if you were for ethanol you were for the VEETC," said Monte Shaw of IRFA, using the shorthand for the main ethanol subsidy. "Today you can be for ethanol and want to see VEETC go away."

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Candidate Obama regularly claimed he would tell hard truths on the campaign trail but he never much did it. Pawlenty may be following the same model. But he does win some points for bravery, however. "The truth about federal energy subsidies, including federal subsidies for ethanol, is that they have to be phased out," he said. So Pawlenty wasn't just aiming at the $6 billion-a-year ethanol subsidy but all energy subsidies, including those for oil and solar and wind. Depending on what you define as a subsidy that could total anywhere from $17 billion, the conservative government estimate, to $50 billion, the estimate made by Doug Koplow, a specialist in energy subsides at Earthtrack in Cambridge, Mass.

That's just fine with the Iowa ethanol lobby. "Iowans look forward to Gov. Pawlenty further detailing his plans to 'phase out' petroleum subsidies, perhaps in a speech in Houston, Texas," said Walt Wendland, president of the Iowa Renewable Fuels Association, in a press release.

To figure out Republican candidates' positions on ethanol subsidies requires a familiarity with the federal budget that most Americans simply don't have. Ethanol production receives different kinds of help. The subsidy with the direct effect on the federal budget (and therefore the most political potency in the era of the deficit-obsessed Tea Party) is the 45-cent blender's tax credit. Known formally as the Volumetric Ethanol Excise Tax Credit (VEETC), it costs $6 billion a year and is scheduled to disappear this year.

The bravest position would be to allow the tax credit simply to expire on schedule. That's the position of Rep. Ron Paul. That's Sen. Tom Coburn's position. It's not Pawlenty's position. He said the phase-out "can't be done overnight because companies have invested a lot." His call for a gradual phase-out is in keeping with the spirit of what Grassley and the state's leadership have proposed.

Romney, meanwhile, is being attacked as a panderer for saying he supports ethanol subsidies, but his position on it is almost indistinguishable from Pawlenty's. In his book No Apology, Romney articulates the Iowa Republican position: Subsidies were necessary for ethanol in its infancy, "but we should acknowledge that subsidies for one form of energy also discourage investment in alternatives that don't receive subsidies, which may undermine innovation. And because taxpayers ultimately have to pick up the tab for government spending, subsidies are in fact a hidden form of energy tax. Once an industry is up and running, the disadvantages of subsidies outweigh their benefits."

Huntsman doesn't have to bother with the complexity. His campaign doesn't want to compete in Iowa. Its higher share of evangelical voters are suspicious of him, and candidates like Romney and Pawlenty have better organizations here. Ethanol offers him a way to write off the state and limit the political damage for doing so.

Republicans in Iowa want him to pay for this. They want every candidate to compete out here; it's good business for the state. They're also insulted. They like to think of themselves as the guardians of democracy, but Huntsman is saying that they're hacks. "He doesn't know the state of Iowa, he obviously doesn't know about ethanol," says Gov. Terry Branstad. "I think he's making a huge mistake. I think he's been in China too long."

The tax credit for blending ethanol isn't the only help ethanol producers receive. The federal government mandates a certain level of ethanol production. There is also a tariff that promotes domestic production and discourages low-cost ethanol imports. Ethanol critics like Sununu say this hits consumers in their wallets, but these measures have no effect on the federal budget. Other conservatives like Paul argue on philosophical grounds that mandates distort the market. Pawlenty, who aspires to ethanol courage on the subsidy, supports mandating the use of ethanol, however. As governor of Minnesota, he signed legislation that mandated that ethanol be used in 20 percent of all gas in the state.

There are other arguments against the production of ethanol that have nothing to do with the subsidy: It won't lead to energy independence, and it makes it harder to deliver gasoline across the country. No one in the Republican field is making those arguments here. A candidate who did that wouldn't get points for being brave—he'd just be dumb.

Slateintern Peter Fulham provided research and reporting for this article.

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