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The rhetoric about energy can get a little apocalyptic, and the latest debate over ethanol subsidies is no exception. According to the Iowa Corn Growers Association, going through with the Senate’s tentative moves to end ethanol subsidies last week would be a huge mistake. Here’s their forecast: “Cutting the legs out from under the corn ethanol industry is going to increase fuel prices for consumers and limit all domestic and renewable energy production from here on out.”
Their bottom line? There will be a big price to pay for offending the corn god —or, as we like to say in New York, “Don’t even think about it.”
That’s just a sample of the political theater that’s been driving Capitol Hill debates over ethanol and biofuels for decades. The federal government has been subsidizing ethanol since the energy crisis of the 1970s: in fact, it’s one of the few areas of bipartisan consensus on energy. There’s fierce and important debate over the value of biofuels, and about whether we can afford to keep subsidizing them given the nation’s fiscal problems. But one of the biggest reasons we’ve been behind biofuels is a matter of political reality: there are a lot of votes in states that grow a lot of corn, and thus produce a lot of ethanol. As long as the Iowa caucuses play a big role in selecting presidential nominees, presidential candidates are going to like ethanol. And as a (literally) home-grown renewable, it has the advantage of sounding like good energy policy to boot.
Or so it’s always seemed. Have we actually reached the point where worries about the federal deficit are finally outweighing the political implications of voting against ethanol subsidies? If it happens, it’s breaking a political pattern that’s been going on for decades.
In the debate over the deficit, it’s standard practice for any group facing a financial hit to point out how devastating the consequences will be (although it’s significant that many in the ethanol industry don’t sound as upset about this as the Iowa corn growers). But one thing that both energy and the deficit debates have in common is that they are nearly impossible to judge without a sense of proportion.
So, presuming of course that ending subsidies actually passes Congress, how much difference will it make to either energy policy or the deficit?
Officially, the government has set very ambitious goals for ethanol and biofuels, calling for an increase from 13 billion gallons in 2010 to 36 billion by 2022. In fact, that’s one reason why the ethanol industry isn’t angrier about the change in subsidies; they figure that as long as there are renewable energy mandates they can prosper without the subsidies. And ethanol is big business, with about a quarter of all the corn grown in the United States going to ethanol and other biofuels.
Sounds impressive. But the Energy Information Administration projects that all biofuels will still only total 11 percent of our liquid fuel consumption by 2035. That will help us meet rising demand, but doesn’t actually change our overall fuel mix that much.
Source: Energy Information Administration
Plus, the EIA itself has raised doubts about whether we’ll make these targets. Without a big technological breakthrough we’re just not going to be able to grow enough corn to meet our energy needs (and still have corn left over for corn flakes and Fritos). Think of it like one of those word problems you had in middle school: if America devotes 25 percent of its corn crop to biofuels, and biofuels are 5 percent of our liquid fuel use, how much corn will it take to provide 20 percent of our needs? That’s right, all of it. And that may be optimistic. One study concluded that devoting all our corn production plus all our soybean production to biofuels would only meet 12 percent of gasoline demand and 6 percent of diesel demand. What’s more, the real potential breakthrough on biofuels, “celluostic” biofuels made from inedible plants like switchgrass, has been lagging.
And for the deficit? The government spends $6 billion a year on ethanol subsidies, and while some of that money will be used for other energy projects, the proposed Senate deal would devote $1.33 billion of the savings to reducing the federal deficit.
That helps, of course. But the 2010 deficit was $1.3 trillion – that’s the ethanol deal with three more zeros tacked onto the end. Or, put another way, have a look at this chart of the federal budget. Subsidizing ethanol may or may not be a good idea, but it’s not what’s driving our budget problems:
Source:Office of Management and Budget
Don’t get us wrong – we’re all for getting our fiscal situation under control, in fact we’re written about that extensively. And there’s no way we’re going to do that without cutting government spending that many people support (and raising taxes). Big things. Ethanol subsidies – or energy in general – are not where the big money is in the federal budget.
That’s another feature our energy problems and fiscal problems have in common. Small steps help. But sooner or later, we’re going to have to go big or go home on both these challenges. That means upsetting even more powerful interests, including oil producers, automakers, and the millions of Americans who drive to work every day. If a willingness to offend the corn god is a sign that we’re ready to start making much tougher tradeoffs, that’s promising. If we think this is a major step forward by itself, we’ll be in deeper trouble than ever.
