At a press conference in Des Moines on May 23, former Minnesota Governor Tim Pawlenty announced his candidacy for president of the United States. That makes Pawlenty, a Republican, officially in the race for president in the election to take place in November 2012. In his speech declaring himself a candidate, Pawlenty discussed phasing out subsidies for all sources of energy in the United States, including ethanol made from corn.
Phasing out of ethanol subsidies for one of Iowa's main industries, one which supports agriculture to a large degree, is a suggestion that was once considered political suicide in Iowa. But with the strong push to reduce government spending which has grown out of control, reducing subsidies for ethanol is now embraced by presidential candidates and some ethanol groups too.
"The truth about federal energy subsidies, including federal subsidies for ethanol, is that they have to be phased out," Pawlenty said in his speech in front of the State Historical Building in downtown Des Moines. "We need to do it gradually. We need to do it fairly. But we need to do it."
If ethanol subsidies are eliminated, oil subsidies must be too
"We would favor the phase out of ethanol subsidies, if they are accompanied by elimination of federal subsidies for the petroleum industry," says Monte Shaw, executive director of the Iowa Renewable Fuels Association. Walt Wendland, president of IRFA, issued this statement after Pawlenty's press conference:
"The ethanol industry is united behind Iowa Senator Chuck Grassley's legislation to phase down and reform the current ethanol incentive as part of the discussion on all energy programs. We appreciate Senator Grassley's leadership on this issue. Governor Pawlenty's remarks today appear to be in line with Senator Grassley's approach for ethanol reform. We welcome Pawlenty's support."
Wendland added: "Governor Pawlenty further pointed out that energy incentive reforms must be across the board. We agree that the massive amount of federally funded petroleum incentives must be a part of any reform discussion. Iowans look forward to Gov. Pawlenty further detailing his plans to 'phase out' petroleum subsidies, perhaps in a speech in Houston, Texas."
Pawlenty says spending must be cut, including ethanol subsidies
Wendland, who was speaking on behalf of the IRFA, is CEO of Golden Grain Energy, an ethanol manufacturing plant near Mason City, Iowa, and also CEO of Homeland Energy Solutions near Lawler, Iowa. He is currently serving his second term as president of the Iowa Renewable Fuels Association.
Federal subsidies for ethanol are currently costing taxpayers about $5 billion a year, and they've been a contentious issue is previous elections. In 2008, some observers said Republican nominee John McCain didn't do as well as expected in rural Iowa counties because of his stand against ethanol subsidies. But the landscape has changed on the ethanol issue since then, as public alarm has grown about the federal deficit, and key ethanol industry groups now support the idea of a subsidy phase out.
Grassley introduced a bill earlier in May that calls for cutting the current 45 cents per gallon tax credit for ethanol blenders to 20 cents in 2012 and to 15 cents in 2013. After that and through 2016, the credit could be as high as 30 cents if the price of oil is $50 a barrel or less, but would fall as crude oil prices rise. Grassley's bill would also provide tax credits for service stations that retrofit their gas pumps to dispense higher blends of ethanol such as E15 and E85, compared to the standard E10 blend that is now being sold nationwide.
What's the estimated impact of ending federal ethanol subsidy?
The elimination of the ethanol tax break for blenders of the biofuel would reduce ethanol production by about 700 million gallons nationally out of the 13 billion to 14 billion gallons that are being produced per year, according to a 2010 study by Iowa State University professor of ag economics Bruce Babcock. He estimated that if the 45 cents per gallon tax break were to lapse, the price of corn would drop about 10%.
Former U.S. House Speaker Newt Gingrich, also a declared candidate for the Republican nomination for president of the United States, has been campaigning in Iowa in recent weeks. He noted at stops across the state last week that he supported ethanol subsidies as early as 1984.
Gingrich told Iowa crowds that he would rather have government money going to farmers and others in the United States who produce biofuels than to unstable regimes in Middle East countries. "We need to do all we can to reduce our reliance on imported petroleum, especially oil that we are buying from countries that don't look very favorably on America and who are a threat to our national security," Gingrich said in a Des Moines speech. "We need to produce and generate more renewable energy here in the United States."