Trump Bows Down To King Corn On Ethanol Subsidies And Mandates
With an eye on the trade war and the 2020 election, President Trump is increasing subsidies and mandates for corn-based ethanol.
Few segments of the American economy have been hit more harshly by President Trump’s misguided trade war than American agriculture. Largely due to retaliatory tariffs imposed by China, American farmers who grow soybeans, wheat, and other products, as well as other products, have been hit with the loss of the Chinese business that could end up lasting long after the trade war ends. In response, the Administration has spent record amounts of money to bail out farmers impacted by this retaliation. Now, the Administration appears to add to that by increasing investment in farm-based ethanol despite all the arguments against it:
WASHINGTON — The Environmental Protection Agency and the Department of Agriculture jointly proposed new rules on Friday that would increase ethanol consumption at the expense of oil refineries to help corn and soybean farmers buffeted by President Trump’s trade wars.
The plan would overhaul the system of quotas for ethanol, a fuel that is made from corn and other crops, as they blend their fuels. Its overall goal is to increase the sale of the biofuel beyond the current mandate of 15 billion gallons annually.
It also will ensure that a gasoline blend made of 15 percent ethanol will be available at the pumps already in place at most gas stations, rather than requiring the installation of new pumps. The proposal also includes trade measures to increase the access of ethanol to foreign markets.
The move is widely viewed as an effort to relieve pressure on farmers at a time when the Trump administration is escalating its trade war with China and Europe.
DES MOINES, Iowa — The Trump administration announced Friday it plans to implement new rules that will increase demand for ethanol, reversing a decline caused by exemptions given to oil refineries.
The proposal follows months of complaints by Midwest farmers, politicians and the ethanol industry that the federal government’s granting of waivers to refiners had violated federal law and forced some ethanol plants to close.
Roughly 40 percent of U.S. corn is used to produce ethanol, so declining demand for the fuel additive can depress prices for the grain. The issue carries extra political weight because the ethanol industry is concentrated in Iowa, Nebraska and other Midwest states, where farmers have been among President Donald Trump’s most loyal supporters.
Although the proposal by the Environmental Protection Agency and Department of Agriculture wouldn’t address the current loss of ethanol demand, it would ensure that beginning in 2020 the government would comply with a 15-billion-gallon standard already required under federal law and meet benchmarks for soybean-based biofuels. The EPA also said it would remove barriers to the sale of E15, a higher blend of ethanol that because of Trump’s support now can be sold year-round.
This new plan is quite obviously an effort by the President to pander to farmers, especially those in states that are likely to be battleground states in 2020 such as Iowa. The Hawkeye State went for President Obama in both 2008 and 2012 but President Trump managed to win the state in 2016 by a fairly comfortable margin. Since then, though, fortunes in the state have turned negative in no small part thanks to the President’s trade war with China, which has led China to impose tariffs on American agricultural products and to cut back on purchases of a wide variety of products from the United States such as wheat, soybeans, and corn, the last of which is an important part of Iowa’s farm economy.
The Administration has sought to make up for the impact of the trade war on the farming industry by a number of measures. One has taken the form of direct payments to farmers impacted by the tariffs while others have taken the form of increased government purchases of agricultural products in an effort to make sure that prices don’t fall below the level where they become unprofitable for individual farmers. The President’s moves here to expand the subsidies and preferences given to corn-based ethanol can be seen as another move in this direction.
For years, politicians in Congress and the White House from both sides of the aisle have bought into the biofuels hype pushed primarily by agricultural interests in Iowa and elsewhere. According to this hype, mandating the use of ethanol in gasoline helps the environment, reduces our dependence on foreign sources of energy, and helps the economy. As Chris Edwards at the CATO Institute noted in 2017, this is by and large a big lie:
The federal government provides an array of subsidies to increase the consumption of biofuels such as corn ethanol. The subsidies include tax breaks, grants, loans, and loan guarantees. The government also imposes a mandate to blend biofuels into gasoline and diesel fuels.
A new study at DownsizingGovernment.org describes the damage caused by these policies. Subsidies and the Renewable Fuel Standard (RFS) harm taxpayers, motorists, consumers, and the environment.
The study by Nicolas Loris argues that Congress should end its intervention in the biofuels industry. It should terminate subsidies and repeal the RFS. Individuals and markets can make more efficient and environmentally sound decisions regarding biofuels without subsidies and mandates.
Investor Carl Icahn said that the RFS has created a bureaucratic market in tradable credits full of “manipulation, speculation and fraud” with the potential to “destroy America’s oil refineries, send gasoline prices skyward and devastate the U.S. economy.”
That language is probably too strong, but federal ethanol policies really are stupid. President Trump says that he wants to cut unneeded regulations and wasteful subsidies. The RFS and biofuel hand-outs would be good policies to target.
This is just one of many studies that has shown that the claims about the advantages of biofuels such as corn-based ethanol are largely untrue and that the subsidies and mandates that the Federal Government provides for these products have accomplished next to nothing. Additionally, economic studies have shown that these studies have artificially increased the market prices of various agricultural products, thus making those agricultural products more expensive for the average American. Finally, as a 2016 study from Yale University shows, there is significant evidence that, on balance, corn-based ethanol specifically actually does more harm to the environment than any benefit it creates by reducing the use of fossil fuels.
Despite all of this, taking the ethanol pledge is something that pretty much every politician running for President has done for decades now. In the last election cycle, only two candidates, Rand Paul and Ted Cruz, refused to take what has come to be known as the “ethanol pledge.” Instead, both candidates proposed plans that would have gradually phased out ethanol subsidies and mandates. Of course, neither candidate Remarkably, Cruz even managed to eke out a narrow win in the Iowa Caucuses over Donald Trump, who had taken the pledge. This time around, of course, Trump is diving right into the pro-ethanol pool and hoping that proposals like this will help him keep the Hawkeye State’s six Electoral Votes in his column.