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Analysis: Ethanol draws great divide between candidates’ platforms

Sunday, July 13, 2008 | 5:30 p.m. CDT; updated 3:29 p.m. CDT, Tuesday, July 22, 2008

JEFFERSON CITY — Is Republican Treasurer Sarah Steelman actually aligned with Venezuelan President Hugo Chavez? Does Missouri Congressman Kenny Hulshof really believe presidential candidate John McCain is a socialist?

Of course not.

But Hulshof and Steelman are reaching to the rhetorical extremes in their Republican gubernatorial primary as they attempt to portray each other’s position on Missouri’s ethanol policies as unreasonable.

With less than a month to go before the Aug. 5 primary, ethanol has emerged as the most significant policy difference between the two candidates. Both think they have hit upon a winner — Hulshof in his staunch defense of Missouri’s ethanol mandate and Steelman in her call for its repeal.

A Missouri law that took effect in January requires gas stations to sell a 10 percent ethanol blend whenever its cost is equal to or cheaper than that of regular gas.

Although initially supportive of the policy, Steelman recently called for its repeal on grounds that the ethanol requirement drives up the price of food, livestock feed and even fuel.

Hulshof wants to keep the ethanol mandate in place. He contends it’s keeping the price of fuel from escalating even higher, lessening America’s oil dependence on foreign nations and having only a negligible affect on food prices.

After Steelman called for a repeal of the ethanol mandate, Hulshof’s campaign responded last week by suggesting her position would enrich “dictators like Hugo Chavez” by forcing the import of millions of additional barrels of oil.

Steelman’s campaign responded by stating McCain has opposed ethanol subsidies and thus Hulshof’s reference to Chavez had likened their party’s presidential candidate to a socialist.

Both underscore rhetoric with preferred facts and figures.

While there is no dispute that both fuel and food prices are higher nationwide, the reasons are debatable.

Because ethanol generally is made with corn, some farmers who otherwise would be sending their grain into the food chain now are trucking it to ethanol plants. The increased demand for corn has helped raise its price — Steelman claims, by as much as 75 percent in recent months.

The national consumer price index for cereal and bakery products, which is linked closely to prices for grains such as corn, was up 5.7 percent in January compared to the same month in 2007, said Scott Brown, an economist at the University of Missouri’s Food and Agriculture Policy Research Institute. This May, that product index was 10.5 percent higher than in May 2007, he said.

But while ethanol is a big contributor to higher corn prices, it’s not a big reason for the general increase in food prices, Edward Lazear, chairman of President Bush’s Council of Economic Advisers, told a Senate committee in May.

Lazear estimates the rise in corn-based ethanol production accounted for just 1.2 percentage points of a 43 percent increase in global food prices during the previous 12 months.

Generally speaking, the cost of farm products themselves amounts to just 20 percent of the price consumers pay for food at the retail level, with much of the rest covering processing and transportation costs, Brown said.

“People that blame the rise in food prices completely on ethanol are incorrect, just as the people who say ethanol has had no effect on food prices are incorrect,” Brown said. “The truth lies somewhere in between, and disentangling that is very difficult.”

Others at the university’s Food and Agriculture Policy Research Institute currently are studying how the greater use of ethanol has affected motor fuel prices.

Among other things, Hulshof cites a study from Iowa State University’s Center for Agricultural and Rural Development which concludes that ethanol reduced the retail price of gasoline between 29 cents and 40 cents from 1995 to 2007.

Steelman counters with a memo from the Heritage Foundation, a conservative think-tank in Washington, which asserts ethanol-blended fuel actually is adding to the cost of driving — partly because ethanol can result in lower gas mileage, and thus more frequent fill-ups.

University of Missouri researchers are including those sorts side-effects in studying the impact of ethanol on fuel prices. For example, because natural gas often is used in ethanol production, is the expanded demand for ethanol also affecting natural gas prices?

Perhaps lost in the gubernatorial debate is that Missouri’s ethanol is unlikely to make much of a dent — either positively or negatively — in national and worldwide fuel and food prices.

The federal government plays a much larger role in the ethanol marketplace. Federal law, for example, sets a national renewable fuels requirement of 9 billion gallons this year, rising to 36 billion gallons of biofuels to be blended into gasoline by 2022.

The federal government subsidizes ethanol production by offering a 51-cent-a-gallon tax credit for those blending ethanol with gasoline. It also imposes a 54-cent-a-gallon tariff for importing ethanol from countries outside the Caribbean.

When compared to Missouri’s ethanol mandate, “national policy is much more important, just because of scope more than anything,” Brown said.

So in the grand scheme of things, the philosophical difference between Hulshof and Steelman might not amount to much of an economic difference.


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Comments

M2 C July 14, 2008 | 9:47 a.m.

"The federal government subsidizes ethanol production by offering a 51-cent-a-gallon tax credit for those blending ethanol with gasoline."

So who is receiving the benefit of the 51 cents tax credit?
It seems that no one is addressing this question.
Please inform me and your other readers of the answer.

Thank you.
stormdreamer

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