Obama Camp Closely Linked With Ethanol

Obama Camp Closely Linked With Ethanol

By LARRY ROHTER
The New York Times, June 23, 2008
http://www.nytimes.com/2008/06/23/us/politics/23ethanol.html


When VeraSun Energy inaugurated a new ethanol processing plant last summer in
Charles City, Iowa, some of that industry’s most prominent boosters showed up.
Leaders of the National Corn Growers Association and the Renewable Fuels
Association, for instance, came to help cut the ribbon — and so did Senator
Barack Obama.

Then running far behind Senator Hillary Rodham Clinton in name recognition and
in the polls, Mr. Obama was in the midst of a campaign swing through the state
where he would eventually register his first caucus victory. And as befits a
senator from Illinois, the country’s second largest corn-producing state, he
delivered a ringing endorsement of ethanol as an alternative fuel.

Mr. Obama is running as a reformer who is seeking to reduce the influence of
special interests. But like any other politician, he has powerful constituencies
that help shape his views. And when it comes to domestic ethanol, almost all of
which is made from corn, he also has advisers and prominent supporters with
close ties to the industry at a time when energy policy is a point of sharp
contrast between the parties and their presidential candidates.

In the heart of the Corn Belt that August day, Mr. Obama argued that embracing
ethanol “ultimately helps our national security, because right now we’re sending
billions of dollars to some of the most hostile nations on earth.” America’s oil
dependence, he added, “makes it more difficult for us to shape a foreign policy
that is intelligent and is creating security for the long term.”

Nowadays, when Mr. Obama travels in farm country, he is sometimes accompanied by
his friend Tom Daschle, the former Senate majority leader from South Dakota. Mr.
Daschle now serves on the boards of three ethanol companies and works at a
Washington law firm where, according to his online job description, “he spends a
substantial amount of time providing strategic and policy advice to clients in
renewable energy.”

Mr. Obama’s lead advisor on energy and environmental issues, Jason Grumet, came
to the campaign from the National Commission on Energy Policy, a bipartisan
initiative associated with Mr. Daschle and Bob Dole, the Kansas Republican who
is also a former Senate majority leader and a big ethanol backer who had close
ties to the agribusiness giant Archer Daniels Midland.

Not long after arriving in the Senate, Mr. Obama himself briefly provoked a
controversy by flying at subsidized rates on corporate airplanes, including
twice on jets owned by Archer Daniels Midland, which is the nation’s largest
ethanol producer and is based in his home state.

Jason Furman, the Obama campaign’s economic policy director, said Mr. Obama’s
stance on ethanol was based on its merits. “That is what has always motivated
him on this issue, and will continue to determine his policy going forward,” Mr.
Furman said.

Asked if Mr. Obama brought any predisposition or bias to the ethanol debate
because he represents a corn-growing state that stands to benefit from a boom,
Mr. Furman said, “He wants to represent the United States of America, and his
policies are based on what’s best for the country.”

Mr. Daschle, a national co-chairman of the Obama campaign, said in a telephone
interview on Friday that his role advising the Obama campaign on energy matters
was limited. He said he was not a lobbyist for ethanol companies, but did speak
publicly about renewable energy options and worked “with a number of
associations and groups to orchestrate and coordinate their activities,”
including the Governors’ Ethanol Coalition.

Of Mr. Obama, Mr. Daschle said, “He has a terrific policy staff and relies
primarily on those key people to advise him on key issues, whether energy or
climate change or other things.”

Ethanol is one area in which Mr. Obama strongly disagrees with his Republican
opponent, Senator John McCain of Arizona. While both presidential candidates
emphasize the need for the United States to achieve “energy security” while also
slowing down the carbon emissions that are believed to contribute to global
warming, they offer sharply different visions of the role that ethanol, which
can be made from a variety of organic materials, should play in those efforts.

Mr. McCain advocates eliminating the multibillion-dollar annual government
subsidies that domestic ethanol has long enjoyed. As a free trade advocate, he
also opposes the 54-cent-a-gallon tariff that the United States slaps on imports
of ethanol made from sugar cane, which packs more of an energy punch than
corn-based ethanol and is cheaper to produce.

“We made a series of mistakes by not adopting a sustainable energy policy, one
of which is the subsidies for corn ethanol, which I warned in Iowa were going to
destroy the market” and contribute to inflation, Mr. McCain said this month in
an interview with a Brazilian newspaper, O Estado de São Paulo. “Besides, it is
wrong,” he added, to tax Brazilian-made sugar cane ethanol, “which is much more
efficient than corn ethanol.”

Mr. Obama, in contrast, favors the subsidies, some of which end up in the hands
of the same oil companies he says should be subjected to a windfall profits tax.
In the name of helping the United States build “energy independence,” he also
supports the tariff, which some economists say may well be illegal under the
World Trade Organization’s rules but which his advisers say is not.

Many economists, consumer advocates, environmental experts and tax groups have
been critical of corn ethanol programs as a boondoggle that benefits
agribusiness conglomerates more than small farmers. Those complaints have
intensified recently as corn prices have risen sharply in tandem with oil prices
and corn normally used for food stock has been diverted to ethanol production.

“If you want to take some of the pressure off this market, the obvious thing to
do is lower that tariff and let some Brazilian ethanol come in,” said C. Ford
Runge, an economist specializing in commodities and trade policy at the Center
for International Food and Agricultural Policy at the University of Minnesota.
“But one of the fundamental reasons biofuels policy is so out of whack with
markets and reality is that interest group politics have been so dominant in the
construction of the subsidies that support it.”

Corn ethanol generates less than two units of energy for every unit of energy
used to produce it, while the energy ratio for sugar cane is more than 8 to 1.
With lower production costs and cheaper land prices in the tropical countries
where it is grown, sugar cane is a more efficient source.

Mr. Furman said the campaign continued to examine the issue. “We want to
evaluate all our energy subsidies to make sure that taxpayers are getting their
money’s worth,” he said.

He added that Mr. Obama favored “a range of initiatives” that were aimed at
“diversification across countries and sources of energy,” including cellulosic
ethanol, and which, unlike Mr. McCain’s proposals, were specifically meant to
“reduce overall demand through conservation, new technology and improved
efficiency.”

On the campaign trail, Mr. Obama has not explained his opposition to imported
sugar cane ethanol. But in remarks last year, made as President Bush was about
to sign an ethanol cooperation agreement with his Brazilian counterpart, Mr.
Obama argued that “our country’s drive toward energy independence” could suffer
if Mr. Bush relaxed restrictions, as Mr. McCain now proposes.

“It does not serve our national and economic security to replace imported oil
with Brazilian ethanol,” he argued.

Mr. Obama does talk regularly about developing switchgrass, which flourishes in
the Midwest and Great Plains, as a source for ethanol. While the energy ratio
for switchgrass and other types of cellulosic ethanol is much greater than corn,
economists say that time-consuming investments in infrastructure would be
required to make it viable, and with corn nearing $8 a bushel, farmers have
little incentive to shift.

Ethanol industry executives and advocates have not made large donations to
either candidate for president, an examination of campaign contribution records
shows. But they have noted the difference between Mr. Obama and Mr. McCain.

Brian Jennings, a vice president of the American Coalition for Ethanol, said he
hoped that Mr. McCain, as a presidential candidate, “would take a broader view
of energy security and recognize the important role that ethanol plays.”

The candidates’ views were tested recently in the Farm Bill approved by Congress
that extended the subsidies for corn ethanol, though reducing them slightly, and
the tariffs on imported sugar cane ethanol. Because Mr. McCain and Mr. Obama
were campaigning, neither voted. But Mr. McCain said that as president he would
veto the bill, while Mr. Obama praised it.