Will Cruz's Tilt Against Ethanol Subsidies Cost Him Iowa?

Senator Ted Cruz speaks during a campaign town hall meeting in Exeter, New Hampshire, on January 20. Most of the presidential candidates back ethanol welfare, but Cruz has broken rank, the author writes. Brian Snyder/Reuters

This article first appeared on the Cato Institute site.

Until now, the conventional wisdom held that candidates of both major parties had to back ethanol welfare to win the Iowa caucuses. Like cotton was in the antebellum South, corn—in the form of ethanol—is king in Iowa.

Most of today's candidates have fallen into line. However, Senator Ted Cruz has broken ranks to criticize farmers' welfare. He holds a narrow polling lead over Donald Trump leading up to the upcoming caucuses. (Senator Rand Paul also rejects the conventional wisdom, but he remains far behind in the race.)

Cruz's political strength has dismayed ethanol makers. The group America's Renewable Future, whose state director is the governor's son, is deploying 22 staffers in the presidential campaign. The lobby doesn't want to look like a paper tiger.

Ethanol subsidies once included a high tariff and generous tax credits, both of which expired at the end of 2011. However, the Renewable Fuel Standard, which requires blending ethanol with gasoline, operates as a huge industry subsidy. Robert Bryce of the Manhattan Institute figured the requirement cost drivers more than $10 billion since 2007.

Ethanol is a political creation. Three decades ago, the Agriculture Department admitted that ethanol could not survive "without massive new government assistance," which "cannot be justified on economic grounds." What other reason could there be for an ethanol dole?

Petroleum is the most cost-effective energy source available for transportation, in particular. Ethanol has only about two-thirds of the energy content of gasoline. Given the energy necessary to produce ethanol—fuel tractors, make fertilizer and distill alcohol, for instance—ethanol actually may consume more in fossil fuels than the energy it yields.

The ethanol lobby claims using this inferior fuel nevertheless promotes "energy independence." However, ending imports wouldn't insulate the United States from the impact of disruptions in a global market. Moreover, the price of this energy "insurance" is wildly excessive.

Bryce figured that "since 1982, on average ethanol has cost 2.4 times more than an energy-equivalent amount of gasoline." In some years, the former was three times as expensive.

Last year, Terry Dinan of the Congressional Budget Office told House members that "the marginal cost of reducing gasoline consumption by one gallon through substituting corn ethanol" could run as much $3.20. With the United States likely to become a net oil exporter, the call for energy independence makes ever less sense.

As I point out on American Spectator online, "By creating an artificial energy demand for corn—40 percent of the existing supply goes for ethanol—Uncle Sam also is raising food prices. This obviously makes it harder for poor people to feed themselves, and raises costs for those seeking to help them."

Nor does ethanol welfare yield an environmental benefit, as claimed. In fact, ethanol is bad for the planet.

Two years ago, the Intergovernmental Panel on Climate Change warned that "increasing bioenergy crop cultivation poses risks to ecosystems and biodiversity." Scientific American's David Biello pointed to fertilizer runoff from cornfields that created "vast oxygen-deprived 'dead zones' in the Gulf of Mexico."

Jerry Taylor and Peter Van Doren, formerly and currently at the Cato Institute, respectively, also cited research that, after taking "evaporative emissions" into account, determined that ethanol mixed with gasoline "actually increases emissions of total hydrocarbons, non-methane organize compounds and volatile toxins." Moreover, additional land used for corn production means "more water pollution, less water for other uses and more ecosystems destruction."

What about combating climate change? One study estimated a drop of between 1 and 5 percent in greenhouse emissions from the blended fuel, which makes the cost extraordinarily high.

Other reviews don't even find this reduction. Princeton's Timothy Searchinger told Biello, "We can't get to a result with corn ethanol where we can generate greenhouse gas benefits." Similarly, warned Dinan, "replacing gasoline with corn ethanol has only limited potential for reducing emissions (and some studies indicate that it could increase emissions)."

Ethanol is a bad deal by any standard. Whomever Iowans support for president, King Ethanol deserves a bout of regicide.

Doug Bandow is a senior fellow at the Cato Institute.