The Obama administration is look to "make it rain" for corn farmers, though the rest of Americans may end up footing the bill.  (Source: Red Dog Report)

Sen. Tim Johnson talks with a corn farmer and cradles the produce he so loves. Backed by millions in campaign donations by the corn lobby at the federal level, he is leading a group of four Democratic senators in proposing the expensive new ethanol legislation.  (Source: Tim Johnson)

Ethanol may be cheaper at the pump per gallon, but it carries less energy, so costs more on average per mile traveled. Further it increases emissions and engine wear.  (Source: MPR News)
New legislation would force virtually all cars to run on ethanol

The Obama administration and Democrats in Congress are facing resistance from the auto industry about a controversial proposal that would force consumers to use more ethanol in a bid to reduce fossil fuels consumption.

I. What's in the Bill?

The new bill, The Biofuels Expansion Act of 2011, has a number of provisions, but among its most controversial are efforts to expand government spending on ethanol and force ethanol on consumers.

Sponsored by Senators Tom Harkin (D-Iowa); Tim Johnson (D-South Dakota); Amy Klobuchar (D/"Farmer-Labor Party"- Minnesota); and Al Franken (D/"Farmer-Labor Party"-Minnesota), the bill could massively benefit corn farmers in the Midwest, but may not be so rosy for the rest of the country.

Under its proposals, government spending on ethanol would leap from $50M USD in 2012 to $350M USD by 2016.  The government would also provide loan guarantees to construct new ethanol pipelines.

But most importantly, the bill would force 90 percent of automobiles sold by 2016 to capable of running on an E85 fuel blend -- fuel that is 85 percent ethanol, and 15 percent gas.

II.  The Good

There are some positives about the bill.  The bill could promote the growth of cellulosic ethanol research and production.  Cellulosic ethanol has few downsides other than the cost.  It comes from waste, is completely renewable, has a net harvest-to-pump reduction in green house gases, nitrogen, and sulfur emissions.

And the bill could promote other non-corn biofuels such as algae, something the Navy has been actively dabbling in for several years.

In our past discussions with alternative biofuel companies like Coskata, most expressed that they didn't need subsidies to survive and eventually be profitable, but that subsidies could accelerate the process.

III. The Bad

Unfortunately the bad here is substantial as well.  The bill would push for higher consumption of corn-based ethanol.  That would be extremely lucrative for corn farmers who long struggled to find new ways to sell the massive amount of corn.

However, most economists agree that it would likely drive up food prices, at least temporarily.  An increase in the cost of corn meal, corn syrup, and livestock corn-feed would create a cascading effect, the net result of which would likely be higher prices at the super-market checkout.

Further, the auto industry would be forced to shoulder a $2B USD load in upgrading their engines, much of which would be passed on to the consumer.

Today, thanks to federal and state legislation, most of the fuel you get at the pump already is a 10 percent ethanol, 90 percent gasoline blend (E10).  Engines can tolerate E10, but it wears on them and is less energy dense (so you get fewer miles per gallon of fuel).  

E85, by contrast would break a normal engine.  So automakers would have to outfit their engines to be capable of running on such fuels.  Of the major automakers, GM is closest to this goal, having heavily invested in an ethanol push.  By contrast Ford, Chrysler, Toyota, Honda, and Hyundai/Kia have minimal investments in E85 vehicles.

Consumers would likely be hit by a triple price increase.  At the supermarket they'd pay more for food; at the pump they'd pay more for fuel (as ethanol, on average, currently costs more in mpg than gas); and they would pay more when purchasing new fuels.

Ultimately this may cut new automotive sales, in turn leading to job loss.

Essentially all this lost wealth would be funneled mostly to farmers, with a small cut going to researchers.

Further, corn ethanol has been scientifically shown to increase emissions.  Regardless of your opinion of more carbon dioxide being pumped into the atmosphere, you probably would be slightly more concerned about the increase in nitrogen and sulfur emissions that are harmful to human health, buildings, animal, and plant life.

IV. The Ugly

It’s no mystery why four farming state Senators would support a corn-bill.  It's good for the constituents.  But beyond that, it's good for their party.  The corn lobby has poured millions per year into "convincing" politicians of the "merits" of corn ethanol.  That stream of funding has drawn a degree of bipartisan support.  Former President George W. Bush (R) was a strong proponent of ethanol, even backing measures to increase loans, government use, and blending at the pump.

Surprisingly, though, one of the staunchest opponents of the bill comes from a farm state.  Sen. James Inhofe (R-Oklahoma), the Environment and Public Works Committee's top Republican, has led opposition to the bill.

Ironically the debate may be less about the merits of the bill and more a test of the political muscle of various lobbyists.

Supporting the opposition are the food and oil lobbies, the latter of which has been particularly active in recent years, funneling millions to federal political candidates.  The Alliance of Automobile Manufacturers, the trade association representing General Motors Co., Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp. and eight others, has also thrown its weight behind the opposition, concerned about the cost increase to upgrade the nation's vehicles.

V. What's Next

The bill was just debated by the Senate Energy Committee on Thursday.  You can find an audio recording of that debate here.

The bill will now move to a procedural vote by the Committee.  If approved, a Senator can then motion to have it brought to the floor.

While the bill likely will stall in the Republican-controlled House, it's possible it could be approved in exchange for Democratic concessions during the budget debates.  And it’s also possible that the corn lobby might be able to sweeten the deal with campaign contributions enough to change the minds of enough House Republicans to pass the bill.

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