Illinois voters should consider Cruz's Iowa win over Big Ethanol
Texas Sen. Ted Cruz won the Iowa caucus, defeating Republican front-runner Donald J. Trump. While Trump spent much of his time in Iowa scaring voters about a Cruz presidency ("He will destroy your ethanol business 100 percent"), Cruz won despite his opposition to the Holy Grail of Iowa politics, the federal ethanol mandate.
Illinois voters should take note of what happened in Iowa. Conventional political wisdom is that the Renewable Fuel Standard (RFS) helps corn farmers by creating artificial demand for their product. Cruz defied the conventional wisdom, pressing his case for a five-year phaseout of the mandate.
Perhaps voters are finally realizing this truth: even if the RFS has helped corn farmers in the past, it will hurt them in the future.
Over the next seven years, the RFS calls for corn-based ethanol to cede market share to other biofuels. In 2007, Congress set annual statutory volumes for ethanol, divided into two main categories: total renewable fuel and "advanced" biofuels. To qualify as "advanced," EPA has to certify that the fuel emits less greenhouse gas emissions than conventional gasoline.
Crucially, corn ethanol does not qualify as "advanced." This didn't matter in the early years, since the statute required tiny amounts of "advanced" biofuels, leaving corn to fill the vast majority of the total mandate. However, Congress and President George W. Bush designed the RFS to cap corn ethanol and dramatically ramp up "advanced" biofuels.
What year does the RFS cap corn ethanol? 2015. Going forward, if the RFS remains in place, Congress intends "advanced" biofuels to gradually displace corn's market share. As the Congressional Research Service (CRS) explains: "Over time, the growth in the RFS slowly transitions from consisting primarily of biofuels made mostly from food and feed crops to biofuels made from non-food and non-feed crops."
How much market share would corn lose? CRS concludes: "If actual renewable fuel production were to match what is in the statute for 2022, advanced biofuels would constitute close to 60 percent of the 36.0 billion gallon mandate and unspecified biofuel [corn] would constitute about 40 percent."
Fortunately for the corn industry, "advanced" biofuels have failed to take off as Congress expected. Moreover, EPA can reduce the volumes Congress called for in the statute, which they have done for several years in a row.
Still, the fact that federal law calls for the gradual displacement of corn-based ethanol should concern corn farmers. Unlike "advanced" biofuels, which are scarce and expensive, corn ethanol is a viable product that boosts octane and improves engine performance. Refiners would still purchase corn-based ethanol without the RFS. But if the RFS remains in place, corn stands to lose out to products that do not pass the market test, simply because Washington decrees it.
The solution is simple: repeal the entire RFS. Corn-based ethanol would survive and likely retain its share of the total fuel market. Meanwhile, "advanced" biofuels would be forced to compete against corn on a level playing field. If the "advanced" fuels are really so advanced, shouldn't they win on their own merits?
None of the presidential candidates have called for full RFS repeal. However, some candidates (Gov. Bush, Sen. Cruz, and Ms. Fiorina) have pledged to "phase out" the mandate. Of these proposals, Sen. Cruz's approach does the most to protect the interests of the American people, including Illinois corn farmers. Our presidential energy score card details the full positions of each candidate.
In the weeks before the caucus, ethanol lobbyists ramped up their spin machines, trotting out the same old attacks to scare Iowans into supporting the RFS. It didn't work. Instead, Iowa voters defied the special interests and cast their lot with a candidate who doesn't let politics trump principles. Will Illinois voters also rise to the occasion?
Thomas Pyle is president of the American Energy Alliance, a free-market advocacy group that accepts funding from individuals, foundations and corporations, including those of the oil industry.