Governors' Wind Energy Coalition

Fossil fuels’ attacks on mandates, subsidies put renewables at risk

The political battle, expected to continue beyond the November election, sets up a potential regional battle between the Midwestern grain interests and traditional fossil fuel strongholds in Texas and the Southwest.

The political energy map will change further with the emergence of states like Ohio, Pennsylvania and New York as major natural gas producers, with offshore wind farms in the Atlantic ocean arising to compete with Iowa and Midwestern wind.

Fossil fuel interests are pushing to modify, if not eliminate, mandates to use biofuels. If Congress removes the mandate or fails to renew subsidies for wind and biodiesel production, Iowa could see much of its ethanol and wind-machinery factories shuttered, thousands of jobs vanish and its taxpayer investment lost, experts predict.

With ethanol now consuming 60 percent of Iowa’s corn crop, elimination of the Renewable Fuel Standard would remove a prime driver of record corn prices Iowa’s farmers have enjoyed in the last half-decade.

Through subsidies of ethanol, biodiesel and wind energy, the nation’s taxpayers bet big on renewable energy to lessen dependence on foreign oil and potential environmental damage from fossil fuels.

Iowa taxpayers made an even bigger bet: subsidizing construction of ethanol plants and wind manufacturers, providing a tax break for ethanol sales and funding university research.

But in 2007, when Congress required use of biofuels and then-Iowa Gov. Chet Culver made renewable energy the centerpiece of his new administration, no one foresaw the dramatic market shifts that have upended the nation’s energy landscape or the growing tide of resentment against renewable subsidies.

New oil fields in North Dakota are reversing a three-decade-long decline in U.S. oil production.

Hydraulic fracturing has opened what the federal government now says is a 100-year domestic supply of natural gas, dropping the fuel’s price to a 10-year low, giving electric utility executives a choice besides wind energy as a cleaner alternative to coal.

Big Oil is gradually stepping up its attacks on biofuels, targeting the taxpayer subsidies that renewable energy supporters say are still critical to growth of a fledgling industry.

U.S. Secretary of Agriculture Tom Vilsack, who as Iowa’s governor presided over dramatic growth in the ethanol industry, warned the Greater Des Moines Partnership that Big Oil was on the attack against biofuels.

“This could be very serious for the Midwest if this kind of regional battle goes very far,” said Vilsack, now representing an administration eager to avoid regional political squabbles in an election year.

Iowa has big stake in energy fight

The stakes for Iowa in the Big Oil-renewable energy fight couldn’t be higher.

Increased production of ethanol, which now consumes 60 percent of Iowa’s corn crop, has led to record corn prices, record farm incomes and record land prices.

Not coincidentally, Iowa enjoys one of the lowest unemployment rates in the U.S., and in 2011 emerged as the second-fastest state for income growth, a distinction Iowa had never previously achieved.

The state’s 41 ethanol plants produced about $15 billion worth of ethanol last year, the most in the U.S.

Iowa’s wind energy network, which amounts to more than 4,450 megawatts of electricity generation capacity and produces nearly 25 percent of the state’s electricity, has an asset and revenue value of about $5 billion, according to the Iowa Wind Energy Association.

That $20 billion alone, not counting the much smaller biodiesel industry, would dwarf all Iowa-based public companies. In comparison, Deere & Co.’s worldwide operations had $33 billion in annual revenues.

The biofuels and wind energy sectors together provide about 10,000 jobs at refineries, wind farms and at wind machinery factories in Fort Madison, West Branch, Cedar Rapids and Newton.

“Iowa has shown how wind energy can not only be important to the environment, but it can be a job creator for a state,” Gov. Terry Branstad told a conference of Midwest utility regulators in Des Moines last week.

But the jobs impact doesn’t seem to have moved the political meter. Former Iowa Gov. Chet Culver lost to Branstad in the 2010 election despite promoting the jobs theme in his renewable energy program.

“We probably made a mistake in promoting renewable energy as a jobs program,” said John Norris, former chairman of the Iowa Utilities Board and now a member of the Federal Energy Regulatory Commission.

One big problem: Need for subsidies

Taxpayer subsidies are always vulnerable to political opposition, and the nation’s burgeoning debt in the wake of the Great Recession has put a target on subsidies for biofuels.

Energy historian Daniel Yergin calls wind energy the most promising of renewable fuels, but believes it will require continued subsidies to be viable on a large scale, a prescient prediction for lobbyists who have failed this year to get a production tax credit extended.

Amy Meyers Jaffe, energy researcher at Rice University in Houston and a critic of renewable energy subsidies, said: “Wind energy is complaining about natural gas now. But you don’t see the natural gas boys going to Washington to ask for subsidies.”

Gary Haer, vice president of Renewable Energy Group in Ames and president of the National Biodiesel Board, said parts of his industry still need taxpayer help. “Biofuels are a young industry,” he said. “We still need some help to see our way.”

Haer led a delegation to the White House two weeks ago to try to drum up support for increasing the biodiesel mandate from 1 billion gallons to 1.28 billion gallons. Haer said the biodiesel group got a respectful hearing from presidential aides, but no promises.

The failure of a federally subsidized wood biomass plant in Georgia this year gave the anti-subsidies movement new ammunition and has thrown Iowa’s congressional delegation on the defensive

“If you had told me three years ago that ethanol had a political problem, I would have denied it,” U.S. Rep. Steve King said this year at the opening of a biodiesel plant at Algona.

“But now I can tell you that ethanol and biofuels have a problem,” King said. “We have to face it.”

Even a White House seen as friendly to wind energy and biofuels hasn’t yet put full muscle behind efforts to preserve the biofuels use mandate and maintain or restore lost subsidies

Big Oil targets ethanol weaknesses

Rather than take on biofuels directly, Big Oil has zeroed in on two weaknesses: slowness in the development of the new generation of non-corn biofuels, and unreadiness of the nation’s gasoline retail system to accommodate the expansion of 10 percent ethanol blend to 15 percent.

The E15 decision was thought to be an automatic for the new Obama administration, which owed its existence to the 2008 Iowa caucuses. But the OK for E15 didn’t come until October 2009, and on Friday the EPA gave final approval to sell the fuel.

The federal indecision has delayed the expensive conversion of much of the nation’s retail gasoline pumping systems to the different blend. It also has given ethanol opponents more ammunition to argue that biofuels can’t survive on their own.

While E15 is a relatively small target, oil interests have widened their attack with political opposition to the required use of biofuels, while pointing to the EPA’s own concessions that non-corn biofuels have fallen short of targets.

The Renewable Fuel Standard, adopted in 2007, required that at least 10 percent of the U.S. gasoline supply come from biofuels. The vast majority to date has come from corn-grain ethanol.

The Renewable Fuel Standard requires that non-corn feedstock be used to make half of the 36 billion gallons of renewable fuel to be used by 2022.

Noncorn ethanol, primarily from grasses, crop residue or biomass wood, paper or waste products, has come more slowly than envisioned by the 2007 law. But the mandate for its use remains in place and presents a hanging pinata for the oil industry to whack.

EPA’s mandate is out of touch with reality and forces refiners to pay a penalty for not using imaginary biofuels, said Bob Greco of the American Petroleum Institute.

“EPA’s unrealistic mandate is effectively an added tax on making gasoline,” Greco said.

Loss of the Renewable Fuel Standard is a doomsday scenario for ethanol. Rick Brehm, president of the Lincolnway Energy ethanol plant in Nevada, notes that the industry voluntarily gave up its 45-cent-per-gallon tax credit at the end of 2011.

“The Renewable Fuel Standard is the basis for the demand for ethanol,” said Brehm. “The oil industry has had a century to mature and build its infrastructure. We’re still in our infancy.”

Iowans will begin to see evidence of ethanol’s non-corn future this year when construction begins on cellulosic plants at Emmetsburg and Nevada.

The cellulosic ethanol plant at Emmetsburg that once was scheduled to open two years ago has just broken ground this year, after multiple delays in getting federal funding.

Owner Poet eventually walked away from federal money, signed up a Dutch partner, and hopes to open the plant next year.

Brehm said the economic slowdown of 2008 to 2010 scared away a lot of new investment in advanced biofuels such as cellulosic ethanol or natural gas-fed hydrogen.

“This is expensive technology,” Brehm said.

While development of cellulosic ethanol has lagged, opposition to corn-based ethanol has mounted.

Higher corn prices annoy livestock feeders and food processors. Humanitarian groups and governments around the world have blamed corn-grain ethanol as a root of higher food prices and food shortages.

Vilsack told the Des Moines business leaders last week that the fight over biofuels, primarily between corn growers and livestock feeders, “is a fight that should stay in the family.”

“It doesn’t help in getting agriculture and energy legislation passed in Washington when agriculture is arguing with itself over biofuels,” he said.

Yergin, whose book “The Prize” won the 1992 Pulitzer Prize for general nonfiction, said biofuels have a future, but it will be further out than expected.

In his new book “The Quest,” a history of America’s longing for energy independence since the oil shocks of the 1970s, Yergin states that “predictions of the end of oil have, so far, been wrong.”

He predicts they will continue to be wrong. He writes: “I think after 2030, that’s where we can start to see real changes and the real impact of innovation.”

Biofuels supporters are pushing back

Some Iowa political figures are gearing up for a populist-sounding fight against oil interests.

Branstad said in a recent interview: “Big Oil has always wanted to destroy ethanol. They have been biding their time. Now they’re doing everything they can just to prevent the expansion of blending from 10 percent to 15 percent.”

Branstad, newly elected chairman of the Midwest Governors Council, vows to use that organization as a megaphone to counter the Southwestern-oriented fossil fuel industry.

“The oil industry and ethanol industry are the Hatfields and McCoys of the liquid-fuels world,” said Paul Bledsoe, a senior adviser at the Bipartisan Policy Center. “They have had this feud since ethanol first appeared. So this is the latest skirmish.”

Culver, the former Iowa governor, acknowledged that the advance of renewable energy has been slower than he and others anticipated at the middle of the last decade.

“I think one reason for the slowdown now is the political process,” said Culver, now a consultant to the wind industry. “I truly believe that after the elections this November, we’ll see a new national energy policy that will help regain the momentum for renewable energy.”

Robert Brown, who directs biofuel research at Iowa State University’s Bioeconomy Institute, says just because the original biofuels boom has run its course doesn’t mean that biofuels have no future.

Brown argues that the huge supplies of natural gas and domestic crude oil will provide more time and a stronger bridge to what he says will be a permanent biofuels future. “The end of a boom doesn’t mean the end of an era.”