Monday, June 23, 2008

Obama Camp Closely Linked With Ethanol


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.

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