Ethanol Issue Slips Behind Jobs, Deficit in Iowa

Gone are the days when ethanol topped the list of policy priorities in Iowa, the corn-rich state that hosts the leadoff presidential caucuses.

But apparently some of the 2012 Republican presidential field isn't giving up on the issue, magnifying the relevance of ethanol subsidies to suit their campaigns.

Former Minnesota Gov. Tim Pawlenty calls ending the subsidy a hard truth, while former Utah Gov. Jon Huntsman says his opposition to the subsidy is why he won't bother to campaign there.

But powerful Iowa Republicans also want to phase out the federal tax credit for ethanol, saying the now-thriving industry no longer needs it and the federal budget deficit demands it be ended.

The 45-cents-a-gallon tax credit cost the federal government $5.4 billion in 2010.

The shift in priorities makes Pawlenty's proposal hardly groundbreaking, and weakens Huntsman's premise in Iowa, where GOP voters see the nation's economy as more important than any one issue.

"I think it would be wrong for Pawlenty or Huntsman or any of the candidates to think in terms of ethanol being the issue in Iowa," said Iowa Sen. Chuck Grassley, a Republican who has not said whether he will endorse a candidate before the February caucuses. "The issues in Iowa are the economy, jobs and the legacy of debt. In other words, getting the budget under control."

Social issues also fuel Iowa's political interests.

Charlie Black, a 30-year veteran of presidential campaigns in Iowa, said a Republican candidate could do better in Iowa, where evangelical Christians make up a plurality of the GOP base, as an ethanol opponent than someone with moderate positions on hot-button social issues such as abortion or gay marriage.

"You're not going to win the caucuses if you are pro-choice. That's a more powerful issue than ethanol in Iowa," Black said.

Ethanol is a renewable, liquid fuel additive made from fermenting plant sugars, typically from corn. Iowa, the nation's leading corn-producing state, has also become the nation's leading ethanol producer over the past 30 years. Iowa produces more than a quarter of the ethanol made in the United States. Ethanol production added nearly $12 billion, roughly 9 percent, to Iowa's gross domestic product in 2008, according to the Iowa Renewable Fuels Association.

The perception that support for ethanol has been a litmus test in Iowa has persisted since the 1996 campaign. Then-Senate Majority Leader Robert Dole of Kansas had been a champion of the federal per-gallon tax credit for ethanol content at the gas pump, a point he emphasized during his winning Iowa campaign that year.

That year, Texas Sen. Phil Gramm competed aggressively in Iowa, despite his opposition to the subsidy, and finished a disappointing fifth, even after courting corn farmers and ethanol producers in an effort to compensate for the ethanol position.

The tax credit helped the industry take off in the 1990s, but is no longer necessary, said representatives for Growth Energy, a leading national ethanol producers association.

Last July, Growth Energy, whose board includes wealthy Iowa Republican energy executive Bruce Rastetter, proposed federal tax policy changes to phase out the credit in return for federal spending to improve access to ethanol at the pump.

Grassley, the architect of the ethanol tax credit, and Democratic Sen. Kent Conrad of North Dakota, introduced a bill in early May that would phase out the subsidy.

Pawlenty characterized ending the tax credit as taking a tough stand when he proposed it during his campaign kickoff in Des Moines last month.

"Conventional wisdom says you can't talk about ethanol in Iowa," Pawlenty said last month in a Des Moines speech announcing his candidacy last month. "But someone has to say it."

But Pawlenty is a bit behind the trend, said Bob Haus, a Des Moines Republican strategist who has also done work for the Iowa Renewable Fuels Association.

"Pawlenty's new position really has him catching up to the industry's position. It's less about staking out new ground as it is joining the industry, Senator Grassley and our congressmen," Haus said.

Other Republicans campaigning aggressively in Iowa support a similar position on the ethanol subsidy, including Rep. Michele Bachmann of Minnesota and former Pennsylvania Sen. Rick Santorum.

Former Massachusetts Gov. Mitt Romney, who plans to emphasize Iowa less in his 2012 campaign than his all-out effort in 2008, advocated in his book phasing out the subsidy. Still, on a trip to the state last month, he said, "I support the subsidy of ethanol."

Huntsman said last week he would not campaign for the caucuses, due mainly to his long-held opposition to federal subsidies, including ethanol.

"I think they destroy the global marketplace," Huntsman, the former ambassador to China said in New Hampshire. "We probably won't be spending a whole lot of time in Iowa. I guess I understand how the politics work there."

Huntsman had personal financial reasons to oppose grain ethanol in the 1990s as an executive in his family's chemical company, which produced a competing fuel additive to ethanol.

However, a number of Iowa GOP strategists also suspect Huntsman's is using the issue to avoid coming to Iowa and defend positions on social issues unpopular with the GOP evangelical conservative caucus base, especially on civil unions for same sex couples.

John McCain made his opposition to subsidies, including ethanol, a centerpiece of his 2008 campaign, even as he began his campaign with plans to compete aggressively in Iowa.

Financial trouble forced McCain to slash his Iowa campaign and focus on the leadoff primary in New Hampshire. The decision was not driven by McCain's position on ethanol subsidies, said Black, a senior adviser to McCain's 2008 campaign.

McCain finished fourth in the 2008 caucuses.

"My point is in and of itself, opposing ethanol subsidies is not a killer," said Dave Roederer, a veteran Iowa GOP strategist who managed McCain's 2008 caucus campaign.