Obama faces key decisions about ethanol

President-elect Obama’s support for biofuels faces a few early tests, including a decision on whether to provide more aid to the corn ethanol industry, which critics say already gets too big a piece of the money pie.

The corn ethanol industry sucks up $2 out of every $3 the government spends to support renewable energy, according to a new report from the Environmental Working Group (EWG) based on data from the Energy Information Administration.

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The Obama administration should take a “hard, clear-eyed look at how we are investing in renewable energy,” said Craig Cox, EWG’s Midwest vice president.

The Renewable Fuels Association (RFA), which represents corn ethanol makers, submitted a proposal to the Obama transition team for inclusion in the economic stimulus package that asks for $50 billion in loan guarantees and $1 billion in immediate credit to finance ongoing operations. Corn ethanol producers have fallen on hard times recently. One major producer has declared bankruptcy.

“Any stimulus package in part designed to spur clean, green economy has to recognize the importance of renewable fuels,” said Matt Hartwig, a spokesman for RFA.

Hartwig is quick to say RFA hasn’t lobbied for the help, but provided suggestions to the transition team at its request. Hartwig said a number of ethanol projects have been delayed because of the difficulty in getting credit. Government help would allow construction to begin again.

But Cox said ethanol mandates have led to more corn production, which has further polluted streams and rivers with fertilizer runoff. A better way to spend the money that now goes to support ethanol would be to increase support for solar and wind power to produce electricity, Cox said.

Hartwig countered that EWG is comparing “apples to oranges” by linking a transportation fuel to sources of electric power. But Cox said the connection comes with more production of cars that use electricity in combination with gasoline, rather than autos powered on ethanol.

A few tricky policy questions likely will await the Obama administration as well.

RFA and other ethanol makers want the Environmental Protection Agency (EPA), for instance, to lift a limit on the amount of ethanol that can be blended with traditional gasoline. The current limit is 10 percent. Ethanol makers want it raised to at least 12 percent in part to accommodate the production increases required under the Renewable Fuel Standard (RFS) that was included in the Energy Independence and Security Act of 2007 (EISA).

A group of manufacturers, including automakers, worry that higher ethanol content could damage engines. The ethanol industry disputes that contention.

Obama, then a senator from Illinois, a large corn-producing state, supported the 2007 energy act.

The RFS included in EISA calls for corn ethanol production to reach 15 billion gallons annually by 2015.

An additional 21 billion gallons of “advanced biofuels,” like cellulosic ethanol, would have to be blended with gasoline by 2022.

As a candidate, Obama pledged to support the development of 60 billion gallons of biofuels annually by 2030. But Cox said there is growing evidence that biofuels of all stripes don’t provide the environmental benefits once thought.

To alleviate concerns from some environmental groups, Congress required as part of the RFS that corn ethanol emit 20 percent less greenhouse gas than gasoline. Advanced biofuels would have to cut greenhouse gas emissions by 50 percent.

The Bush administration, however, has yet to determine exactly how to measure the so-called “life-cycle” emissions of biofuels. One question is whether additional corn ethanol production in the United States could lead to the cultivation of land that’s now fallow elsewhere to make up for the corn that goes to produce fuel rather than food. Trees are a carbon “sink,” so cutting them down to cultivate land removes an important offset to emissions in the atmosphere.

Hartwig said the decision on how to calculate life-cycle greenhouse gas emissions will set an important precedent for how renewable fuels are judged in the future, not just corn ethanol but cellulosic ethanol as well.

“It’s very important, not only to our industry, but to all the renewable-fuels technologies that will follow,” Hartwig said.

The EPA has apparently sent a draft to the White House that ethanol producers don’t think provides a fair calculation of ethanol’s carbon footprint. The final decision is likely to be left to the incoming administration to decide, lobbyists said.

Obama is “clearly a supporter of corn ethanol, given his roots. On the other side, he will get pressure from environmental groups,” said Joel Velasco, a lobbyist for a group of sugarcane ethanol producers in Brazil. “It’s not an easy call.”

Velasco himself will press his case to the Obama administration on another topic. Brazilian sugarcane producers argue they are unfairly kept out of the U.S. market because of a tariff on ethanol imports. The 54 cent ethanol tariff expires in 2010.

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