1. Erica Martens
POLS 571-01-Political Studies-Selected Topics
Dr. Botello-Sampson
5 December 2014
Ethanol Subsidies in the Context of Environmental Policy
With Iowa being a prime example of having a perfect competition style of economic
market structure, it goes without saying that farms subsidies are crucial to Iowa’s way of life.
There are few barriers to entry for corn farmers. There are many buyers and sellers of corn
especially now due to the importance of ethanol as a viable alternative to the original petroleum.
Also prices of corn are determined by supply and demand. Iowa is a leader in the nation for corn
production and its importance doesn’t just stop at food consumption for people, it is also used for
for feeding livestock and more recently, has become vital to the United States as a key ingredient
of ethanol manufacture. With concerns raised about finding renewable fuels, ethanol has become
for some “bio-euphoric” and is seen in many people’s eyes as an answer to many environmental
concerns about depletion of our fossil fuels. One has to wonder is it really an answer or does the
market for ethanol (ie. economic gains) actually foreshadow significant concerns about the
environmental impacts ethanol generates. This analysis will attempt to explain possible reasons
why environmental concerns take a backseat to the economic prosperity of Iowa, in the form of
ethanol subsidies. This paper will also explain potential reasons for the adoption of ethanol
subsidies and give a brief background of the ethanol industry, it will explain what really
happened to ethanol subsidies since 2011, expand on the Renewable Fuel Standard, and will
discuss what would likely happen if ethanol subsidies were eliminated.

2. Ethanol or ethyl alcohol as it is sometimes referred to, commonly produced from corn, is
a vital biofuel additive for gasoline. Fuel ethanol has been around for over 100 years but until the
early 1980’s commercial production was insignificant. Ethanol production expanded to over 10
billion gallons in the U.S. by the end of 2010 due to the overwhelming increase in state and
federal subsidies throughout the 1980’s, 1990’s, and 2000’s. In January of 2010, the Renewable
Fuels Association reported that there were currently 189 ethanol distilleries in operation and 16
more were under construction. Upon completion of the construction, U.S. total production
capacity would reach 14.46 billion gallons. The location of these plants is primarily in the
Midwest and Great Plains States, or in states nearest to corn growers even though ethanol
producers can be found across the U.S. There has been rampant growth in ethanol production
and capacity over the last 30 years (Skidmore, Cotti, Alm, June 2011).
Skidmore, Cotti, and Alm in ​The Political Economy of State Government Subsidy
Adoption: The Case of Ethanol, examined the factors that determine the adoption of state
economic development incentives in the ethanol industry. They note that federal policies have
been a crucial force in fostering ethanol production and that state subsidies have also been
influential (Cotti and Skidmore, 2010). They used hazard analysis and found that state
governments are more likely to adopt ethanol subsidies when corn production is high, when corn
prices are low and gasoline prices are high, when a state is affiliated with the National Corn
Growers Association, and when state government is under the control of Democrats. They also
uncovered an odd relationship between corn prices and affiliation with the National Corn
Growers Association. Pointedly, when corn prices fall, states are more likely to become affiliated
with the National Corn Growers Association. Their analysis indicates that corn price is the

3. extreme force and leads both to the National Corn Growers Association membership and to
subsidy adoption (Skidmore, Cotti, Alm, June 2011).
Ethanol Subsidies have been crucial to Iowa farmers for a while now and at the end of
2011 the ethanol subsidies expired without anyone making a big to do about it. The primary
reason for no one lobbying for the extension of ethanol subsidies is the Renewable Fuel
Standard. Kevin Drum, in his article​ Ethanol Subsidies: Not Gone, Just Hidden A Little Better​ ,
illustrates his contempt for ethanol subsidies and states that farmers responded to the subsidies
by reducing the amount of farmland used for food production which drove up the price of staple
food globally. He claims that when the subsidies were enacted corn farmers were already well
off and that the policy of these subsidies was so appalling that it’s one of the few areas that both
Democrats and Republicans can agree on, at least in theory. The majority of corn is grown in
Iowa which holds the first presidential caucuses every four years. Drum asserts that this makes
ethanol subsidies something nominees must play up to if they want to successfully obtain the
electorate. Drum was in disbelief that anyone would let the subsidies die, so he investigated a bit
and discovered that during Obama’s administration, the EPA had signed off on the Renewable
Fuel Standard that was established under the Bush administration a few years prior. He adds that
this ensures farmers will go on devoting, as he puts it, “vast swaths of land to GHG-intensive
corn, of which huge portion will ultimately be set aflame to power cars-but not before being
transformed into liquid fuel in an energy-intensive process.”He candidly states that “removing
the tax credit but keeping the Renewable Fuel Standard is like scraping a little frosting from the
ethanol-boondoggle cake.” His point of this article is that the mandates for ethanol grew so much

4. that the tax credits made no difference and that the demand did not come from the tax credits but
the mandates themselves (Drum, 5 Jan. 2012).
In 2011, Clifford Krauss of the New York Times, made a statement similarly to Drum
about the hold that Iowa has on elections, but differed in the viewpoint of ethanol subsidies.
Krauss claims that the consensus in Washington was that the ethanol industry had achieved
financial stability and no longer needed government assistance. He goes on to say that three
influential senators announced a compromise that would greatly cut the financial support and end
a tariff on foreign ethanol completely by the end of July 2011. Krauss explains that no one is
seeking to end the mandates that gasoline blenders mix increasing amounts of ethanol into
gasoline but there’s no political will to dole out $6 billion a year in federal tax cuts to fuel
blenders that must by the ethanol at any rate (Krauss, 7 July 2011).
Krauss noted that food makers and livestock farmers say that the huge demand for corn is
driving up their own costs as well as the oil industry. Corn ethanol production hit record levels in
2011 which exceeded government goals and created a surplus for export. With oil at
approximately $100 a barrel, fuel blenders didn’t need the tax credits to make ethanol more
attractive economically. Krauss asserts that the Renewable Fuel Standard mandate increased the
required amounts of ethanol that fuel blenders must use to 7.5 billion gallons by 2012 from the 4
billion gallons from 2006. The top producers of ethanol, such as Valero Energy, Archer Daniels
Midland, and POET are stable and showing profits compared to those of 2006 who were heavily
in debt and had to file bankruptcy. According to Krauss, many economists think that an end to
the blender’s tax subsidy would have a minimal impact and David A Swenson, an economist at
Iowa State University, says that there might be a minor reduction in production but within a year

5. or two the production would climb back to where it is currently due to the mandate, which
guarantees demand and maintains the price level of ethanol. Krauss makes it sound like while
there is an end in sight for ethanol subsidies there are outside interests that prevent the complete
eradication of ethanol subsidies due to the fact that this form of fuel technology is still in its
infancy and therefore needs government support (Krauss, 7 July 2011) .
Regarding the tariff, it is a 54 cent tax per gallon on imported ethanol first instituted in
1980. Krauss mentions that analysts say the tariff is unnecessary now because Brazil, who is a
leading point of supply, is narrowing its production. Brazilian refiners make ethanol from sugar
cane rather than corn, but with sugar prices soaring on international markets, they are producing
less ethanol and more sweetener. Krauss then states that the EPA said cars and light trucks built
since 2001 could safely use a blend with up to 15% ethanol, since there were very few fuel
stations equipped with those pumps so the ethanol industry wanted help from the government to
help it grow by subsidizing gas pumps. Ethanol industry lobbyists supported a proposal that
would end the blender’s tax credit completely and dedicate $1.33 billion of the $2 billion in
unspent money from the 2011 fiscal year’s budget for deficit reduction. The remaining $688
million would go toward tax credits for advanced biofuels and for gas stations, installing the
special blender pumps to allow drivers to choose higher concentrations of ethanol in their
gasoline (Krauss, 7 July 2011).
The Renewable Fuel Standard was created under the Energy Policy Act of 2005, and
chartered the first renewable fuel volume mandate in the U.S. according to the Environmental
Protection Agency. The initial Renewable Fuel Standard program (RFS1) called for 7.5 billion
gallons of renewable fuel to be blended into gasoline by 2012. The RFS program was expanded

6. under the Energy Independence and Security Act of 2007, this expansion was to include diesel, it
increased the volume of renewable fuel to be integrated into transportation fuel from 9 billion
gallons in 2008 to 36 billion gallons by 2022, it set up new categories of renewable fuel and
placed separate volume requirements for each category, and demanded the EPA to employ
lifecycle greenhouse gas performance threshold standards to certify that each category of
renewable fuels emits minimal greenhouse gases compared to the petroleum fuel it ousts. They
further state that RFS2 sets up the foundation for achieving substantial reductions in greenhouse
gas emissions from the use of renewable fuels, for diminishing imported petroleum, and
supporting the progression and expansion of our nation’s renewable fuels sector (EPA, 2 Oct.
2014).
In states like Iowa, where corn is the main field crop, you will find that environmental
policy is trumped by economics. In ​Framing and Reframing the Environmental Risks and
Economic Benefits of Ethanol Production in Iowa, Carmen Bain and Theresa Selfa argue that
powerful natural resource interests in Iowa both naturalize environmental problems related to
ethanol production and engage in “diversionary reframing” to emphasize the economic benefits
while minimizing or rejecting the potential environmental risks. Bain and Selfa reference Fisher
(2006), who argues that natural resource interests- “actors with an economic and/or political
investment in natural resources”- are critical in influencing decision-making and public policy
(Fisher 2006, p.472). She found that Senators were increasingly more likely to vote against the
Climate Stewardship Act if they were from states dependent on coal and oil extraction than if
they were from those states that were not. Fisher(2006) concluded that resource dependence

7. rather than partisan politics was the key to understanding policy making processes (Bain, Selfa,
26 Oct. 2012).
Bain and Selfa then discuss Fox (1999) who argues that the power and influence of the
coal companies has translated into West Virginia having some of the most lax regulation of
environmental and labor laws in the U.S. Bain and Selfa then address Gasteyer’s (2008) work on
water quality issues in Iowa which reveals how natural resource interests tied to agriculture
shape local political decisions and hence environmental policy. Gasteyer (2008, p. 477) found “a
significant coalition against change” in Iowa that included large farmers, the Farm Bureau, and
commodity organizations, such as the Iowa Corn Growers Association and the Soybean Growers
Association, which have used their lobbying power to influence government departments, such
as the Iowa Department of Natural Resources and the Iowa Department of Agriculture and Land
Stewardship. He noted that the result was that these agencies have circumvented setting
guidelines for water quality and in particular have worked to avoid “implicating agriculture” in
regards to water quality problems (Gasteyer 2008, p. 479). Bain and Selfa switch the focus of
their analysis to the role of political support in the development of the ethanol industry (Bain,
Selfa, 26 Oct. 2012).
Bain and Selfa conducted semi-structured interviews with 18 key informants for their
analysis between May 2009 and December 2011. Their informants represented the following
sectors: renewable energy, water, agricultural commodity groups, environmental organizations,
government officials and agricultural research. Each of these interviews averaged an hour in
length and a common protocol was used for each interview, although modified to highlight the
expertise of specific individual interviewees. From the interviews they discovered, bipartisan

8. support among Iowa’s political leaders in promoting national policies in favor of ethanol. They
noted that Both Iowa Senators Tom Harkin (D) and Chuck Grassley (R) have used their strategic
advantage on key Senate committees to push for ongoing federal support of biofuels. The further
claim that the research participants acknowledged that bipartisan support for the ethanol industry
was pivotal to the industry’s success and that political consensus in Iowa in relation to ethanol
remains solid. Bain and Selfa recognize that several participants believed that Iowa’s politicians
have traditionally backed activities related to agriculture due to understanding the centrality of
agriculture to the state of Iowa (Bain, Selfa, 26 Oct. 2012).
Bain and Selfa indicate that all of their study participants, including supporters and critics
of the industry, agreed that ethanol had contributed to momentous economic benefits to the state
of Iowa. Interview #18 mentions the creation of 50,000 new jobs because of the ethanol industry,
but this may not be directly from the plants themselves but includes construction, infrastructure,
grain-handling facilities and new things in the community, that are either directly or indirectly
related to the ethanol industry that also created jobs nationwide ( Bain, Selfa, 26 Oct. 2012).
When talking with another interviewee, they thought it was providing a cleaner
environment as well as contributing to a household’s income ( Interview #4). One interviewee
said that it was producing land inflation and a whole bunch of land owner wealth and contributed
to lower prices of fuel in Iowa ( Interview #15). Bain and Selfa assert that revitalizing rural
communities was a key plan to build national support for the ethanol industry and this was a
compelling argument in Iowa. They further state that the ethanol benefits are interwoven with
cultural factors, mainly pride in Iowa farming. Bain (2011) and Bain et al. (2012) illustrate how
ethanol boosters in Iowa claim that ethanol plants are a “win-win” for the whole community but

9. that the research suggests that the benefits to local communities are more vague than proponents
claim, especially as local ownership and control deteriorates and the industry becomes more
deeply rooted to national and international markets and supply chains (Bain, Selfa, 26 Oct.
2012).
Bain and Selfa move on citing the impacts of commodity corn production on human
health and the environment in Iowa. They maintain that poor water quality due to agricultural
runoff has been one of the most pressing and ongoing environmental issues facing Iowans with
implications for the safety of both public waterways and drinking water (Heffernan et. al 2010).
They note that Iowa lakes are filled with some of the highest nitrogen and phosphorus levels in
the world. In order to counteract these issues Des Moines, Iowa’s largest city installed a
multi-million-dollar treatment plant in 1992 that has the largest nitrate-removal system in the
world (Iowa Environmental Council 2006). Further impacts of accelerated, unceasing
agricultural production is the withering away of topsoil, and research indicates that Iowa has lost
half of its topsoil over the past 60 years. It is also notorious that Iowa is one of the largest
contributors of sediment and nutrients to the Mississippi River and to the “Dead Zone” in the
Gulf of Mexico (Heffernan et al. 2010) Research shows that ethanol’s contribution to the
elevated intensity and homogeneity of the agricultural landscape will have dire consequences for
the local environment and conservation efforts which will result in critical increases in fertilizer
and chemical inputs, tillage intensity, soil erosion, loss of soil carbon, and increases in water
pollution (Langpap and Wu 2011; Larson 2010; Miao 2011; Nassauer et al. 2011; Secchi et al.
2009; Secchi et al. 2011a; Secchi et al. 2011b; Wiens et al. 2011) (Bain, Selfa, 26 Oct. 2012).

10. Bain and Selfa explain “diversionary” reframing of the environmental risks, they
portrayed environmental groups stating that there was no doubt that the market that results in
acres of Iowa soil being planted to corn has an impact on erosion but they can be viewed as
contributing to rather than responsible for nitrates in Iowa’s waters that is of high content. They
further acknowledge that environmental concerns were often dismissed among the participants
from organizations representing agriculture. Bain and Selfa claim that one of the biggest dangers
to the environment and conservation efforts in Iowa is the loss of land inducted in the
Conservation Reserve Program, which is being put back into crop production in response to
elevated corn prices. While most ethanol supporters whitewashed the probability of land
conversion, others argued that it would be beneficial. The opposition, critics of ethanol’s impact
to the environment expressed concerns about how much land was being converted and the loss of
habitat and ecosystem services that CRP provided (Bain, Selfa, 26 Oct. 2012).
Bain and Selfa suggest that even though environmental organizations in Iowa had
concerns about risks that ethanol industry posed to the environment and that focusing on ethanol
impeded development of other renewable fuels, these positions were mostly silenced due to
importance placed on the economy and cultural identity that residents attached to agriculture.
Despite the warnings of environmental organizations in Iowa, environmentalists have become
silent regarding the risks tied to ethanol manufacture. Bain and Selfa claim that the Iowa
Environmental Council have made almost no substantive public comment since their 2006 policy
statement and that the Iowa Chapter of the Sierra Club released 2 reports on the environmental
impact of biofuels and one focused specifically on Iowa but made little reference to ethanol.
Their explanation for this is that advocates for environmental policy face resistance from

11. lobbyists like the Farm Bureau in the Iowa legislature and since the Farm Bureau is the most
influence lobbying power in Iowa environmental agendas take a backseat to agricultural
interests. One participant interviewed explained “ I think most of us… really don’t see the
benefit in lobbying against biofuels policies given the political backlash that would occur”
(Interview #13) (Bain, Selfa, 26 Oct. 2012).
The conclusion Bain and Selfa reach is that the political attitudes, decisions and actions
toward the expansion of commodity production are shaped by interactions between
socio-economic factors and the natural environment and the support for the ethanol sector
remains and firm among Iowa’s natural resource pressure groups tied to agriculture and energy.
They noted that some of the participants in their study acknowledged their strategic silence was
problematic considering it meant that the environmental costs and risks linked to the ethanol
industry were by and large ignored (Bain, Selfa, 26 Oct. 2012).
The strategic silence of environmental concerns by Iowa environmental organizations is
similar in nature to Matthew A. Crenson’s case study of East Chicago, Illinois and Gary, Indiana,
in which there was a significant air pollution problem but both of these towns handled the issue
differently. In Crenson’s book entitled ​The Un-politics of Air Pollution (Chapters 4 & 7), he
points out that East Chicago was more active in lobbying and that Gary had move more slowly
and was less active in lobbying on air pollution. In Crenson’s study of these two towns, he
asserts that non-decisionmaking is the primary rationale for ineffective lobbying amongst groups
with environmental concerns about air pollution. Crenson states that non-decisionmaking is not
“necessarily observable” nor does it imply strategy, conspiracy or intention to use power. Further
he asserts that Pluralists were wrong in thinking that “every dissatisfied group of citizens will

12. find a place to roost within the political stratum, nor does it assure that political competition and
discussion will extend to all or even most areas of citizen concern” and believes that the mere
reputation of groups will discourage people from bringing up certain issues up at all (Crenson,
1971).
There is significant relevance from the previously mentioned articles to suggest that
Charles E. Lindblom’s Market As Prison was on the right path. In his article Lindblom explains
how market mechanisms (ie. business, business enterprise, or the market) has ways of
automatically triggering punishments in the form of unemployment or a sluggish economy if we
want business to reduce industrial pollution of air and water. He asserts that we must bear the
consequences of introducing these changes and that the result is a decline in investment or
employment and that there is the risk of the industry picking up and moving their facilities to
another state that will allow more lax regulations. He claims that punishment is not dependent on
conspiracy or intention to punish but rather businessmen making business decisions in the
interest of the company. Lindblom acknowledges that market systems are inducement systems
and that inducements become the core of the punishment system. Any change the government
makes that business doesn’t like is seen as a disincentive, an anti-inducement, and leads
businesses to perform with less intensity. Lindblom’s argument is that policy is imprisoned in
market oriented systems. He declares “No market society can achieve a fully developed
democracy because the market imprisons the policy-making process. For minimal democracy,
we require a market system. For fuller democracy, we require its elimination.” He further asserts
that our thinking in other areas of policy are also imprisoned, specifically our thinking on
environmental policy. Lindblom recognizes that policy made in Congress and in the White

13. House sacrifices environmental protection to the needs of market enterprises and that those who
are trying to think constructively about the options open to us often can’t see the market as a
variable but instead treat it as a fixed element around which policy must conform to
(Lindblom,1982).
Saraly Andrade de Sá, Chris Palmer, and Stefanie Engel investigated the direct and
indirect impacts of ethanol production on land use, deforestation and food production, they
suggest that the increase in the food price makes deforestation more profitable, giving incentives
to clear more land. They explain that the newly-available land is then converted to food
production, lowering the food shortage caused by land conversion to energy crop production in
the non-forest region following the rise in ethanol prices. This influence implies that
governments and decision maker’s eagerness to promote ethanol production should focus on
developing policy mechanisms to ensure the displacement of food production is steered towards
idle land. They mention that if such land can be converted to food production at somewhat low
cost for example by offering technical assistance or building infrastructure such as roads to
deflate costs to market, this could possibly mitigate food price increases while averting
deforestation. However if idle land is available, their results suggest a trade-off between
increased food prices and forest protection, both scenarios have implications of social welfare.
They further note in Ethanol Production, Food and Forests that their model applies more to
Brazil than the United States but that it captures the cross-border indirect effect of increasing
demand for U.S. corn ethanol as demonstrated by Searchinger et al. (2008). The acknowledge
that there are a number of countries in the world where the ethanol sector is in the process of
being developed on a grand scale and that their studies could be used to develop more concrete

14. policy implications to illustrate under what circumstances ethanol production could be expanded,
while minimizing the adverse impacts on deforestation and food production ( S. Andrade de Sá
et al., 16 Oct. 2011).
The Edward Carr offers a perspective of life without ethanol subsidies in The New Corn
Laws, he asserts that there is a myth about what would happen to rural areas if ethanol subsidies
were removed. He claims that this sort of pessimism is rarely credible and is part an outdated
tradition that rejects rural change. He further indicates that the closure of one plant such as
General Motors affects the local economy more than the loss of a tenth of America’s farmers
according to John Lee, head of the economic service of America’s Department of Agriculture.
He stresses that reform would not be the end of rural towns and villages, he attributes the
changing character to the rise of motor transport and the super market as leading to the harsh
decline in farming. He goes on to say that elimination of subsidies might not solve farming’s
environmental problems but it would alleviate them and that without subsidies, farming would
not be destroyed, just slightly different. Carr explains, farmers exposed to swings in prices would
use futures markets and insurance to protect themselves and would begin to fill their proper role
in the food industry. Carr claims that little has changed since 1779 when Adam Smith wrote, “the
interest of the consumer is almost constantly sacrificed to that of the producer; [the system]
seems to consider production, and not consumption, as the … object of all industry and
commerce.” Carr notes that reform has been modest in the U.S. but this article was written in
1992 so it was certain that he wouldn’t have foreseen an increase of this magnitude when he
wrote this article (Carr, 12 Dec. 1992).
Conclusions

15. In states where corn is in high production, environmental policy is repressed as a result of
strategic silence on the part of environmental lobbyists. Environmental organizations face
political backlash if they try to pass legislation that would hinder biofuels policy. There are also
myths that rural areas would collapse without ethanol subsidies, when in fact, rural farming
would simply change and fill their proper role in the food industry.
Some of the factors that determine the adoption of ethanol subsidies within states is a
significant level of corn production, high price levels of gasoline matched with low price levels
of corn, state affiliation with the National Corn Growers Association, and when state government
is under Democrat control. The fundamental justification for why ethanol subsidies were allowed
to expire without conflict was the passage of the Renewable Fuel Standard which ensured
demand for corn remained high and that blender’s tax credit disappeared. The Renewable Fuel
Standard was created under the Energy Policy Act of 2005 and was expanded on in 2007 under
the Energy Independence and Security Act and was mandated the EPA to regulate lifecycle
greenhouse gas performance threshold standards.
Notably, there is resistance in Iowa to environmental policy from large farmers, the Farm
Bureau, and commodity associations such as the Iowa Corn Growers Association and the
Soybean Growers Association, which wield their lobbying power to influence the Iowa
Department of Natural Resources and the Iowa Department of Agriculture and Land
Stewardship. These pressure groups are then able to circumvent setting up guidelines for water
quality. There is bipartisan support for ethanol in Iowa and part of that support is the centrality
and pride of agriculture to the state of Iowa and the other part is economic gains.

16. Even though Iowa lakes are filled with some of the highest nitrogen and phosphorous
levels in the world, environmental concerns are often dismissed or downplayed among those who
represent agriculture. One of the biggest dangers to the environment and conservation efforts in
Iowa is loss of land commissioned in the Conservation Reserve Program which is being utilized
for the needs of crop production due to rising corn prices. Environmental organizations rarely
made any mention of these dangers since 2006 in fear of lobbyists like the Farm Bureau.
Crenson’s case study on Gary, Indiana and East Chicago, Illinois was comparable to the
silence of environmental organizations in Iowa. Perceived power is enough to inhibit concerned
groups of people from disrupting the status quo. Although I don’t think this was a clear case of
non-decisionmaking in Iowa, I see that there is a group of dissatisfied citizens who can’t find
relief within the political stratum and their concerns are not being addressed due to intimidation
and the mere reputation of the agriculture interests.
It is my argument that policy made in Iowa benefits the ethanol industry in the interest of
the profit motive, Iowa jobs, and pride that the people of Iowa receive from being a leader in the
industry of corn and ethanol production. The system doesn’t allow for environmental concerns of
water quality, land usage, monoculture, deforestation, or the like, because government officials
are in fear of the automatic punishment the market structure will produce. The fear of
unemployment or a sluggish economy is enough to stymie an attempts by environmental
organizations, to make any lasting impact on the ethanol industry in Iowa. Until Iowa or other
states view the market as a variable rather than a fixed element, it is doubtful that any
environmental policy is likely to change the way biofuels are produced or the impacts they leave
on the nation.

17. Works Cited
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18. Krauss, Clifford. "Ethanol Subsidies Besieged." Energy and Environment. ​The New York Times.
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