The Behind-the-Scenes Struggle Over Ethanol

Obama supports biofuels, but competing interests are fighting over the course of ethanol policy.

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In preparation for what promises to be a heated debate over biofuels under the Obama administration, the much-maligned ethanol industry is pushing to regain some of its lost luster.

Today, in the latest thrust of a lobbying war raging in Washington and across much of the country, four of the nation's largest ethanol producers publicly launched a new organization, Growth Energy, to offer a "fresh, aggressive new voice in the energy debate."

The announcement clearly represents the latest, most visible attempt by ethanol backers to discount critics who have blamed corn-based fuels for rising food prices—"a sham cooked up by the food industry," according to one member. But one week after the election, it also is just one of several efforts—public and private—the ethanol industry is undertaking as it works to position itself favorably with a new Congress and a new president.

Not surprisingly, lobbyists of all stripes are jockeying for the attention of President-elect Barack Obama, but ethanol supporters are particularly optimistic about their prospects. "I think Obama gives us a sense of confidence," says Bob Dinneen, president of the Renewable Fuels Association. "Senator Obama shares our commitment."

Obama hails from corn-rich Illinois. He has been an ardent supporter of biofuels in the U.S. Senate, and he touted them during the campaign. Though he acknowledged in recent interviews and during debates that he is concerned about the impact of ethanol production on food prices and land use, his support for biofuels nonetheless remains strong.

Insiders say that ethanol producers, who have long exerted powerful influence in Washington, are focusing their efforts on two fronts: Publicly, they're trying to improve their flagging reputation and dispel what they call "lies and myths" about the effects of corn-based ethanol production on food prices. Among lawmakers and government officials, they're trying to win support for their efforts to get more ethanol into gasoline and prevent the Environmental Protection Agency from passing rules that might hurt the industry.

Many of these pushes are controversial. Ethanol producers, for example, want to modify federal law, which bars regular gasoline from containing more than 10 percent ethanol, to allow for higher blends. By most accounts, this won't happen anytime soon. The U.S. Department of Energy is currently carrying out a large project, expected to run for at least another year, testing the impact of 15 and 20 percent ethanol blends on engines and car performance. (Carmakers are particularly wary about such impacts and want to see the results of these studies.)

But industry groups think they might be able to make something happen sooner. "There is absolutely a hope that we can take some sort of interim step before some of the more robust DOE research is done," says Brian Jennings, executive vice president of the American Coalition for Ethanol. Jennings, for example, says he is "hopeful but also pretty confident" that automakers and government officials might agree to allow 12 or 13 percent ethanol blends in cars before the long-term testing is completed.

Another heated backroom dispute is unfolding with the EPA. At the request of Congress, EPA officials are developing models to better assess the impact of ethanol production on greenhouse gas emissions. In particular, they are looking at land use changes. Ethanol critics say deforestation and other indirect changes in land use make corn-based ethanol a contributor of greenhouse gases; backers disagree and are trying to stop the EPA from making what they consider to be "premature decisions" based on these models, which could hamper the industry's expansion. "There is widespread disagreement over the reliability of the data from these models," says Jennings, adding that his organization is preparing a study that shows that some land-use models have a margin of error of up to 50 percent.

Perhaps the biggest obstacle dangling before the industry—as reflected in today's announcement and news of the new group's upcoming advertising campaign—is sagging public opinion, resulting, in part, from a successful lobbying campaign launched against ethanol earlier this year. Dinneen and others blame the leaders of the Grocery Manufacturers of America, who allied this past spring with livestock farmers, restaurant producers, and other groups to protest against rapidly rising corn costs and shrinking profit margins and singled out ethanol production as a main culprit.