Do Ethanol Mandates Really Help The Corn Belt?

As the summer driving season begins, Americans will be making more trips to the pump that, thankfully, will cost less than other summers in recent memory. Because of the Renewable Fuel Standard (RFS), a federal program which requires fuel blenders to mix certain quantities of ethanol into their gasoline, a portion of every gallon that drivers put in their tanks will come from corn-based ethanol grown and produced primarily in the Midwest.

Presidential hopefuls are famous for flaunting their support of federal ethanol policies during campaign stops in the heartland. Donald Trump, for instance, exclaimed “I love it!” when asked about ethanol during a visit to Iowa last fall (Hillary Clinton has expressed support as well). For the Republican Party, which so often extols the virtues of “small government,” a big government mandate like the RFS seems like a strange bedfellow. In the future, however, the RFS may be sleeping on the couch. This is good news for American taxpayers.

Historically, Republican support for the RFS was based on the GOP’s reliance on support from the Iowa corn industry. The centrality of corn to such an important election state’s economic interest means the corn industry is able to flex a disproportionate amount of muscle in guiding candidate’s political positions.

However, in February, Ted Cruz was able to win Iowa’s caucus handily despite his opposition to the RFS. The exact reason Cruz was able to get away with opposing the RFS is hard to pinpoint — Iowans from all political backgrounds still support the RFS with wide margins. Whatever the reason, the sudden drop in issue salience for the RFS is good news — not only for Americans as a whole, but also for the Corn Belt itself.

A study by the Institute of Political Economy (IPE) at Utah State University illuminates the dismal economic reality of the RFS. Federal ethanol policies have concentrated wealth among a few well-connected corporations best equipped to capitalize on subsidies stemming from a complex tax code. On the whole, ethanol policy has hurt, rather than helped, the Corn Belt. The whole country, the Corn Belt included, has seen employment rates rise and per capita incomes fall since RFS’ implementation. However, IPE’s study shows that the Renewable Fuel Standard has slowed employment recovery by 0.48% and cut per capita incomes by an additional $300 in high corn-producing counties.  The RFS has not resulted in any widespread economic benefit, and has actually been economically detrimental for the average Corn Belt resident.

Corporations that own ethanol refineries also use their relationships with local governments to leave Corn Belt residents footing hefty infrastructure improvement bills. Local governments often hand out years of tax exempt status to prospective refineries in order to woo them into building within city limits. Meanwhile, heavy truck traffic hurts local roads and extensive water requirements burden local water systems. With refineries operating under tax exempt status, other residents bear the cost for these expensive development projects.

Corn and oil markets are volatile, and the RFS too often encourages local communities to peg their economic futures to the ability of ethanol refineries to turn a profit. This can be disastrous to local economies as producers decide whether to close up shop or keep producing ethanol at a loss in downtimes. Following record high profits on the back of $100 per barrel oil in 2014, many refineries today lose money on each gallon of ethanol they produce, even with the RFS in place.

The Renewable Fuel Standard isn’t the cure-all to the Corn Belt’s economy that politicians have repeatedly promised. Iowa’s willingness to consider a candidate opposed to the RFS was a sign that ethanol’s stranglehold on the presidential election process might be over. Even though that candidate is no longer in the running, that signal is good for American drivers as a whole, and especially for those living, working and driving in the Corn Belt.

Landon Stevens is a Director of Policy at Strata, a public policy research center in Logan, Utah. Arthur Wardle is a Student Development and Research Associate at Strata.

Morning Consult