Ethanol loses Big Oil, big advocates and maybe big subsidies

If you’re wondering why your grocery bill is so high, one place to look is your car.

It’s probably running on gasoline blended with corn-based ethanol.

Demand for the corn-based biofuel, because of government mandates and federal subsidies to the ethanol industry, has contributed to a tripling of the price of corn over the past decade, to about $7.00 per bushel.

That commodity spike is being blamed in part for rising food prices, which in turn have helped spark riots and political unrest around the globe, and even political wrangling here at home.

Even though the ethanol industry stands by what it says are the positive results of subsidizing ethanol — providing 400,000 U.S. jobs, lowering greenhouse gas emissions, and replacing 364 million gallons of foreign oil with 10.6 billion gallons of ethanol in 2009 — it admits it is shaken by recent events.

Washington, D.C.-based Growth Energy is one of the country’s largest groups of ethanol producers.

Its president and chief executive, Tom Buis, said the industry is fighting battles on several fronts. It’s being blamed, at least in part, for rising corn prices and thus rising food prices. It’s fighting relentlessly on Capitol Hill to avoid losing long-time subsidies, and the ethanol industry is slowly losing support of an old ally — the oil industry.

“We’ve weathered many storms, but [all of] this is currently a huge threat,” Buis said.

The House recently passed a spending bill that includes two provisions that hamstring the ethanol industry for the first time in nearly two decades.

One provision, by Oklahoma Republican Rep. John Sullivan, prevents the Environmental Protection Agency from allowing the industry to increase the amount of ethanol per gallon of gasoline from 10 percent, called e10, to 15 percent, e15.

“It was purely political and obviously supported by [the oil industry],” Buis said. Sullivan, he said, is just supporting the oil interests of his state to the detriment of the ethanol industry.

Another provision by Arizona Republican Rep. Jeff Flake stops federal funding to install new blender pumps at filling stations. Blender pumps blend ethanol with gasoline from underground drums at the filling stations.

The reverberating shock through the ethanol industry came, however, from Iowa Republican Sen. Chuck Grassley, who has been traditionally one of the strongest supporters of federal ethanol programs.

Grassley announced that he might vote against ethanol subsidies and from moving the country from e10 to e15 in an upcoming Senate spending bill, in an effort to reduce the federal deficit.

According to the senator’s forthcoming newsletter, he says he will vote against ethanol subsidies if the Senate holds “an up-or-down vote on a significant deficit reduction package that targets a variety of programs and policies, including anti-ethanol provisions.”

Grassley adds, however, that “Ethanol is good for national security. It’s the only domestically produced renewable energy source that’s substantially reducing America’s reliance on foreign oil.”

Buis said he is confident the ethanol industry still has Grassley’s support, but knows what ethanol is up against — particularly, the oil lobby.

“Oil doesn’t want to lose market share,” Buis said. “The oil industry is not going to lobby [for ethanol].”

It wasn’t always this way, however.