How could the worst national drought in decades have a direct impact on the November general election? It’s as simple as two words: gasoline and corn.
News broke on Tuesday that prices at the pump jumped 5.1 percent in July, their biggest monthly increase in 12 years.
While it may seem a stretch to connect failing crops with gas prices, changes in our national energy policy have made ethanol a key component of retail gasoline sold in the United States.
Ethanol is made from corn--in fact, lots and lots of corn. It makes up 10 percent of the content of gasoline.
“A good soaking rain in the corn belt would help with the price of ethanol,” said Avery Ash, manager of regulatory affairs at AAA in Washington.
But this year, federal government fuel requirements could consume up to 40 percent of the available corn crop, according to a report in the Washington Post.
Historically, voters have revolted over rising gasoline prices, and in current opinion polls, fuel prices always rank as a top area of concern among voters.
And then there is the specter of food inflation, due to rising costs to suppliers who depend on corn to feed livestock.
So why hasn’t the Obama administration agreed to waive the ethanol requirement for at least a year, as some politicians and businesses have requested?
On Monday, a coalition of beef and poultry companies asked the EPA for the waiver from the Renewable Fuels Standard (RFS), the statue that requires ethanol in gasoline.
On the surface, such a move could lower gasoline and food prices during an election year.
But corn growers insist they have enough ethanol in reserve to make up the difference.
“With the crop still in the field, it is too early to determine this year’s final corn supply. In addition, the ethanol industry now has a significant surplus of ethanol and RFS credits that can greatly offset ethanol’s impact on the corn supply,” said National Corn Growers Association President Garry Niemeyer, in a statement.
Opponents argue the corn growers don’t have an incentive to drop their role in supplying ethanol to the gasoline industry, since prices are actually rising for corn, and refiners will buy corn at higher prices.
And in a disturbing report in the Oil and Gas Journal, newer numbers show the ethanol shortage extending well into 2013 as the drought is expected to last into the autumn.
The numbers from Dallas consulting firm Muse Stancil & Co. is based on an analysis of USDA data.
“The study said current corn stocks from the 2011 harvest are insufficient to offset the expected loss in 2012,” the Oil and Gas Journal says. The study also says there will be an ethanol shortfall of 1.2 billion gallons compared with the 2012 Renewable Fuel Standard’s volume requirement.
For now, the GOP-controlled House is battling over a farm bill that would provide drought relief. Speaker John Boehner is holding off the current bill due to concerns over food stamp provisions, and Republicans could just offer a one-year extension of the current bill.
And President Barack Obama is a supporter of ethanol, and the farm-belt swing states of Ohio, Iowa, and Michigan have financially benefited from the government mandate for refiners to buy ethanol.
One analyst told the Chicago Tribune that an ethanol waiver wasn’t likely in the near future.
"EPA officials and the secretary of agriculture (Tom Vilsack) have all indicated that they are not considering a waiver at this time," said Mark McMinimy, biofuels analyst at Guggenheim Partners Washington Research Group.
Scott Bomboy is editor-in-chief of the National Constitution Center.
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