Results of the national election on Nov. 2 represent a historic shift in political power from Democrats to Republicans and the new Tea Party. What does this seismic shift imply for the biofuel and renewable energy industries that are highly dependent on federal policy and tax incentives?
Immediately after the election, the ethanol industry was quick to point out that several of the new Republicans elected to serve in Washington, D.C., hail from farm states and always have been strong supporters of renewable energy. Newly elected Sen. John Hoeven, R-N.D., is highlighted as an example. Trying to put a positive spin on the outcome, they note that biofuels has not been a partisan issue. The claim is true as major legislative initiatives, such as the 2007 Energy and Independence Security Act, were passed with strong support from Democrats and Republicans.
Creation of the ethanol industry also is one of the few sources of new economic development and jobs in distressed rural communities. Without these plants dotting the countryside, many rural residents would face greater economic hardship and unemployment. National data show that the Midwest grain belt possesses the nation’s lowest unemployment rate, which, at least indirectly, results from a biofuel policy that raised farm incomes due to the additional demand for agricultural commodities. The biofuel industry seeks to expand production nationwide, so the economies of other regions can grow commensurately.
Voters at the state level also sought to maintain biofuel initiatives, which are positives for the industry. In California, Proposition 23, which would have derailed California’s clean energy framework, was rejected by voters. Another example is North Dakota, where Republicans historically have supported wind and biofuel energy development.
Finally, biofuels do align with several Republican and Tea Party goals of reducing the reliance on imports (oil independence), reducing government spending (high crop prices reduce farm program payments) and job creation in the private sector.
However, it is clear that the renewable energy industry faces new risks. Most immediate are the restoration of the biodiesel tax credit and a continuation of the ethanol blender’s credit that is due to expire at the end of the year. A new era of federal thriftiness will make it especially challenging to extend these programs.
It will be fascinating to watch the long-term evolution of carbon policy. While motivations for the biofuel industry originally stemmed from farmers seeking higher prices for their commodities, rural developers seeking new economic activity and the general public desiring energy independence, the primary thrust of current biofuel policy is the reduction of carbon emissions. In fact, conventional, advanced and cellulosic biofuels are defined based on their ability to reduce greenhouse gas emissions when compared with petroleum-based alternatives.
Since the past Congress failed to pass cap and trade carbon legislation, Lisa Jackson, Environmental Protection Agency secretary, has unilaterally initiated several new carbon policies and regulations. Republican leaders may initiate reviews of these policy actions, reverse the administrative decisions and ultimately may weaken the current foundation of national biofuel legislation.
As a biofuels economist with a high degree of self-interest, I am betting the sector will survive. However, the sector will survive not for the reasons expressed above but because so much technical innovation is on the verge of commercialization. Because of that, the private biofuels sector will be able to sustain itself without federal assistance.