Republicans break with Bush on ethanol

ST. PAUL (Reuters) - U.S. Republicans called on Monday for an end to a controversial requirement that gasoline contain a set amount of ethanol, a policy backed by the Bush administration that critics say has helped drive up world food prices.

In their 2008 platform detailing policy positions, Republicans said markets -- not government -- should determine how much ethanol is blended into gasoline, and pushed for development of a cellulosic version, which could be made from grasses rather than corn.

“The U.S. government should end mandates for ethanol and let the free market work,” the platform said. It was unanimously passed at the Republican National Convention in St. Paul, Minnesota.

The position marks a major change from the 2004 platform, which supported expanding the use of ethanol as a way to reduce dependence on foreign oil and increase revenues for farmers.

While farm income has risen, food companies have complained that ethanol demand diverts corn from the food supply, driving up commodity costs and hurting their business. Many have raised prices, hitting consumers with heftier grocery bills as the economy fades and unemployment rises.

An industry spokesman said ending the program would be a mistake.

“Ethanol is providing a desperately needed, stable supply of motor fuel as we see threats to oil availability continue, either because of geopolitical unrest evidenced by Russia’s invasion of Georgia or by Mother Nature in the form of Hurricane Gustav,” said Matt Hartwig, spokesman for The Renewable Fuels Association.

“And, if it were not for ethanol, gasoline prices that have wreaked havoc on household budgets would be up to $0.50 higher per gallon,” he said.

President George W. Bush has been a strong backer of use of ethanol as fuel, and has touted it repeatedly in his annual State of the Union addresses. The current Renewable Fuel Standard requires 9 billion gallons of ethanol to be blended into the nation’s gasoline supply this year.

A growing number of lawmakers from both political parties have voiced objections to that policy as inflation pressures build in the United States and abroad.


In August, U.S. regulators rejected a request from Texas Gov. Rick Perry to halve the ethanol mandate, which he blamed for driving up the price of corn and making it more expensive for farmers to feed their livestock.

Douglas Holtz-Eakin, economic adviser to Republican presidential candidate John McCain, said the campaign did not ask the platform committee to include that provision, but McCain had long supported eliminating the ethanol mandates.

“This is a great piece of support for his principles,” Holtz-Eakin told Reuters in a videotaped interview.

John Miranowski, an agricultural economist at Iowa State University, said unless oil prices fall to $60 per barrel, ethanol will still be a cost-effective choice even without the government mandating its use.

Oil traded at $111 per barrel on Monday.

That makes this a politically smart time to push for eliminating the mandate because it would please the food industry without punishing farmers, an important voting bloc, as the November presidential election approaches.

“As long as the price of oil stays high, the ethanol plants can continue to pay a high price for corn,” he said “There’s very little (political) cost right now.”

Corn prices have retreated from a late-June peak of $7.79 per bushel, but are still up some 50 percent from a year ago.

High food prices have become a global problem, pushing some poor countries to the brink of starvation and creating headaches for policymakers in rich nations struggling to contain rising inflation.

The World Bank has warned that soaring food costs threaten to undermine years of poverty-reduction work. A top World Bank economist said in July that biofuels production in the United States and Europe was the main reason behind the steep rise in global food prices.

In the platform, Republicans said farmers needed technology to increase crop production and meet the growing global demand for food and called on the Agriculture Department to support agricultural research “to ensure that America and the world will never have to choose between food and fuel.”

With additional reporting by Corbett Daly; Editing by Howard Goller and Patricia Zengerle