While Democratic presidential hopeful Sen. Barack Obama insists drilling for more oil in off-limits federal lands won’t help gas prices come down, there’s at least one thing that would: lifting tariffs on imported ethanol. Problem is, the Illinois senator’s ties to the powerful U.S. ethanol lobby would prevent him from doing it.
“I got to tell you – ethanol mafia is a powerful thing, Jim,” CNBC “Street Signs” host Erin Burnett said June 23, noting all the breaks the industry is getting from the U.S. government. “The ethanol emperors – or they are the mafia.”
“Mad Money” host Jim Cramer noted how much influence the ethanol lobby has over trade policy – to the extent it is causing prices to remain high – restricting the importation of foreign ethanol due to a federal tariff.
“[I] mean, I also believe if we took the tariff off of Brazil we could bring that price [of gas] down,” Cramer said.
Cramer was referring to a tariff the United States has on ethanol imports, which makes it uncompetitive for foreign producers to sell ethanol to the United States. According to Adam Dean of the Global Policy Innovations Program, the United States maintains a tariff of 54 cents per gallon for imported ethanol.
“This tariff limits U.S. ethanol imports and creates a higher domestic price than would otherwise result from a more open market,” Dean wrote on April 4, 2007. [1] “By limiting market access for Brazilian ethanol producers, who would benefit from increased exports, the U.S. tariff also limits the subsequent benefits that would accrue to Brazilian sugar producers. Furthermore, since ethanol production in the United States is based on corn, the tariff also leads to a higher price of corn in the United States.”
Burnett wasn’t optimistic about the possibility of the United States loosening this tariff. “Forget about that,” she said.
Cramer mentioned a story on the front page of the June 23 New York Times [2] that noted Obama’s ties to the ethanol lobby.
“How about The New York Times story today where Obama was clearly being swayed by people in his camp who were connected to the ethanol interests? That guy certainly isn’t about to take the tariff off.”
The story, by Larry Rohter, noted the strong influence ethanol has on Obama’s policies – going back to the lead-up to the Iowa Caucuses.
“Mr. Obama is running as a reformer who is seeking to reduce the influence of special interests,” Rohter wrote for the Times. “But like any other politician, he has powerful constituencies that help shape his views. And when it comes to domestic ethanol, almost all of which is made from corn, he also has advisers and prominent supporters with close ties to the industry at a time when energy policy is a point of sharp contrast between the parties and their presidential candidates.”
The Times story also referenced a University of Minnesota economist, C. Ford Runge, who said U.S. biofuels commodities are “out of whack with markets” and said “interest group politics have been so dominant in the construction of the subsidies that support it.”
As for U.S. energy policy as it pertains to coal, Cramer said that even with a carbon tax implemented, U.S. coal would still be a wise investment. According to the “Mad Money” host, China would import American coal – suggesting its usage would still be sending greenhouse gases into the atmosphere, just in a different country.
“[F]orget [the] United States, China is no longer exporting coal,” Cramer said. “They’ll take all the coal that we have, given the fact that the rails can get it over there.”