As controversy rages within the California Air Resources Board headquarters over whether corn-based ethanol is a low carbon fuel, just a few blocks away an obscure state committee seems to have answered the question. While the committee itself is little known, those who sit on it loom large, including Governor Arnold Schwarzenegger. Judging by a recent decision by this three person panel, it appears that the governor and another member have decided that corn-based ethanol is the \u201cin\u201d thing for California, despite the growing qualms of scientists, professors, and state bureaucrats. In a little noticed move last December, the panel at issue\u2014housed in the Office of the State Treasurer and chaired by Schwarzenegger\u2014authorized Pacific Ethanol to issue $30 million worth of tax free bonds. State Treasurer Bill Lockyer also backed the surprising bond approval. The for-profit corporation just happens to be headed up by Bill Jones, former Secretary of State. The authorization was granted under what is known as the California Debt Limit Allocation Committee. With that prize in hand, the company plans to issue the bonds to help finance two new corn-to-ethanol distilleries in California. The authorization constitutes what may be the first direct tax free treatment for a corn-based ethanol plant in the state. It comes amid a mounting body of research showing that the biofuel may be increasing carbon dioxide emissions and driving up food prices, causing growing hunger among economically marginal people around the globe. Under the authorization, both the state and federal government will forego tax revenue on the interest income paid to the bond buyers. Meanwhile, the tax-free treatment enables Pacific Ethanol to sell its bonds at a favorably low interest rate. Essentially, the authorization confers the same treatment for the private company usually associated with public agencies, like municipal utilities, sanitation districts, or transportation agencies. But a key question is whether the committee\u2019s action serves a similar public purpose as an agency? Consider that if the panel wanted to the promote energy with low greenhouse gas emissions, it could have denied Pacific Ethanol and held the tax exempt bond authority for projects that would more decisively achieve the state\u2019s aim of curbing carbon emissions. It\u2019s not as if the state or federal government will miss the tax money. Conferral of tax free status for bonds issued by private companies is capped each year, so both the state and federal budgets are planned accordingly, points out Jean Ross, California Budget Project executive director. \u201cThe question is how you allocate this,\u201d she said. That gets back to the public purpose. \u201cObviously there is a lot of controversy surrounding the environmental effects of ethanol,\u201d acknowledged Joe DeAnda, spokesperson for Lockyer and the committee. \u201cThat kind of held up the project a little bit.\u201d At a December 5 meeting, however, the governor and Lockyer voted for the authorization, while state Controller John Chiang\u2019s representative abstained due to a \u201cconflict of interest,\u201d according to DeAnda. The committee chose to allocate tax free bond authority to Pacific Ethanol on the basis that it can use the proceeds to construct facilities at its plants to turn left over corn solids\u2014known as \u201cstillage\u201d\u2014into distiller\u2019s grain. It can then be sold as livestock feed. Contorting the eligibility criteria, the committee reasoned that those facilities qualify for tax free financing under the state\u2019s existing \u201cwaste\u201d facility category, explained DeAnda. Therein, the committee found that authorizing tax free treatment of Pacific Ethanol bonds was serving the greater public good because it was helping the state wisely manage its waste. Tom Koehler, Pacific Ethanol vice president, told Circuit that the new ethanol plants also would help free that state of dependence on foreign oil by providing an alternative fuel. Claims that use of corn-based ethanol made in California is causing greenhouse gas emissions to rise is just \u201cnoise,\u201d he said. \u201cThe authority for the tax exempt bonds for the state of California is clearly there for the purpose of what we\u2019re doing,\u201d Koehler asserted. The panel found the company\u2019s logic persuasive. However, it downplayed a host of other considerations and possible ways to put its tax free bond authority to work to more decisively achieve the state\u2019s energy and environmental policies. For instance, it could instead grant tax free bond authority to manure-to-energy projects that make electricity or liquefied natural gas to run trucks. These projects reduce greenhouse gases while cleaning up waste. The panel also appeared to ignore the impacts from ethanol itself, which were outlined for its members in a 19-page staff policy review paper. The December 5 review by Office of the State Treasurer analyst Eileen Marxen concluded \u201ccorn-based ethanol raises many questions about its overall environmental benefits when subjected to a life-cycle model. Many believe that growing food crops such as corn for energy is not a sustainable means of addressing climate change and other environmental problems associated with transportation fuels.\u201d Her review further pointed out the problem of food versus fuel by quoting the United Nations Special Rapporteur on the Right to Food, who has called \u201cthe sudden rush\u201d to making fuel from food \u201ca recipe for disaster\u201d among the poor and hungry. In the paper, the analyst went on to note that increasingly high prices have put food out of reach for the parents of 300,000 children who die each year of starvation. As if that\u2019s not bad enough, corn-based ethanol is apparently not serving the state\u2019s aim of cutting greenhouse gases. An analysis for the California Air Resources Board unveiled last month showed that the ethanol already burned in California gas tanks has increased carbon dioxide emissions attributable to production and use of fuel in the state anywhere from 3 percent to 33 percent. Other analyses under discussion at the Air Board show that tailpipe emissions from cars that burn ethanol are worsening urban smog. \u201cIt\u2019s obvious corn-based ethanol makes no sense,\u201d said Frank Wolak, Stanford University economics professor and a member of the California Independent System Operator. Yet, he stops short of calling the state subsidy for Pacific Ethanol special treatment. \u201cIn California, we hand out subsidies for everything,\u201d said Wolak, citing the \u201cmillion solar roofs\u201d incentive payments, the renewable portfolio standard requirement, and the state\u2019s ban on long-term power purchase contracts with coal plant operators, all of which aim to influence the market to cut greenhouse gas emissions. That is true but the crux is that the subsidies don\u2019t seem to be working as intended. To make matters worse, the problem is largely ignored. That is one reason that Wolak recommends a carbon fee instead. The fee would have many advantages, he explained. First, it would inhibit companies from producing high carbon energy. Second, the state could use the revenue from the fee to reduce taxes and fees on activities that are beneficial, such as \u201cwork,\u201d points out the economist. It also, presumably, would be easy to administer. Instead of taking a hard look at the matter, Sacramento is abuzz about more subsidies and emissions trading. These programs presumably will be administered by a proliferation of obscure committees easily dominated by politically high profile folks like Jones and the governor. As a result, decisions about California\u2019s landmark climate change program face the real risk of being made on the basis of political influence instead of sound science and economics.