January 29, 2020

"Analysis from Washington"- By Dan Morgan- Biofuels


By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at

Picture this hypothetical situation.

It is early 2009 and corn prices edge up to near $7 a bushel as U.S. ethanol plants and Asian traders bid for grain that is scarcer than expected after a disappointing 2008 harvest.

Responding to protests from U.S. consumers, the livestock industry and Asian customers, the new administrator of the Environmental Protection Agency, a Democrat, takes decisive action.

Using her broad authority under the 2007 energy bill, she waives the requirement that gasoline blenders use 11.1 billion gallons of corn ethanol in 2009. Unpopular as the action is in the Midwest, it breaks the corn price and eases inflationary pressures that are playing havoc with the U.S. economy.

Granted, it’s unlikely. The political consequences would be far reaching. Midwest voters still haven’t forgotten, or forgiven, Jimmy Carter’s 1979 grain embargo. And such dramatic action would scare off Wall Street investors needed to underwrite Washington’s huge bet on “advanced” biodiesel fuels.

But it isn’t entirely implausible, either.

American agriculture still hasn’t fully grasped the extent to which the energy bill shifted power over the farm economy to a corner of the executive branch where “production agriculture” has limited influence. In a Democratic administration attuned to the concerns of poor urban consumers and environmental groups, moderating food prices and protecting soil, water and air could take priority over hitting the ambitious biofuels targets in the energy bill.

Most commentary on the energy bill has focused on the broad outlines of what it does to require more fuel-efficient cars and require gasoline makers to drastically increase the use of ethanol and biodiesel fuels by 2022.

But this is a bill in which the Devil is truly in the details, complex as they are.

The biofuels provisions, for example, give the EPA administrator broad authority to scrap the annual requirements for corn ethanol, biodiesel and cellulosic ethanol that now underpin high commodity prices and soaring land values across the farm belt.

“In consultation with” USDA and the Energy Department, the administrator can waive the yearly requirements if she determines they would “severely harm the economy of a state, region or the United States” or finds that domestic supplies are inadequate to hit the target.

Much of the language in the new law was proposed by the Natural Resources Defense Council, and it reflects environmental priorities as much as those of the farming community.

“The only reason the environmental community is interested in biofuels is as a way to address global warming,” said Franz Matzner, NRDC’s chief forest and public lands advocate. The result, he added, was a good bill that allows a dramatic expansion of biofuels – but only if the increase can be achieved without harming water, soil, wildlife habitat and the climate.

The law, for example, gives EPA the job of establishing, within one year, the greenhouse gas baseline against which all new biofuels will be measured. Ethanol from corn won’t count unless EPA determines that growing, transporting and refining it emits 20 percent less carbon dioxide than a like quantity of gasoline. EPA must also consider “indirect” effects, such as carbon releases from cultivating virgin land or forest to replace corn diverted to fuel.

The Renewable Fuels Association signed off on this because most corn ethanol plants won’t have to meet that standard. The energy bill “grandfathers” 143 existing refineries and 64 new plants or additions under construction. Those plants will have a yearly capacity of 13.4 billion gallons, just shy of the 15 billion gallon ceiling set in the energy law.

However, future coal-fired refineries now on the drawing board probably won’t qualify, according to congressional aides familiar with the energy law. And refineries producing a new generation of cellulosic biofuels could face a much tougher challenge reaching the law’s 16 billion gallon requirement by 2022, according to industry experts.

These plants will qualify for generous federal loan guarantees and credits, but their ethanol won’t count against the requirement unless EPA finds that it is reducing greenhouse gases by 60 percent below the EPA baseline. (EPA can reduce that to 50 percent but no lower.)

Unless ethanol or other renewables count against the mandates in the energy law, refiners would have less incentive to purchase the product.

The details still have to be worked out, but all this gives EPA serious power over the farm economy, now heavily dependent on strong demand from the burgeoning biofuels industry. In effect, EPA now has principal responsibility for managing the demand for major crops. Indirectly, how it uses that authority will guide farmers’ decisions on plantings, a role once played by USDA.

A “crunch” could be coming sooner than we expect, according to Purdue University economist Wallace E. Tyner.

New ethanol refineries now rapidly coming on line guarantee an explosive growth in the demand for corn this year, he notes. He predicts production of at least 11 billion gallons of corn ethanol, up sharply from last year.

It will take some 25 million acres to grow enough corn to make that amount of ethanol, Tyner estimates. That is nearly 5 million more acres than were needed last year. But corn acreage this year is estimated to be down by three million acres. That explains why corn prices remain very high. How much higher they will go if the 2008 harvest is short is anybody’s guess.

Federal tinkering with the commodity markets seems out of the question in the next few months because EPA hasn’t yet written rules implementing the 2007 law—and this is an election year.

But with the ink on the new biofuels law signed in December still wet, it is already getting a second, closer look in Congress.

Sen. Jeff Bingaman (D-N.M.), chairman of the Energy and Natural Resources Committee, held a hearing in February to air concerns about the biofuels title which he said “some have suggested is flawed.”

Environmental lobbyists involved in writing the legislation made sure that biomass from public lands and national forests were put off limits to biofuel refineries that convert timber, brush and woodchips into cellulosic ethanol. Protecting public lands from raids by the biofuels industry was key to environmental support, said NRDC’s Matzner.

But Bingaman and Rep. Stephanie Herseth Sandlin (D-S.D.) want to reopen that issue. Herseth Sandlin’s congressional district encompasses the Black Hills National Forest.

Matzner said her bill would “remove all the safeguards that keep the energy bill from incentivizing the wholesale loss of our national forests…Her bill is saying we don’t want to have any safeguards.”

Congressional aides give Herseth Sandlin little chance of amending the energy bill anytime soon. It could only be done with the approval of Rep. John Dingell (D-Mich.), all-powerful chairman of the House Energy and Commerce Committee and czar of all clean air legislation.

But the conflict isn’t likely to go away as agriculture and forestry interests focus more closely on the extent to which Dingell, Bingaman and EPA now hold sway over their economic future.

By Dan Morgan

Farm Bill: Direct Payments and Funding

Categories: Ethanol /EU /Farm Bill

DTN writer Chris Clayton reported yesterday that, “Policymakers and groups that have sought to reshape farm policy are again calling on Congress to reconsider tax changes to fund the farm bill while also paying direct payments to producers during these times of soaring commodity prices.

“‘It has been somewhat disheartening and disappointing seeing where these negotiations are heading,’ said Rep. Ron Kind, D-Wis., who pushed a failed farm-bill proposal in Congress last year. ‘It’s as if the Congress is operating in a vacuum when it comes to formulating this next farm bill.’


Food Inflation, Oil Prices and Biofuels

The Associated Press reported yesterday that, “Battered by bad economic news, consumer confidence plunged while wholesale food, energy and medicine costs soared, pushing inflation up at the fastest pace in a quarter century.”

The AP article added that, “Food prices, which have been surging because of increased demand stemming from ethanol production, rose by 1.7 percent last month, the biggest monthly increase in three years. Prices for beef, bakery products and eggs were all up sharply.”


Farm Bill: Tax / Payment Issues

Categories: Doha / Trade /EU /Farm Bill

DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “There is ‘progress ongoing’ on the selection of tax measures that could pay for the farm bill, according to Rep. Earl Pomeroy, D-N.D., the only House member to sit on both the House Agriculture Committee and the Ways and Means Committee. But, Pomeroy said the Ways and Means Committee will not use all its available resources for the farm bill.

“‘There is no way the farm bill can wipe out all the payfors that have been identified for one legislative initiative or another for the entire year,’ Pomeroy said in a telephone interview from Bismarck, N.D.


WFP Considers Rationing Food Aid; Harkin on Farm Bill- Extension “Most Likely” Outcome

Food Prices/ Food Aid

Javier Blas Gillian Tett reported yesterday at The Financial Times Online that, “The United Nation’s agency responsible for relieving hunger is drawing up plans to ration food aid in response to the spiralling cost of agricultural commodities.


Farm Bill Developments, Ethanol Concerns, & France Expresses Apprehension on CAP / Doha

Farm Bill

Associated Press writer Mary Clare Jalonick reported yesterday that, “Congressional negotiations over multibillion-dollar farm legislation are closing in on a March deadline as some members of Congress are tempering expectations back home.


Acreage, Ethanol and Prices –Farm Bill Update

A Dow Jones News article from yesterday (via DTN, link requires subscription), reported that, “U.S. 2008-09 corn planted area is estimated at 90 million acres and production is seen at 12.81 billion bushels, according to the U.S. Department of Agriculture, which released its grains and oilseeds outlook Friday at its annual Agricultural Outlook Forum.”


Farm Bill Deal Edging Closer?

DTN Political Correspondent Jerry Hagstrom reported yesterday that, “Key House and Senate agriculture leaders are putting the final touches on an agreement for a new farm bill that would cost $9 billion over the current baseline over a 10-year period, with a separate deal for a permanent farm disaster aid program, DTN has learned.


Farm Trade: Doha & the Brazil-Canada WTO Compliant on U.S. Farm Subsidies

Categories: Doha / Trade /EU /Farm Bill


Reuters writer Jonathan Lynn reported yesterday that, “Less than a month after ministers spoke of their determination to reach a new trade deal this year, negotiations on the Doha round have ground almost to a halt, diplomats said on Wednesday.


Higher Market Prices Impact Farm Bill and Doha Differently

Market Prices

Bloomberg writers Tony Dreibus and Jeff Wilson reported yesterday that, “The biggest rally in the history of wheat trading defied even some of the best conventional wisdom, humbling forecasters Goldman Sachs Group Inc. and the U.S. government.

“Wheat has more than doubled since May, reaching a record $11.53 a bushel on Feb. 11 and driving up costs for everything from Eggo waffles and Italian pasta to Pakistani flatbreads and Japanese pastry. This month the world’s biggest securities firm scrapped projections for a price drop within 90 days, and the U.S., the biggest exporter, said it would ship 23 percent more than originally estimated before summer.”


Twenty EU Members Cool to Latest WTO Farm Text

Categories: Doha / Trade /EU /Farm Bill

The Associated Press reported yesterday that, “France said Monday that 20 European countries had rejected the latest World Trade Organization proposals for a global trade deal, saying they would be too damaging to European farming.


Senate Legislative Procedures: Filibuster, Cloture Motion and 60 Votes

Categories: Ethanol /Farm Bill

Faith Bremner reported in Friday’s Argus Leader (South Dakota) that, “The Senate and its peculiar operating procedures are to blame for the stalemate over the new farm bill, Rep. Stephanie Herseth Sandlin said Thursday.


Commodity Outlook, Agricultural Trade and Doha; Pres. Bush Comments on Doha- Cotton

Jeremiah McWilliams reported on Sunday at the St. Louis Post-Dispatch Online that, “Agribusiness has emerged as a lucrative sweet spot of the marketing industry, thanks to strong global demand for grain and meat and the huge amounts of capital sloshing around the ethanol market.”

The article stated that, “Down on the farm, incomes are spiking. The Agriculture Department projected that net U.S. farm income would reach an all-time high of $87.5 billion in 2007, up 48 percent in one year. ‘The farm economy was strong’ in 2005, Chuck Conner, deputy secretary of agriculture, said in a recent interview. ‘Obviously, it’s tremendously stronger now.’”


Farm Bill: Senate Offers Perspective on Spending Level

Categories: Doha / Trade /Farm Bill

DTN Political Correspondent Jerry Hagstrom reported yesterday that, “Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, and ranking member Saxby Chambliss, R-Ga., today sent the House Agriculture Committee a farm bill conference proposal for a five-year bill that would spend $12.3 billion over the current baseline over a 10-year period.”


Farm Bill Funding Level Still an Issue

Categories: Farm Bill

David Rogers reported yesterday at that, “Farm Bill negotiations teetered at a make-or-break stage Wednesday after House Democrats and Republicans joined forces to press the Senate to scale back its demands or risk a historic disruption of the current commodity programs next month.

“House Agriculture Committee Chairman Collin Peterson (D-Minn.), with the support of Speaker Nancy Pelosi, is taking the tough stance after brokering a deal with his own committee Republicans that would trim an estimated $8 billion over the next 10 years from the Farm Bill first passed by the House last summer.


Peterson and Goodlatte Offer Farm Bill “Framework”– Spending Level Key

Congressional Quarterly reported yesterday afternoon that, “In an effort to win White House support for a new version of the farm bill, House lawmakers are proposing to reduce the measure’s agriculture subsidies as well as the tax revenue designed to pay for them.


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