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Biofuels; EPA Regulations (“Tailoring Rule”); Climate Change; and Crop Insurance

Biofuels

John M. Broder reported in today’s New York Times that, “President Obama moved on Wednesday to bolster the nation’s production of corn-based ethanol and other alternative liquid fuels and ordered the rapid development of technology to capture carbon dioxide emissions from the burning of coal.

“The president is trying to expand the portfolio of American energy sources to reduce emissions of greenhouse gases, a factor in global warming, and spur advances in alternative technologies. Last week he expressed support in his State of the Union address for increased generation of nuclear power and offshore drilling for oil and gas.

Mr. Obama’s motives are environmental, economic and political. He is trying to address climate change by replacing dirty fuels with cleaner sources, jump-start an American clean-energy industry, reduce dependence on foreign oil and attract Republican votes for legislation to do all three.”

Margaret Kriz Hobson reported yesterday at the National Journal’s Energy and Environment Blog that, “President Obama today announced a multi-agency effort to expand U.S. biofuels production and accelerate the development of technologies to capture and sequester greenhouse-gas emissions from coal-fired power plants.

“At a meeting with 11 governors [transcript, video], Obama released a roadmap for expanding biofuels production to meet the federal goal of 36 billion gallons in 2022, with 21 billion gallons to come from advanced biofuels. Last year, U.S. manufacturers produced 11.1 billion gallons of biofuels, primarily from corn-based ethanol.”

To listen to specific comments Pres. Obama made regarding biofuels at yesterday’s meeting with the governors, just click here (MP3- 1:44).

More specifically, a White House news release from yesterday indicated that, “President Barack Obama today announced a series of steps his Administration is taking as part of its comprehensive strategy to enhance American energy independence while building a foundation for a new clean energy economy, and its promise of new industries and millions of jobs.

“At a meeting with a bipartisan group of governors from around the country, the President laid out three measures that will work in concert to boost biofuels production and reduce our dangerous dependence on foreign oil. The Environmental Protection Agency (EPA) has finalized a rule to implement the long-term renewable fuels standard of 36 billion gallons by 2022 established by Congress. The U.S. Department of Agriculture has proposed a rule on the Biomass Crop Assistance Program (BCAP) that would provide financing to increase the conversion of biomass to bioenergy. The President’s Biofuels Interagency Working Group released its first report – Growing America’s Fuel. The report, authored by group co-chairs, Secretaries Vilsack and Chu, and Administrator Jackson, lays out a strategy to advance the development and commercialization of a sustainable biofuels industry to meet or exceed the nation’s biofuels targets.

“In addition, President Obama announced a Presidential Memorandum creating an Interagency Task Force on Carbon Capture and Storage to develop a comprehensive and coordinated federal strategy to speed the development and deployment of clean coal technologies. Our nation’s economy will continue to rely on the availability and affordability of domestic coal for decades to meet its energy needs, and these advances are necessary to reduce pollution in the meantime. The President calls for five to ten commercial demonstration projects to be up and running by 2016.”

DTN writer Todd Neeley provided an overview of some of these executive branch actions in an article from yesterday: “The Environmental Protection Agency released a much-anticipated new Renewable Fuel Standard Wednesday that penalizes corn-based ethanol for international indirect land use changes, despite an aggressive push back from biofuels and agriculture groups.

“At the same time, administration officials announced the findings of an interagency biofuels group created by President Barack Obama that are supportive of the biofuels industry but also point the finger at the federal government for the slow development of the cellulosic ethanol industry.

“Under the new RFS, EPA said 12.95 billion gallons of biofuels will have to be added this year, up 17 percent from last year, Dow Jones newswire reported. Some 6.5 million gallons must come from cellulosic ethanol — much less than the original goal of 100 million gallons. And 1.15 billion gallons must come from biomass-based diesel over the two years from 2009 to 2010.”

Mr. Neeley explained that, “On balance, the news is good for U.S. farmers who supply corn to ethanol plants, for current ethanol producers who are grandfathered in under the new RFS and for cellulosic ethanol developers who for years have been calling for an effective loan guarantee program.

Though the U.S. ethanol industry would much rather not be penalized for so-called international indirect land use change, or ILUC, one ethanol industry group said the new RFS was ‘workable’ for corn ethanol.

“The theory of ILUC is that expanded U.S. corn acres planted in response to increased ethanol production are causing farmers in other countries to make certain land use decisions.”

Yesterday’s DTN article stated that, “U.S. Agriculture Secretary Tom Vilsack said the new RFS has made it so ‘corn ethanol has a future’ in the biofuels industry.

“According to EPA’s modeling, corn-based ethanol achieves a 21-percent greenhouse-gas reduction compared to gasoline when international indirect land use change is included.

“Without ILUC, the Renewable Fuels Association said corn-based ethanol achieves a 52 percent GHG reduction. Cellulosic ethanol achieves GHG reduction of 72 percent to 130 percent depending upon feedstock and conversion process. All GHG reductions for ethanol exceed those mandated by the RFS2.”

The article also added that, “In a written statement, the RFA praised the U.S. Environmental Protection Agency for passing the regulations to provide regulatory certainty for the biofuels industry.

However, RFA expressed its disappointment about the inclusion of ILUC.”

RFA also released a summary titled, “RFS2 Final Rule Lifecycle GHG Analysis ‘By the Numbers,’” which contained additional detail on the GHG reduction issue.

RFA’s Matt Hartwig provided additional analysis on the RFS2 rule yesterday in a brief conversation with Cindy Zimmerman; an audio replay of this short conversation was posted yesterday at the Domestic Fuel Blog.

In a separate update posted yesterday at the Domestic Fuel Blog, Growth Energy CEO Tom Buis discussed his perspective on yesterday’s executive branch action, a replay of his comments can be heard here.

Meanwhile, Bloomberg writers Mario Parker and Daniel Whitten reported yesterday that, “The Obama administration slashed the nation’s 2010 cellulosic ethanol mandate by 94 percent and included a method criticized by the ethanol industry to set standards for biofuel use through 2022.

“The U.S. Environmental Protection Agency reduced the nation’s cellulosic goal to 6.5 million gallons from the 100 million required under a 2007 energy law. The rule issued today found that corn-based ethanol produces lower greenhouse gases emissions than were anticipated in a May proposal, clearing the way for more use of the fuel.

“‘This is at its root an effort to reduce greenhouse gas emissions,’ EPA Administrator Lisa P. Jackson said in a White House conference call. ‘The numbers we used in the proposal were not right.’”

Steven Mufson reported in today’s Washington Post that, “The nation’s farmers got a big boost Wednesday when the Obama administration issued new biofuels guidelines that could open the way for large increases in the production of corn-based ethanol.

“The Environmental Protection Agency said new data showed that, even after taking into account increased fertilizer and land use, corn-based ethanol can yield significant climate benefits by displacing conventional gasoline or diesel fuel.

The new renewable-fuel standard issued by the EPA drew criticism from some environmentalists as well as oil industry representatives, who accused the Obama administration of catering to farm interests. In an earlier draft of the standard, the administration had said that corn-based ethanol output should be limited because its direct and indirect greenhouse gas emissions exceeded renewable fuel standards.”

Mr. Mufson indicated that, “Congress and many experts have long taken a wary view of corn-based ethanol, because of concerns that it might drive up food prices and because it could be counterproductive to reducing greenhouse gas emissions. Existing legislation sets a target of 36 billion gallons of ethanol use by 2022, but corn-based ethanol is slated to account for less than half that total while cellulosic ethanol is slated to account for much more.

“For this year, Congress had set a target of 100 million gallons of ethanol made from cellulosic raw materials such as switchgrass, corn cobs or wood chips. But the EPA said Wednesday that cellulosic production will amount to 6.5 million gallons, equal to a few pilot projects.”

Russell Gold and Siobhan Hughes
reported yesterday at The Wall Street Journal Online that, “In 2007, Congress had mandated that 100 million gallons of cellulosic ethanol—a fuel additive to gasoline made from switchgrass, sugar cane bagasse and other plants—be blended into the nation’s fuels this year. By next year, the mandate was for 250 million gallons, heading up to 16 billion by 2022.

“‘It is certainly going to be a challenge,’ said Michael J. McAdams, president of the Advanced Biofuels Association, a trade group that represents companies working on cellulosic ethanol and other technologies.

The failure of the cellulosic ethanol industry to even come close to meeting the mandated goals could give a boost to advocates and lawmakers who believe setting goals for individual fuel technologies is the wrong approach.”

Ben Geman reported yesterday at The Hill Online that, “The new rules, which implement the expanded fuels mandate, are not a complete victory for ethanol lobbyists, who along with several farm-state lawmakers object to the way EPA measures the carbon footprint of biofuels.

“Specifically, they’re upset that EPA didn’t give up on weighing ‘international indirect land use changes’ as part of emissions calculations. The phrase refers to emissions from clearing grasslands and forests in other countries for croplands, in order to compensate for increasing use of U.S. corn and soybeans for making fuels.”

Mr. Geman added that, “EPA said several factors went into the revised emissions calculations. For instance, the agency said that better satellite data allowed more precise assessments of the types of land converted internationally.

The battle over the land use emissions is hardly over. Two senior House Democrats — Agriculture Committee Chairman Collin Peterson (Minn.) and Armed Services Committee Chairman Ike Skelton (Mo.) — introduced a bill this week that would block EPA from considering the land-use changes.”

A statement by Rep. Peterson from yesterday indicated that, “‘Typical of most decisions made in Washington, there is some good and some bad in the Renewable Fuel Standard final rule announced today. I am pleased that ethanol and biodiesel will qualify as advanced biofuels under the RFS. However, I am concerned about some provisions in the final rule that fail to use science-based standards,’ Chairman Peterson said. ‘To think that we can credibly measure the impact of international indirect land use is completely unrealistic, and I will continue to push for legislation that prevents unreliable methods and unfair standards from burdening the biofuels industry.’

“Chairman Peterson joined House Armed Services Chairman Ike Skelton (D-MO) and Representative Jo Ann Emerson (R-MO) to introduce a bill this week to prevent the Environmental Protection Agency (EPA) from regulating greenhouse gas emissions under the Clean Air Act. The bill, H.R. 4572, also includes provisions that would stop the EPA from using international indirect land use calculations in biofuels regulations and would expand the definition of renewable biomass.”

A separate response yesterday from three farm state Senators noted that, “Senators Chuck Grassley, John Thune, and Mike Johanns today reacted to the Obama administration’s approval of the final rule issued by the Environmental Protection Agency (EPA) to implement the new Renewable Fuels Standard (RFS) following Congressional passage of the 2007 energy bill. Sadly, the final rule includes flawed indirect land use models in an attempt to discredit the positive environmental impacts of domestically produced corn-based ethanol.”

“Johanns said, ‘I am deeply disappointed that the Administration remains fixated on their flimsy, untested, and unreliable theory that holds our farmers and ethanol producers responsible for land use decisions made half way around the world. I am additionally disappointed that with all of today’s announcements, there was no mention of E-15. Increasing the percentage of ethanol in gasoline to as much as 15 percent is the next logical step in the expansion of this nation’s ethanol production capacity. It would not only benefit the economy, but also our nation’s energy security.’”

And Iowa Senator Tom Harkin (D) noted yesterday that, ““EPA has concluded that the existing biofuels do meet the lifecycle greenhouse gas emission limits imposed as a part of the RFS2 in the 2007 Energy Independence and Security Act. This clarity is very important given the uncertainty over whether indirect land use change emissions calculations that had been included in the proposed rule issued last spring might make some biofuels ineligible for inclusion under the mandate.

“Despite this, I am disappointed that the Environmental Protection Agency continues to use questionable data and methods for calculating ‘indirect land use changes’ at all. These methods are not adequately developed, and thus should not be used in ways making it harder for ethanol and biodiesel to meet requirements of the Energy Independence and Security Act of 2007. If we continue to do this, we’ll exclude some good biofuels and stifle the investment that is so essential to our national renewable fuels strategy.”

POET CEO Jeff Broin indicated yesterday that, “We welcome the commitment of the President to continue growing the domestic ethanol industry. He correctly noted that producing home-grown ethanol creates jobs in America at a time America most needs them. However we are concerned that some pieces of the rules put out by EPA today run contrary to that stated effort. Although the international indirect land use change penalty has been lessened somewhat, EPA still relied on the disproven theory when all of the data shows that ethanol production continues to improve and isn’t requiring new land.”

A National Corn Growers news item from yesterday stated that, “‘We’re pleased the U.S. Environmental Protection Agency recognizes that corn ethanol provides a distinct advantage over conventional gasoline when it comes to greenhouse gas emissions, with a reduction of more than 21 percent in some cases,’ said NCGA President Darrin Ihnen. “This means that all corn ethanol including existing grandfathered capacity and new production will qualify to meet the conventional biofuels targets in the RFS.’

NCGA continues to be disappointed that EPA chose to use the flawed theory of international indirect land use change in their calculations. Ihnen stressed that the EPA should reject the unproven theory of international indirect land use change, which assumes that growing more corn means planting corn on a proportionately greater amount of acreage and will impact other crops or natural resources on a global basis. Today’s yield trends show this to be false. 2009’s record corn yield was 165.2 bushels per acre, according to the U.S. Department of Agriculture, more than 11 bushels higher than 2008 and nearly 15 bushels higher than 2007.”

A news release issued yesterday by the American Soybean Association noted that, “The American Soybean Association (ASA) today applauds release of the Environmental Protection Agency’s (EPA) Final Rule for the Renewable Fuel Standard Program (RFS2) that provides a positive outcome for biodiesel and soy biodiesel. ASA has worked hard to educate EPA and policymakers to correct flaws in the original RFS2 Proposed Rule issued in 2009. Achieving a favorable outcome was vitally important as demand for domestically produced soybean oil and the future of the biodiesel industry in the United States hinged on the outcome.”

While stressing the importance of the EPA’s RFS2 final rule to the biodiesel and soy industries, [ASA President Rob Joslin, a soybean producer from Sidney, Ohio] emphasized that biodiesel production likely won’t resume until Congress extends the biodiesel tax incentive.”

An update posted yesterday at the AgMag Blog (The Environmental Working Group) noted in part that, “Unfortunately, much of the short-term benefit of EPA’s courageous stance is gutted by the cynical and politically driven exemption that Congress gave to the corn-ethanol industry. Congress made sure that 15 billion gallons of corn-ethanol will be forced into the gasoline market regardless of its failure to reduce green house gas emissions.”

EPA Regulations- “Tailoring Rule”

Robin Bravender of Greenwire reported yesterday at The New York Times Online that, “U.S. EPA’s air chief said today the agency would roll out greenhouse gas emission standards for automobiles and the ‘tailoring’ rule for the heat-trapping gases next month after considering a raft of public comments.”

Yesterday’s article stated that, “The agency is also poised to issue the tailoring rule in tandem with the auto rule, [Assistant Administrator Gina McCarthy] said. That controversial rule aims to limit New Source Review and operating permitting requirements to only the largest industrial sources of greenhouse gases. The agency has sought to coordinate those rules because the auto standard would trigger those permitting requirements for stationary sources.

“McCarthy said the final tailoring rule will take into account a host of recommendations and concerns presented in some 420,000 comments submitted to the agency.

Critics — including industry associations, GOP lawmakers and conservative think tanks — have expressed concerns about EPA’s legal authority to limit the permitting requirements to the largest sources when the Clean Air Act’s thresholds would require the agency to regulate smaller emitters.

“State and local air regulators have also asked EPA to delay permitting requirements for stationary sources to ensure that conflicts between the tailoring rule and state programs do not overwhelm permitting authorities.”

More background on the “tailoring rule” is available here and here.

Climate Change

Ben Geman reported yesterday at The Hill’s Energy and Environment Blog that, “President Obama on Wednesday urged the Senate not to shelve climate change legislation, a day after he acknowledged that the chamber may proceed with a package of energy measures that omits limits on greenhouse gas emissions.

“‘Don’t give up on that,’ Obama said in a televised question-and-answer session with Senate Democrats. ‘I don’t want us to just say the easy way out is for us to just give a bunch of tax credits to clean energy companies.’”

Crop Insurance

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Although the crop insurance industry has been negotiating for weeks with USDA on a new contract for expenses and underwriting gains, it wasn’t until President Barack Obama released his budget that crop insurers knew USDA was looking to move $8 billion out of the industry’s government payments over 10 years.

“‘That basically confirms to us what had been depicted to us on the Hill,’ said Keith Collins, a consultant for the National Crop Insurance Services and former USDA chief economist.

The crop insurance industry finds itself on the chopping block as the Obama administration tries to cut programs and shift money to other administration priorities. The president’s proposed budget renegotiating the standard reinsurance agreement, or SRA, with insurers would save $800 million a year, just as the administration is seeking to boost spending on child nutrition programs by $1 billion a year.”

Mr. Clayton added that, “The insurance industry points out that insurers took a $3.1 billion cut in the farm bill over 10 years in the projected growth of both underwriting gains and administrative and operating (A&O) expenses. The legislation also delayed $3.3 billion in payments to insurers by as much as nine months in 2012-13. Companies may have to rely on credit to manage costs while waiting for government payments.”

“Insurance officials say cutting as much as $800 million will affect the services farmers receive and will hurt the smaller crop insurance companies more than larger ones. USDA officials have stated that even with the proposed cuts, crop insurers will continue to receive strong underwriting gains and increases in what USDA pays for administrative and operating costs to the industry,” the DTN article said.

Keith Good