FarmPolicy

November 15, 2019

Climate Issues; EPA Pesticide Issue; Brazil Cotton Case; Crop Insurance; Ag Economy; and Biofuels

Climate Issues

Senator John Kerry (D-Mass.) penned an opinion item that was posted today at Roll Call Online. In part, Sen. Kerry stated that, “It has been three months since President Barack Obama and the United States took an important step toward leading the world in developing the Copenhagen Accord, a breakthrough new global agreement among almost 120 nations, including China and the developing world, to reduce emissions, increase transparency and support international climate change investments.

At its foundation is a new economic reality that the leaders of the 21st century will be those committed to clean energy economies.

“The United States, with our innovative spirit and entrepreneurial vitality, is positioned to lead the way — if we seize the opportunity staring us in the face.”

Sen. Kerry added that, “In the coming weeks the Senate will have a historic opportunity to debate legislation that will make our way easier. Majority Leader Harry Reid (D-Nev.) and Obama are committed to make this the year that the United States finally passes comprehensive clean energy and climate legislation. Further delay would only exacerbate the risk of falling behind in the emerging global competition for clean energy jobs, manufacturing and markets. The bipartisan legislation that Sens. Lindsey Graham (R-S.C.) and Joe Lieberman (ID-Conn.) and I have been working to complete presents an opportunity that we cannot afford to miss.

“We begin not just by curbing man-made carbon emissions that are contributing to climate change at an alarming rate but by also establishing incentives for private investment in clean energy technology industries. Over the next 10 years, those investments can create as many as 1.9 million jobs, increase household incomes by up to $1,175 a year and boost the gross domestic product as much as $111 billion.”

In related news, Reuters writer Richard Cowan reported yesterday that, “Six months after introducing a sweeping climate change bill that flopped in the Senate, Democrat John Kerry is preparing to offer a compromise measure that seeks to reel in reluctant senators.

“Kerry, collaborating with Republican Senator Lindsey Graham and independent Senator Joseph Lieberman, might introduce a new bill promoting clean energy early next week, just days before the 40th anniversary of Earth Day, environmental sources said.

Despite Kerry’s consistently upbeat assessment of legislative prospects this year, the new bill also faces plenty of hurdles.”

The article pointed out that, “On Friday, a new problem potentially arose when U.S. Supreme Court Justice John Paul Stevens announced his retirement. President Barack Obama said he would move quickly to name a replacement.

“That will trigger a Senate confirmation debate that could eat up time — like the healthcare debate did over the past year — that otherwise could be spent on the complicated, far-reaching energy and environment bill.”

Other high-priority initiatives that will tie up the Senate in coming months are the federal budget for next year and an array of spending bills, including one for the war in Afghanistan. Controversial banking industry reforms and additional job-creation steps Democrats want to enact this election year also are stacked up on the runway.”

Mr. Cowan explained that, “Aides to Kerry, Graham and Lieberman toiled over legislative details of their climate bill during a two-week recess that ends on Monday.

“Its centerpiece will be a 2020 deadline for reducing greenhouse gas emissions by 17 percent from 2005 levels. Oil and coal, cheap and dirty energy sources, gradually would be replaced with more expensive, but cleaner alternative fuels.

“The 17 percent lines up with the House of Representatives’ target and commitments made by Obama in global talks.”

And Ronald Brownstein noted on Saturday at the NationalJournal Online that, “As the debate over climate policy stirs from its long winter’s nap, more is at stake than whether the United States can set a course to reduce both its carbon emissions and its dependence on foreign oil.

The approaching legislative skirmish will also test whether Washington can escape the straitjacket of ‘either-or’ alternatives to attack big problems with comprehensive solutions that blend the best ideas from both parties. President Obama and the trio of senators expected to soon release a compromise bill are making extraordinary efforts to address the concerns of energy interests and legislative moderates on both sides who have resisted action on climate. If those incentives can’t break the logjam, the result could be a sustained stalemate that prevents the United States from advancing in any direction on energy.

“Obama and the senators formulating the new approach — Lindsey Graham, R-S.C., John Kerry, D-Mass., and Joe Lieberman, ID-Conn. — are pursuing a grand bargain: more incentives for nuclear power and greater domestic production of oil and gas in return for limits on the carbon emissions linked to climate change. The deal makes good policy sense: Under any scenario, the United States will consume fossil fuels in large quantities for years to come as it transitions toward a lower-carbon energy mix that includes a substantial contribution from nuclear power. The deal adds up politically as well: Although climate-change skeptics can block Senate legislation that aims solely to reduce carbon emissions, Senate environmentalists can block legislation that aims solely to expand energy supply. Absent compromise, the Senate could be immobilized between competing filibusters, possibly for years.”

Meanwhile, James Kanter reported yesterday at The New York Times Online that, “Profiteering, tax fraud, theft and dubious claims of emissions reductions are just some of the problems plaguing carbon trading.

That litany of woes has helped prompt many commentators to proclaim that carbon trading is imminently headed for the scrap heap of history.”

The Times article added that, “Such predictions are almost certainly wrong. Carbon trading, also known as cap and trade, is on the cusp of generating mammoth amounts of money for governments — money that could start flowing just in time to help nations emerge from the worst financial crisis in a generation.

The prospect of those earnings is one of the key reasons that nations are determined to stick by carbon trading, despite the setbacks and scandals.

“Such revenues also help to explain why Australia, Japan and the United States are still exploring how soon they can set up such a system.”

Mr. Kanter indicated that, “According to an internal working paper released with little fanfare last week by the European Commission, E.U. member states stand to make €26 billion annually by 2020 through regular sales, or ‘auctions,’ of emissions permits.

“The paper said E.U. governments could begin earning as much as €928 million a year starting in 2012 by auctioning permits to airlines, which will become the next companies to join the system.”

“Under legislation before Congress that would create a U.S. version of cap and trade — although it is highly unlikely to be passed into law in its current form — the U.S. government would earn a minimum of about $8 billion each year through 2020, the paper said.”

With respect to international developments, the AP reported yesterday that, “Climate talks nearly ground to a halt before they began in earnest Sunday, with delegates squabbling over how to conduct negotiations for the rest of the year on a new agreement to control global warming.

“Talks about talks appeared at times on the verge of breakdown over seemingly minor procedural issues, but that reflected a deep divide on how to treat the hastily crafted political deal struck at the Copenhagen summit last December by President Barack Obama with a small group of other world leaders.”

EPA Pesticide Issue

An update posted on Friday at the National Association of Wheat Growers (NAWG) indicated that, “The Second and Sixth Federal Circuit Courts appear to be in conflict on regulation of pesticide applications following a Second Circuit decision handed down March 30 in the Peconic Baykeeper vs. Suffolk County Department of Public Works case.

“According to information out this week from CropLife America and RISE, the crop protection product trade associations, that decision did not endorse the analysis used by the Sixth Circuit in the case National Cotton Council v. Environmental Protection Agency, which was decided in 2009 and said pesticide discharge is a point source of pollution subject to additional regulation and permitting under the Clean Water Act. The Second Circuit decision in fact affirmed that pesticide applications made in accordance with the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) and EPA’s 2006 National Pollutant Discharge Elimination System (NPDES) Rule – existing law and regulation – are lawful.

“The organizations said that the decision did not address whether a pesticide applied to water is a pollutant and did not endorse the Sixth Circuit’s reasoning on that issue. However, the three-judge panel did rule the pesticide applications at issue in this case were ‘from a point source,’ as defined by the Clean Water Act, though the Second Circuit refused to follow the reasoning in National Cotton Council.”

After additional analysis, the NAWG item indicated that, “The Sixth Circuit decision has been alarming for many in agriculture because it could require producers to obtain additional permitting for every crop protection application. The logistics of carrying this out are harrowing for EPA, state agencies and producers alike, prompting the Court to issue a two-year stay of the decision to give regulators a chance to figure out how to apply it.

CropLife and RISE pointed out that the conflicting court decisions emphasize the need for Congressional oversight.”

Brazil Cotton Case

Reuters news reported on Friday (article posted at DTN, link requires subscription) that, “The United States has escaped punishing trade sanctions and bought some peace in a long trade war over cotton subsidies, but it remains to be seen whether Brazil will be satisfied with the remedy.

“The pragmatic — but tentative — fix announced this week by the two countries heads off $829 million in retaliation against U.S. goods that the World Trade Organization ruled was Brazil’s right.

“The deal pays damages to Brazil while taking the political heat off the U.S. government, but punts the tough work on subsidy reform down the road to the haggling over the 2012 Farm Bill by Congress — a body known first and foremost for taking care of domestic interests.”

The article noted that, “‘The track record is clear,’ said Jim Grueff, a former trade negotiator with the U.S. Agriculture Department.

“‘We don’t make changes to farm programs because of trade issues,’ Grueff said.”

Friday’s article added that, “Sanctions or not, Brazilian leaders understood U.S. farm policy could not change overnight, and sought instead some practical gains while avoiding the backlash that retaliation would have sparked from its own consumers and foreign investors, said Jon Huenemann, a trade consultant with Washington law firm Miller & Chevalier.”

The article added that, “The technical assistance fund has raised some eyebrows for spending money to subsidize a competitor.

But even critics say the fund is probably too small to force enough outrage to change farm subsidies.”

Crop Insurance

Chris Clayton noted on Friday at the DTN Ag Policy Blog that, “Last week, 30 senators wrote USDA cautioning against cuts to crop insurance in the Standard Reinsurance Agreement. Now, agricultural groups write another letter on the topic.

“The debate right now is just where will the axe fall in USDA’s third contract offer to the industry after crop insurers rejected the first two proposals, which would have cut $8.4 billion and $6.9 billion, respectively, out of administrative and operating costs, as well as underwriting gains, over 10 years.”

Mr. Clayton noted that, “According to the farm groups, the Congressional Budget Office has penciled in a $3.9 billion savings over 10 years under the SRA. Groups express ‘grave concern’ because the CBO doesn’t credit this savings to Congress. Instead, it credits the SRA.

“‘We further understand that if the final negotiations provide more than $3.9 billion in reductions, CBO will immediately update its baseline to reflect those savings and Congress will not be credited with the savings either.’

“The point being that if Congress doesn’t get credit for these savings — which Congress was reluctant to do in 2008 — then the outcome ‘may undermine this component of the farm safety net and will sharply reduce the agriculture budget in the advent of a baseline budget farm bill. It would make a potential budget reconciliation process next year extremely difficult.’

In other words, the cuts would come out of the farm bill’s baseline, and if Congress does this budget reconciliation process next year, ag programs would take more hits without any consideration for the crop-insurance cuts.”

Meanwhile, a news release issued on Friday by Aon Benfield stated that, “Aon Benfield, the world’s premier reinsurance intermediary and capital advisor, today releases its analysis of the U.S. crop reinsurance market, which reveals that proposed changes to the Standard Reinsurance Agreement by the USDA could induce challenging market conditions for reinsurers participating in the Federal insurance program.

“The report reveals that the proposed cuts would likely reduce reinsurers’ expected profit by 20 to 30 percent, which could lead to some companies withdrawing from the program or scaling back their capacity.”

The release added that, “Joseph Monaghan, head of Aon Benfield’s Agriculture practice group, said: ‘Our study reveals that over a 10 year period, reinsurers participating in the MPCI program have experienced favorable returns due to relatively low loss experience resulting from few adverse weather events.’

“However, the proposed changes to the program would have the likely effect of reducing participants’ margins, which could see potential reductions in capacity.’

“‘Those reinsurers providing cover for the program on a quota share basis may reduce their participation as well, which could in turn reduce the ability of cedents to provide MPCI.’”

Ag Economy

Bloomberg writer Jeff Wilson reported on Friday that, “The U.S. corn surplus before the next harvest will be 5.6 percent larger than estimated a month ago as livestock-feed demand slows because of smaller herds, the government said.”

The article noted that, “Larger inventories may cut costs for processors of corn-based ethanol such as Archer Daniels Midland Co. and for meat companies including Smithfield Foods Inc. and Tyson Foods Inc., which say corn-based animal feed is their biggest expense.

About 5.45 billion bushels will be used for animal feed, the department said, down from 5.55 billion estimated last month. Mounting losses last year prompted livestock and poultry producers to reduce production. Last month, the government said inventories on March 1 totaled 7.694 billion bushels, up 11 percent from a year earlier and the most since 1987.”

In a related article, Greg Burns reported today at the Chicago Tribune Online that, “Sticker shock is arriving at a supermarket meat case near you, as cattle, hog and poultry prices soar…The upturn has put an end to a long downward spiral for livestock producers, who until recently have been losing money on every animal they brought to market.

“Given the recent strength in retail sales overall, U.S. consumers may be willing to pay a little more for their animal protein.

“But that’s no sure thing, and some farmers worry about the steeper price tags on tenderloins and spare ribs while the unemployment rate stands at 9.7 percent.”

Biofuels

A news release issued on Friday by Rep. Earl Pomeroy (D-ND) stated that, “In a meeting here with ethanol industry representatives from across North Dakota, Congressman Earl Pomeroy said he will keep pushing Congress to approve his legislation that would save thousands of energy jobs by extending key tax incentives for American renewable fuels.”

“‘Our renewable fuels industry in North Dakota and across the country is starting to take off, and that’s important for our rural economy and our energy independence,’ Congressman Pomeroy said. ‘Now is not the time to let these tax credits expire. That’s going to cost us energy jobs and set us back in our effort to establish energy independence. I’m going to keep pushing this bill and making the case to Congress that it is critical that we extend these tax credits.’”

Meanwhile, DTN writer Todd Neeley reported on Friday (link requires subscription) that, “Getting approval later this year from the Environmental Protection Agency for the use of E15 in cars and pickups doesn’t mean there will be public acceptance or cooperation from the auto industry, ethanol and fuel industry officials said Thursday during a Nebraska Ethanol Board forum.

“EPA officials have said they expect to issue a ruling this year on ethanol advocate Growth Energy’s request for a waiver to use E15. EPA has indicated it may allow at least some vehicles to use the blend.

“The move to E15 is seen as one way to get past the so-called blend wall, where total ethanol production exceeds what the E10 market can handle.”

Mr. Neeley pointed out that, “The move to E15 faces several hurdles. Those include whether automobile companies will provide warranties on engines, whether retail stations are equipped to pump E15, and whether gasoline retailers could be legally liable for damage to engines if EPA allows just some standard vehicles to use the blend.”

Keith Good

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