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In Washington, fears are growing the US President George W. Bush will veto the Farm Bill over “excessive subsidies”. The $300 billion, five-year billion bill emerged from a House-Senate conference this week after months of wrangling over subsidies, incentives and tax credits.
The Farm Bill has not been vetoed since 1956, and originally observers did not think that an election-year veto was possible, since the top ten states in farm subsidies control half the electoral votes for the presidential campaign. Agriculture Secretary Ed Schafer restated the President’s threat to veto the bill, and White House budget director said that the bill “doesn’t have hardly enough reform.”
A controversial feature has been the cap on farmer income in order to receive subsidy payments. The new bill forbids subsidies to farmers with more than $750,000 in income, or $1.5 million for a married couple.
EWG has published a list of the leading subsidy recipients, who received as much as $900,000 in subsidy payments in 2006.
In Iowa, Senator John McCain said that, as drafted. he would veto the Farm Bill because of excessive subsidies, which he called unnecessary. McCain added, “I do not believe we should have tariffs against imported products, but I want to promise you as president of the United States of America I will recognize one fundamental fact, and that is the farmer in the state of Iowa and the United States of America is the most productive, the most efficient and the best, and I will open every market in the world to your products and I will sell them.”
The Farm Bill bill contains a reduced 45 cents per gallon ethanol subsidy and a $1.01 per gallon subsidy for cellulosic ethanol. Tax credits for biodiesel were removed from the bill, and the tariff on Brazilian ethanol is extended through 2010.
The bill contains $900 million for biofuels development, $900 million for nutrition programs aimed to offset higher food prices, while land stewardship programs would received an additional $4 billion, and specialized crops $1.35 billion.
Negotiations over the stalled Farm Bill had put existing ethanol incentives in peril last month, according to House Agriculture Committee chairman Collin Peterson. The chairman said that, in order to offset $9.5 billion in increased spending, Senate negotiators had proposed a $0.05 per gallon cut in the ethanol blender tax credit and reductions in other incentives for a total of $1.226 billion in ethanol support cuts.
Earlier this month, the US House of Representatives had voted to extend the existing Farm Bill until April 25 to give lawmakers more time to resolve differences between the House and Senate versions of the new Farm Bill, which includes tax breaks and incentives for biofuels. President Bush has stated that he will not sign legislation extending the current Farm Bill for another year.
The Farm Bill was passed by the Senate in the fall, while the House version passed in July. Senate Agriculture Committee chairman Tom Harkin said the bill would earmark $1.3 billion for biofuels over the next five years.
The Senate passed an overall funding measure on October 5, but the Agriculture Committee under committee chairman Tom Harkin had been working on specific program allocations until November, which include ethanol tax credits and next-generation biofuel investments. The Senate finance committee previously proposed cutting the ethanol tax credit to 46 cents per gallon.
A spokesman for Sen. James Inhofe, R-Okla: “The political climate has radically shifted,” commenting on attitudes on ethanol, but Mark McMinimy, an agribusiness analyst at Stanford Group Co., said “Congress has made a strategic decision to support the building up of a biofuels industry” and won’t make a “highly disruptive” about-face.
The Washington Post, in an editorial titled “Plow it Under”, called for a veto of the Farm Bill: “After weeks of wheeling and dealing, a House-Senate conference committee has finally produced a farm bill. And what an unlovely creation it is. The nearly $300 billion, five-year legislation brims with subsidies for everything from biofuels to historic-barn preservation. It includes a dubious sugar-to-ethanol program and billions of dollars for a permanent disaster relief fund that essentially pays farmers to grow crops on land too dry to sustain them…Attaching wasteful subsidies to the poor’s nutritional safety net is the oldest trick in the agriculture politics book. It secures the votes of urban and suburban representatives who otherwise would have no reason to countenance the most egregious farm subsidies….This is not reform….President Bush should veto the bill, as he has all but threatened to do, and Congress should deny it the two-thirds vote in both houses necessary to override….In 2009, a new president and a new Congress could hammer out something more defensible.
The Center for Agricultural and Rural Development said that ethanol production has reduced gasoline prices by up to $0.40 per gallon, and released their study online. The researchers found that ” the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry.”
In Washington, Iowa State University economist Bruce Babcock testified before a US Senate committee yesterday that if all ethanol subsidies were halted immediately, the price of a bushel of corn would drop 13%, but only have an effect on food prices of a few percentage points.
Meanwhile, a study from the International Food Policy Research Institute found that if ethanol production were capped at 2007 levels, corn prices would fall only 14 percent by 2015. The Chairman of the Council of Economic Advisors said that ethanol production was responsible for two to three percent of the increase in global food prices.
A change in Chinese meat consumption habits since 1995 is diverting eight billion bushels of grain per year to livestock feed and could empty global grain stocks by September 2010, according to a new study from Biofuels Digest, now available for download here in an expanded version.
The Study, “Meat vs Fuel: Grain use in the U.S. and China, 1995-2008” concluded that, even if the U.S. ethanol industry were shut down tomorrow, rising Chinese demand for meat, and the ensuing livestock feed demand, will empty global grain stocks as soon as 2013. The report offers gloomy news for policymakers who have hoped to address global food vs. fuel concerns by restraining U.S. ethanol demand.
“It’s not food, it’s not fuel, it’s China,” said Jim Lane, editor of Biofuels Digest and author of the report.
In Washington, the chief economist at the Department of Agriculture said that ethanol subsidies have had an “important impact” on corn prices, saying that retail food prices increased by 4 percent in 2007 and will increase by 4 to 23.,5 percent in 2008. Joseph Glauber added that ethanol had little to do with increasing wheat and rice prices, attributing those rises to Chinese demand, and Australian and Canadian crop failures.
The US Labor Department reported that food prices rose at an annual 4.4. percent rate in March, but gasoline and other energy costs have rises 17 percent in the past year.
Researchers from Texas A&M University have concluded that eliminating the Renewable Fuel Standard “does not result in significantly lower corn prices,” and that “The underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100 per barrel oil.”
The report said that, in addition, speculative investment in the commodities futures markets were leading to price volatility, and “the loss of the ability to use futures markets for price risk management due to the inability to finance margin requirements.” Commenting on the report, National Corn Growers Association president Ron Litterer said “The Texas A&M study dispels the food vs. fuel debate. This study shows there are many forces creating increases in food costs and ethanol is not a major factor.”
In Florida, Neptune Industry will use a “floating sock” algae system, based in a rock quarry to produce algae for biodiesel. The facility will also use fish waste to accelerate the algae growing process. The Florida City site is funded by a Florida Farm to Fuel grant, and utilizes carbon dioxide tanks to provide CO2 to the algae, and uses its “floating sock” system to rotate the algae to provide CO2, sunlight and nutrients to the entire system. Neptune’s owners projected yields of as much as 10,000 gallons per acre from their process.
The process shows potential for avoiding the algae “shade wall” which has frustrated efforts to bring algae fuel production to commercial viability. The shade wall refers to algae’s tendency to bloom so rapidly in large scale deployments that it blocks its own sunlight.
Algae-based research and development continues to pick up in pace, even though the US Defense Department is estimating that the current production cost of algae oil exceeds $20 per gallon. Recent developments include:
Researchers at the Argonne National Laboratory have updated the GREET model for estimating emissions benefits from conversion to biofuels. The newest update will allow scientists to model combustion of ethanol produced from Brazilian sugarcane and used by U.S. automobiles; production and use of bio-butanol as a potential transportation fuel; and production and use of biodiesel and renewable diesel via hydrogenation, coal/biomass co-feeding for Fischer-Tropsch diesel production and various corn ethanol plant types with different process fuels. Free download of GREET is available here.
GREET can simulate more than 100 fuel production pathways and more than 80 vehicle/fuel systems, and has more than 4,000 registered users worldwide.
In February, researchers Michael Wang, at the Argonne National Laboratory, and Zia Haq, at the Department of Energy, offered a detailed response to the Science magazine article authored by a team led by Timothy Searchinger.
Wang’s analysis shows a reduction in greenhouse gas emissions from corn ethanol, compared to the Science magazine results. In the response, the authors indicate that Searchinger’s team made errors in updating the 1999 GREET model developed at Argonne by a team led by Wang.
According to Wang and Haq, Searchinger modeled a case where corn ethanol production reached 30 billion gallons, compared to the 15 billion cap envisioned in the Energy Security and Independence Act; did not increase corn yields; underestimated the protein content of distiller’s grains by 23 percent, incorrectly assumed a 62 percent in corn exports for 2007, omitted a 400 percent increase in distiller’s grain exports, assumed constant deforestation rates in the Amazon and other areas despite downward trends, and did not account for an increase in corn ethanol production efficiency.
Wang and Haq warned policymakers that indirect land-use modeling was in its infancy and not to be misguided by accepting results as definitive at this stage of model evolution.
In a further clarification on the Science magazine controversy, an author of one of the two articles published recently in Science magazine, David Tilman, gave an interview to the Minnesota Daily regarding the study. “The goal of our paper was to point out if we do certain things, that those things would give us fuels that didn’t have very much environmental benefit,” he said. Tilman added that the paper didn’t say the problems were occurring in the present, but that they could occur in the future.
In Minnesota, Governor Tim Pawlenty has received and is expected to sign legislation that will increase the biodiesel mandate in the state from B2 to B20 by 2015. The bill passed 64-0 in the State Senate and 123-2 in the state House.
Minnesota has an E-20 mandate that will take effect in 2013. Currently Minnesota has an E10 mandate in place, and was the first state (in 2005) to establish an E10 standard. Implementation of the E20 mandate is contingent on obtaining federal approval to use E20 blends.
Most recently in biofuels, the Minnesota Department of Commerce’s Office of Energy Security awarded $150,000 to Chippewa Valley Ethanol for an evaluation of the plant’s process for producing energy from corn cobs. The plant utilizes the cobs to provide heat fro the plant, in lieu of natural gas.
Meanwhile, the state government is preparing plans for ending subsidies to ethanol plants in the state. The last payments, under a state plan designed to incentivize ethanol production in the state, are scheduled for 2010, and only six plants are still receiving per-gallon incentive payments.
In Malaysia, Mission Biofuels will commence production at its Kuantun plant to fulfill European orders. Mission recently announced that it would cease producing biodiesel at-risk and would produce as a jobber to specific orders. The 28 Mgy palm oil biodiesel plant will commence deliveries in June. Mission has contracted to produce more than 200 million gallons of biodiesel through 2013 to European traders.
The company will establish a second plant to meet those needs, and will utilize jatropha oil from 2009 in its production. Mission expects to contract for jatropha from 2.5 million acres of production land by 2010.
Earlier this month, Mission Biofuels said that it would only produce biodiesel in the near future on a “jobber” basis, citing the high price of feedstocks. The company said that it was in the process of converting from palm-oil based biodiesel production to jatropha, and added that it expected to produce 1.1 million gallons of biodiesel this month, while increasing production of glycerine.
In India, Mission Biofuels signed an exclusive jatropha oil acquisition deal. Under the agreement, a cooperative group in an undisclosed district will provide jatropha from 37,500 acres on an exclusive basis to Mission Biofuels.
The company will provide nurseries, technical expertise and a local processing center., The district will plant additional jatropha acreage over the multi-year exclusive partnership.
Mission has been in the news of late seeking alternative sources, and also for a biofuels contract with an unnamed major oil producer that failed to close. Jatropha production has been ramping up strongly in India, and the deal by Mission is with an entire district of production. In September, Mission Biofuels signed a three-year deal for exclusive rights to jatropha oil produced from 12,500 acres in India.
In other Mission news, HSBC recently provided funding for a $59 million Mission Biofuels biodiesel project in Malaysia that will include two plants in Malaysia. The company said $9.55 million would be used to complete the first plant, and $27 million would be used to build the second plant. The company did not offer details on the usage of the remaining $23 million. The first biodiesel plant, in Kuantan, Pahang, Malaysia, will produce up to 18 Mgy per year of palm-oil biodiesel which will be exported to Germany under a five-year contract.
The company has indicated that it intends to convert from palm oil to jatropha oil.
In Canada, Iogen said that would suspend development in the state of Idaho and build its 23 Mgy cellulosic ethanol plant in Saskatchewan, after the Canadian officials put together a $500 million incentive package for ethanol projects, although it was not disclosed how much would be steered to Iogen. The US Department of Energy had offered $80 million in loan guarantees for the $350 million project. Iogen is backed by Shell, Petro Canada and Goldman Sachs.
Iogen execs said that they hoped to launch the 23 Mgy plant north of Saskatoon by 2011, using wheat straw and other cellulose as feedstock.
In California, BlueFire Ethanol has reached the final permitting stages for its ethanol plant in Lancaster that will use garden, wood waste and unrecyclable paper as feedstocks. The 3 Mgy plant will be joined in the Bluefire lineup by a 19 Mgy plant in Corona that received a $40 million grant from the Department of Energy and will be operational in 2010. The Lancaster plant will consume 175 tons of waste biomass per day.
BlueFire Ethanol Fuels had hoped to break ground in April but has faced delays in obtaining air permits before commencing construction. BlueFire closed its $15 million financing round last month to provide working capital and project funds for its 17 Mgy cellulosic ethanol project in Southern California.
In the financing agreement, the Quercus environmental trust acquired $15 million in common stock and warrants, while Aurarian Capital Partners and Aurarian Capital converted their senior convertible notes into common stock.
Bluefire holds the exclusive North American license to employ the Arkenol Process Technology, a patented system that transforms cellulosic waste into usable ethanol.
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