The Presidential Biofuels Directive: One year later, where are we?
US President Barack Obama and Secretary of Agricuture Tom Vilsack
In Washington, the USDA wrapped up its anniversary meeting on clean energy with Agriculture Secretary Vilsack noting that the default rate on its rural development business loans, at one percent, indicates that the Department needs “to be willing to take a chance” and commence funding larger, riskier projects that can address the long-term economic decline in rural communities.
The Big Meeting (White House)
The invite-only meeting, which attracted more than 100 attendees, was structured around two panels, one focused primarily on policy and led by USDA Chief Economist Joe Glauber and featuring biofuels consortium head Jose Olivares (Los Alamos) among other speakers; and one focused on energy for rural economic development and led by USDA Under Secretary for Rural Development Dallas Tonsager, and including Neil Hamilton of Drake University and Dennis Becker of the University of Minnesota. The focus on biofuels was in sharp contrast to the 2010 USDA Agricultural Outlook conference, in which organizers requested speakers to specifically avoid discussion of biofuels as “done before, and too divisive”.
The conference, which was generally described as “not much new” by attendees polled by the Digest (although not all agreed on this point). Delegates who spoke to the Digest also noted “the lack of a real sense of urgency” in Washington over clean energy development, though there was agreement that the meeting “came to life” when John May of the Stern & Brothers investment bank and Krieg Devault partner John Kirkwood outlined a bond-oriented approach to renewable energy financing, which elicited one of the “few sustained bursts of applause”, and prompted a positive reaction from USDA Under Secretary Dallas Tonsager.
The Digest will have a full report on the new approach to biofuels financing tomorrow in “Benjamins for Biofuels Redux”.
The Big Backgrounder (Digest)
Here’s the Digest’s recap from February of changes in US biofuels policy, including links to working papers.
The Big Absentee (Obama)
Note to watch: the White House meeting did not manage to attract a visit from President Obama, working just a few feet away, despite the fact that Secretary Vilsack joined the meeting, reportedly, from a session with the President. Representing the White House with brief opening remarks was Nancy Sutley, Chair of the White House Council on Environmental Quality. Sutley quickly turned the chair over to Secretary Vilsack, who according to all reports was not only “running the show”, but engaged in post-seminar sideline discussions with panelists and delegates. Curious and curiouser: According to reports, DOE did not play a role in the meeting, although the Department may have well have been active behind the scenes in planning.
The Big Leak (oil)
The conference closed as TIME magazine and other media outlets focused on on the “Big Spill” (well, really, the Big Leak) oil disaster in the Gulf of Mexico. “The next step is to put in place truly comprehensive energy and climate legislation, laws that could slap a price of some sort on fossil fuels while channeling serious funds toward clean-energy research and deployment,” opined TIME green living writer Bryan Walsh. “Whether in the form of a tax, cap-and-trade or some other mechanism, pricing carbon has long been a nonstarter in Washington, but that needs to change. And if you think the U.S. is already investing real money in green tech, think again. It spends a little more than $18 billion on research and investment in clean energy, while China spends more than $34 billion.
“Right now, for example, there’s a tiny 8 cents-a-barrel tax on oil companies that goes into a cleanup reserve. What if that tax could be raised significantly, with the stipulation that it go toward clean-energy research and development? A tax of $2 per barrel on all the oil produced and imported into the U.S. could provide around $15 billion a year of independent funding for alternative power and environmental causes. “Environmentalists might be willing to take that risk [on new offshore drilling] if it can become a viable source of alternative revenue,” says Matthew Kotchen, an environmental economist at Yale University. “It’s what you do with that money that matters.”
The Big Harvest (corn)
While the Big Spill dominated headlines, the USDA released its first estimate of the size of this year’s corn crop today, and projecting an all-time record 13.4 billion bushels of corn, with a 1.5 percent yield increase to 163.5 bushels per acre and year-end surpluses of 1.8 billion bushels, despite a decrease in corn acreage and corn ethanol usage at 4.6 billion bushels. Growth Energy CEO Tom Buis hailed the estimates as proof that the US can provide food, feed, and fuel at affordable prices with its corn production.
The Big Picture (biofuels)
In the short term, expect a step-up in pressure on some formula for EPA to approve either E12 or E15 ethanol, with all groups shying away from proposals which would implement any sort of impractical scheme whereby E15 would be approved for late-model cars and E12 or E10 adhered to for older cars. The rationale for the move: with a big corn harvest, curtailing demand for ethanol in any way will cause corn prices to freefall, setting the US economy back just as the fragile recovery takes hold and as the Euro is bombing out, and the dollar is climbing over EU deficit woes – that will make US corn exports more expensive.
In the mid-term (2010-2012), expect the USDA to become highly creative in structuring the financing of advanced biofuels, while attempting to graft new approaches onto existing programs and authorizations so that creativity does not lead to an extended, delaying public comment period that would be required by new regulations on existing authorized loan guarantee programs.
In the long-term (2012+), expect that the debate over expanded drilling will shift from whether drilling should take place to the costs imposed on oil exploration companies, and the capture of those funds for clean energy development and commercialization. The temptation of a new tax on “risk-area” production will provide opportunities for deficit hawks, clean energy advocates that will provide the votes on the hill if the farmbelt legislators see some added focus on rural economic development.
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