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Laws and Sausages

What Will the Upcoming Farm Bill Deliver As Solutions to Energy Problems?

An old political adage, attributed by some to Bismarck, says that two things you don’t want to see made are laws and sausages. That’s been particularly true this year as the 110th Congress has gone at the energy issues on multiple, often conflicting fronts, and it is notably apt as work on the Farm Bill comes towards closure.

As we have seen, Congress enacted a medium-sized Energy bill at the end of 2007, which was signed by the President. Still pending are a number of tax provisions which had to be stripped out of the Energy bill in order to pass the Senate, and that body is now seeking to revive them by amending the companion Energy tax bill that was sent forward by the House. A Senate Committee reported out the Warner-Lieberman Climate Change bill at the end of 2007, and it is likely that the Senate will take it up in the early weeks of this session. Its prospects are still unclear, as the House has not begun to develop its plan. The White House has been relatively silent on the prospects for this bill, although some Republican strategists are arguing that the President should support it, since all the viable Presidential candidates would favor an even tougher bill next year.

Among the other pieces of legislation moving through the Congress is the massive reauthorization bill for all farm and rural related activities. This bill is typically considered only on a five-year cycle, and carries numerous subjects in a package totaling nearly $300 billion over its lifetime.

Reconciling all of its interests—farm subsidies, nutrition programs, conservation, rural development, and now energy-related issues, is a difficult balancing act at any time, made more difficult in a climate of divided government. The Congress was unable to enact a bill in 2007 and had to provide for a temporary extension through March 15th of the programs in the 2002 measure. Since returning in January, the House and Senate are attempting to move to a formal conference, beginning with a series of general framework offers by the two Committee chairmen. Leadership of the agricultural issues rests with Congressman Collin Peterson (D-Mn) in the House, a fairly conservative rural Democrat, and Senator Tom Harkin (D-IA) in the Senate, a liberal farm-state Senator. Their negotiations, which have included outreach to the White House on the fiscal parameters of a bill, are beginning to move more rapidly. Also, because there typically are tax provisions affecting farm programs, the respective Chairmen of the House Ways and Means and Senate Finance Committees are also involved, while the White House is discouraging any tax elements of the bill for fear that they will open broad tax policy issues.

As a side note in terms of legislative process, this bill is setting new standards of transparency, with both House and Senate making their working papers and positions available on the respective Committee websites.

 Subsidies for Biofuels

Where is the Farm Bill likely to take us in terms of energy issues? Most particularly, what course will it set with respect to biofuels? While recent research findings have questioned the efficacy of biofuels in terms of greenhouse gas reduction, proponents still make the case that broader use of this energy source will provide some relief in our use of petroleum and will therefore help reduce oil dependency as a strategic issue. The Energy Bill enacted in 2007 sets relatively high targets for the production and use of biofuels, calling for at least 36 billion gallons of biofuels as part of our energy mix by 2022. The provisions of the Farm Bill can be seen as the tactical steps to achieve this strategic goal.

As they move towards Conference agreement, the House and Senate are converging on a mix of subsidies and incentives to put reality behind the goal. On the incentive side, there are provisions in both bills to set federal procurement preferences for the purchase and use of bio-based products. Both bills provide for loan guarantees and grants to support the development of production facilities to process biofuels, with somewhere between $300 and $800 million set aside for this purpose. Research and development support in the range of $100 to $200 million a year would be provided for new fuels and products, with some emphasis on moving away from corn-based ethanol towards the cellulosic feedstocks that would involve wood or waste products. Some attention is paid as well to the issue of moving biofuels in the transport system. Their chemical nature and water content will not permit the use of convention pipelines, but the high volume movement on highway or rail facilities presents problems as well.

 incentives to avoid land use change

An interesting new program contained in each of the bills in somewhat different form would encourage farmers with subsidies to produce energy crops, particularly those of cellulosic material, but only where the land had been previously used for other farming, thus avoiding the issue of carbon release from land use conversion.

The tax provisions under consideration, which are now all in the Senate bill, would also contribute to the policy goals. Special depreciation allowances would support investment in plants to produce cellulosic biomass ethanol, a stepped-up tax credit would encourage use of cellulosic product as opposed to current ethanol, and the current ethanol credit of 51 cents per gallon would be reduced to 46 cents once there is substantial production in place. At the same time, the current tariff provisions that discourage ethanol imports would be kept in place—a provision of greater benefit to producers than to consumers. Finally, the current 30 per cent tax credit in support of installing alternative fueling stations would be extended for another year.

Resolution of all these energy issues and enactment of a final bill will, of course, be dependent on Congressional and Administration agreement on the broader issues, such as the level of crop subsidies made available to wealthy farmers. But looking at the progress to date, there seems to be some attention paid to critical points such as the need to move away from corn-based products which have marginal energy benefits at the cost of higher food prices, and to make the investments necessary to develop more environmentally-friendly biofuel sources. We shall see in the next few weeks if the parties can reach the necessary agreements.

- Mortimer Downey, PlanetWatch Editor, http://www.planetwatch.org