Any discussion of increasing this nation’s ability to produce farm-based alternative, renewable fuels inevitably comes down to money. Whether it’s the sky-high price of corn – the new “fairer” price, as some contend – or feed prices and their impact on producer income, or the tax incentives enjoyed by ethanol and biodiesel blenders, or the increasing cost of meat, poultry, and dairy to the consumer, or the millions of dollars proposed by the administration and a lot of folks on Capitol Hill to research “cellulosic” ethanol, it all comes down to dollars and cents.
And in a Congress that’s schizophrenic about trying to balance the budget – on one side, big bucks for favorite programs, on the other, deep cuts for programs without champions – the battle over biofuels spending and tax incentives will be a corker.
Elsewhere in this issue of Render, the National Renderers Association’s (NRA’s) Tom Cook gives insight into the new zeal on Capitol Hill and in the halls of the Bush administration to talk alternative, renewable farm-based fuels. One can’t help but wonder where everyone was hiding during the last three years as NRA battled to get a fair shake on animal-based biodiesel tax incentives, and the industry’s message of “feedstock neutrality” was lost in the noise surrounding the rush to create the Renewable Fuels Standard and those mystical “volumetric excise tax” amendments.
Today, everyone from farm to fork is a player in the alternative fuels debate. Grain and oilseed farmers, grain elevators, grain processors, renderers, feed companies, livestock and poultry producers, meat packers, food processors, and retailers all have a very vocal stake in how the biofuels game plays out. Oh, and let’s not forget the ethanol and biodiesel refiners, many of whom fit in one of the job descriptions laid out above.
Some pundits predict a collapse in the ethanol juggernaut in the next few years as the frenetic pace of refinery construction puts the industry into serious overcapacity and ethanol prices continue to fall. Others say it isn’t a problem of overcapacity, but a lack of infrastructure to move alternative fuels out of the Midwest to the East and West Coasts. And then there’s the crowd who’s never seen an E85 pump and won’t until the oil company-owned filling stations start installing them.
Solutions or partial fixes abound as you ricochet from one biofuels coalition meeting to another here in Washington, DC. One group sees the quick fix in freeing up tillable acres now captured by the Conservation Reserve Program (CRP), bumping up overall acreage so all that corn can grow somewhere other than on wheat and beans acres. Others want the U.S. Department of Agriculture to set up a task force to get creative in finding more of those acres, while urging Secretary of Agriculture Mike Johanns to use administrative authority to let farmers opt out of the CRP without penalty.
Some say if a producer raises corn or beans for fuel and not food, then he or she shouldn’t get a farm program payment (yeah, like that will happen). And still others – and apparently this group is growing exponentially – see the problem firmly rooted in the myriad tax incentives enacted by Congress over the last few years, the fix being to let those incentives expire, allowing the marketplace to sort things out.
Those tax credits are getting ready to expire over the next four years or so and already there’s talk of extending the 51-cent per gallon ethanol incentive, with its 54-cent per gallon import tariff through 2012, with the really brave folks are calling for permanent tax incentives. The $1 per gallon vegetable/first-use animal fats biodiesel blending credit, along with the 50-cent per gallon yellow grease biodiesel credit, are also up for renewal in a couple of years. And let’s not forget the $1 a gallon for “renewable diesel.”
The National Cattlemen’s Beef Association (NCBA) and the National Pork Producers Council have approved policy calling for an end to ethanol tax incentives and import tariffs when they expire in 2008 and 2010, respectively. They see the incentives as market distorting.
But the chairmen of both the House and Senate Ag Committees have publicly stated the incentives must remain in place, with Senator Tom Harkin (D-IA) saying, “These things have a way of working themselves out,” and more corn acres will stem the price escalation. Representative Collin Peterson (D-MN) says farm programs over the years have kept corn prices artificially low, and maybe today corn purchasers are paying a “fairer” price. Certainly, the lenders who are up to their popcorn in ethanol and biodiesel investments want to see the incentives locked in.
So, how do you control the biofuels subsidies and their drain on the U.S. Treasury while making sure this nascent renewable fuels industry continues to grow? Some want to tie the tax credit to the price of the biofuel. Another idea being floated of late is to tie the tax credits to the price of oil. If oil prices rise, the value of the tax credit adjusts downward, and if oil prices drop, the tax credit value increases.
The most daring proposition out there is to means test the tax credit. The really big biofuels companies, those in the business for a couple of decades and currently building plants both at home and abroad thanks to the generosity of Uncle Sam, would give up the tax credit. Congress can then redirect a portion of the value of the credits to research into alternative feedstocks, incentives for innovation, and tax credits for the small- and medium-size alternative biofuel producer.
If I were a betting man, I’d wager that the alternative fuels tax credits will survive this onslaught of budget-cutting fervor. Anyone who works the Hill knows it’s much tougher to kill a program than it is to enact one, so I don’t see the incentives disappearing any time soon.
There may very likely be a push to standardize the myriad of incentives now on the books, but that sounds so much like really hard work, I’m not holding my breath.
The flicker of light at the end of the tunnel is the prideful glow of big ethanol and biodiesel talking about how all government largesse needs to be “fuel and feedstock neutral.” Where have I heard that before?
View from Washington - April 2007 Render