Subsidies Worth Billions at Stake in Battle Over Biofuel Rules

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U.S. Rep. Collin Peterson thinks corn-based biofuels deserve stronger support from the federal government, and he’s threatening to impound the House climate bill until they get it.

That’s a polite way to put it. A more abrasive rendition would just quote Peterson:

"You’re going to kill off the biofuels industry before it even gets started. You are in bed with the oil industry," he told administration officials on May 6, a day after the EPA proposed new rules for the national Renewable Fuels Standard, rules that don’t bode well for corn ethanol.

"I want this message sent back down the street: I will not support any climate change bill. I don’t trust anybody anymore."

The Minnesota Democrat has somewhat softened his language since then, but the threat remains. From May 19:

“What it comes down to is, if they want the [climate] bill passed, I think they better deal with us.”

Peterson, who wields some power as chairman of the House Agriculture Committee, wants Congress to modify provisions of the 2007 Energy Independence and Security Act, the law behind the Renewable Fuels Standard.

The 2007 law requires the EPA to measure biofuels’ lifecycle emissions, including emissions linked to indirect land use changes, such as the clearing of Brazilian forests to grow food to make up for the loss of U.S. cropland now used for biofuels.

Most advanced and cellulosic biofuels, such as those made from switchgrass and agriculture waste, would have no trouble meeting the proposed standards for lifecycle emissions. However, certain methods of corn-based ethanol production likely won’t make the cut once indirect land use changes are taken into account under the EPA’s newly proposed rules. Those proposed rules were published in the Federal Register yesterday, starting a 60-day comment period. The EPA plans a public hearing June 9.

To protect corn ethanol, Peterson wants to make sure that indirect land use changes aren’t factored into biofuels’ carbon footprint.

He has gathered 46 co-sponsors on a bill to modify the 2007 law, and he can muster a like-minded brigade of mostly farm-state House members to help him block the climate bill if his concerns aren’t addressed.

Here’s the odd part about all of this: Existing corn-based ethanol and soy-based diesel operations are already grandfathered in under the terms of the 2007 energy law.

Peterson’s worried that future modifications could interact with EPA regulations finding bio-fuel production to be a net-emitter (for what it’s worth, the EPA is leagues behind the research on this), and make bio-fuels economically unviable.

His real fear is that Congress could eviscerate the subsidy programs that funnel funds to bio-fuel production, currently dominated by corn ethanol.

This could cost farm states some hefty sums of money.

How much? That’s what Doug Koplow, a researcher specializing in subsidies of all sorts, attempts to quantify in a recent bulletin laying out the rough costs of the largest tax credits and subsidies for biofuels from now until 2030. Koplow notes two key areas:

First is the Renewable Fuels Standard, which calls for increasing the amount of biofuels in the conventional fuel supply. By 2022, the RFS will demand 36 billion barrels of biofuels to be blended—15 billion of them coming from corn-based ethanol (well over the 9 billion gallons of corn ethanol produced in the U.S. last year).
The Obama administration has suggested upping the biofuel total to 60 billion gallons by 2030.

Second are the tax credits: the Volumetric Ethanol Excise Tax Credit, paying 4.5 cents per gallon of corn ethanol blend, and similar programs for bio-diesel worth $1 per gallon, and another credit for cellulosic ethanol worth $1.01 per gallon.

“In their current form, these tax credits scale linearly with production, without limit. As a result, their cost quickly becomes astonishing,” Koplow writes.

“The $9.5 billion of subsidies in 2008 increases six-fold to $60 billion by 2022, due both to more production and to a shift to more heavily subsidized cellulosic fuels. In total, between 2008 and 2022, taxpayers will have paid out over $400 billion to the biofuels industry. Were Obama proposals for 60 billion gallons per year to be realized, subsidies would top $120 billion per year by the end of the period, for a cumulative subsidy during the 2008-30 period of more than $1 trillion.”

That’s a lot of money for agricultural states, and for corn ethanol producers, who will reap nearly 40 percent of that government largesse.

But that doesn’t mean such sums are going to Jeffersonian yeoman farmers. The bounty has increasingly been diverted to mammoth corporate entities.

As researcher Annie Shattuck writes in a Food First! report, in just the last two years, the actually farmers’ share of corn ethanol production has fallen from 34 percent of the total production to 16 percent. Meanwhile, the nation’s four largest ethanol producers control 33 percent of the country’s total capacity.

So to recap, we’re paying large meta-national corporations to produce ethanol that does nothing to stymie anthropogenic climate change, and almost certainly contributes to it. Meanwhile, that warming will eventually harm the country’s corn production. And farm-state congress-people are threatening to erect a legislative barricade to the passage of an already watered down climate bill simply because the EPA’s scientific findings may at some indeterminate future date cut off subsidies to some of the wealthiest agribusiness operations in the country.

What’s going on here?


See also:

California Puts Fuel on World’s First Low-Carbon Diet

New U.S. Rules Look at Biofuels’ Global Impact

Ethanol: By the Way, You’ll Need Water

Corn’s Troubled Future Under Climate Change