Blogging Ethanol & Biodiesel

President Bush to veto farm bill?

Criticizing Congress's "massive, bloated farm bill" that would support millionaire non-farmers, President Bush's comments from the Rose Garden Tuesday indicate that he will veto the package if changes aren't made.

Looking to offset the increased spending that would doom the bill, congressional negotiators on April 25 reduced the volumetric ethanol tax credit for a second time in the talks. Incentives for biodiesel and renewable diesel were removed entirely. Negotiations on the now-$280 billion bill are ongoing, with discussions focused on finding ways to compensate for the proposed $10 billion increase to the farm direct payments program.

A major breakthrough occurred late last week when senior lawmakers agreed on a $1.7 billion package of tax breaks, and ways to finance the overall package. The 51¢/gal tax credit for corn-based ethanol would drop to 45¢, which would save over $1 billion alone. But another $500 million would be netted out by a new $1.01/gal cellulosic tax credit, assuming of course, that any gets made.

Jatropha is not biodiesel's magic bean

        Soy and palm oil prices being what they are, the most urgent question on the minds of most attendees at the National Biodiesel Board's annual convention in Orlando is alternative feedstocks.
        How does jatropha curcas measure up? In several conference sessions, the plant, which is now being cultivated for biodiesel purposes in parts of South Asia and Australia seemed to be a favorite target for debunking. A member of the Sustainable Biodiesel Alliance stood up to cast aspersions on jatropha at the pre-conference session on Saturday for being a "threat" to the environment because of the stubborn shrub's weed-like invasiveness.
        And yesterday, Rahul Kale from biodiesel consultancy kemOleo, said jatropha's poor yield simply wasn't worth the bother.
        "It costs roughly 10 times more to harvest jatropha than crude palm oil," Kale said.
        The National Biodiesel Board told Ethanol & Biodiesel News yesterday that it is putting together a proposal draft request for funding to the U.S. Department of Agriculture, seeking help in researching new feedstocks.
        "Soybeans got us to the dance," said NBB's Larry Schafer, "but we're going to need something else, whether it be jatropha, microalgae, or camolina to keep this business growing."
        Schafer said the proposal should be ready to be submitted later this year.

U.S. import tariff on ethanol safe for now

        Speculation last week that the Bush Administration would be ending the tariff the U.S. levies on foreign imports of ethanol were shown to be unfounded Monday as the budget sent to Congress contained no such change.
        Some media outlets' overblown interpretation of comments made by Energy Secretary Bodman at a U.S. Chamber of Commerce luncheon last week had already prompted swift outcry from ethanol's formidable protectionist regime.
        Sen. Chuck Grassley (R-Iowa), the ranking minority member of the Senate Finance Committee, voice his opposition on the rumored move, while Sen. Ben Nelson said the 54 cent per gallon tariff on ethanol would be eliminated over the Nebraskan Democrat's “dead body.”

        But, according to the budget proposal sent Monday, the Administration will simply in the 2009 budget year hold discussions with lawmakers regarding the tariff, which is set to expire at the end of this coming December.
        The tariff, designed to protect U.S. corn-based ethanol makers from Brazilian imports, may not be in any imminent danger and yet, Bush's support for the ethanol industry may nonetheless be beginning to wane.
        In the nearly 5,800 words of the President's State of the Union address last week, Bush, who in the 2005, 2006, and 2007 addresses given prominent lip service to ethanol, did not even mention support for the industry, nor the multibillion-dollar Farm Bill measure now pending in Congress.

Not all biofuels made energy bill's 'nice' list

Tom Gilbert for The New York Times

        The energy bill received applause from not just corn but from backers of many advanced biofuel technologies that stand to gain from the increase in the RFS to 36 billion gallons a year by 2022.
         That is not to say that all biofuel interests were politically convincing. Among the most vocal of the disenfranchised has been Syntroleum, the Tulsa, Okla.-based company which is using a chemical process to make synthetic liquid fuel from sources including natural gas and animal fat.
        As recently explained by Richard Bond, CEO of Tyson Foods, which is working with Syntroleum to bring the product to market: "Part of the beauty of those plants is you could take very low-cost, cheap feedstocks, grease that no one else can use, and convert those not only into diesel, but into very high-end jet fuel."
        Lawmakers yanked a provision that would have extended the 50¢/gal  federal tax credit that makes viable the whole project, which is also backed by ConocoPhillips.
        ConocoPhillips officials last week warned that change could shelve the project, including plans for a 75 million gallon plant at which by-product fat leftover from Tyson food operations would be converted into biodiesel.
        House Democrats has hoped to pay for their tax incentives largely by rolling back tax breaks for oil and gas companies that were enacted in 2005, but that didn't sit well with many in the Senate, not to mention the White House.

Ethanol called 'materially oversupplied' for now

           In spite of the mandated market demand increase for VeraSun Energy’s (NYSE:VSE) output, the Brookings, S.D., ethanol producer has been downgraded to 'market perform' by Friedman Billings Ramsey.
        The Arlington, Va.-based investment bank thinks the legislated intervention, undoubtedly welcomed by the industry, may take a while to overcome the current level of mandated demand.
        "VSE has risen nearly 45% over just the past three weeks, and while it remains our favorite name in the space, with the stock trading only about 10% below our $17/share DCF-based price target, we feel compelled to take a more neutral stance," wrote FBR's Kevin Book last week.
        "The recent passage of a new national renewable fuels standard is certainly bullish for this ethanol producer,” the investment banker added. “However, we continue to expect the market to be materially oversupplied next year, resulting in downward pressure on producer margins over the coming quarters."

Senate legislation has two-tiered effect on ethanol stocks

        Equity shares of ethanol producers were mixed Monday after rising 9.7% on anticipation of the energy bill's passage in the U.S. Congress Thursday. As investors took profits and digested the impact of the Senate passage of the energy bill, which mandates a doubling of corn-based ethanol to 15 billion gallons by 2022.
        Large, diversified agribusinesses such as The Andersons and Archer Daniels Midland Co. closed at or near annual highs, benefiting from the fact that they are positioned to take advantage of last week's farm bill as well, which preserves existing subsidy programs for grain and cotton farms.
        "Pure" ethanol producers, however, sank Monday, Aventine Renewable Energy shares fell 38¢, or 3.3%, while VeraSun Energy and US BioEnergy, which announced plans to merge last month, declined around 1% each.
        In addition to not being affected by the subsidy aspects of the farm bill, smaller ethanol-only producers, while benefiting from the increased Renewable Fuels Standard, may not be in as strong a position as the majors to take advantage of the farm bill's cellulosic incentives.

Cloture vote on energy bill fails in Senate

        Senate Republicans summoned up support from just barely enough of Democrats to block the energy bill in its present form this morning.
        Congressional sources said that the last remaining vestige of ire from the already stripped-down bill was the proposed $21 billion in new taxes - mostly on the oil industry - introduced by Senate Finance Chairman Max Baucus (D-Mont.) and House Ways and Means Chairman Charles Rangel (D-N.Y.).
        Rolling back the tax legislation enacted in 2005 would amount to a “massive tax increase” for Americans, said Minority Leader Senator Mitch McConnell of Kentucky.
        Majority Leader Harry Reid of Nevada is already heard to be moving to excise parts of the proposed tax title in hopes of quickly restarting a path to passage.
        The bill is already significantly pared down from the House version, after the Renewable Portfolio Standard (RPS) – a proposal requiring utilities get 15% of their power from renewable sources by 2020 – was taken out.
        Meanwhile, Senate Agricultural Committee Chairman Tom Harkin plans to attach the 36 billion gallon by 2022 Renewable Fuels Standard to the farm bill, which will move to the Senate floor for a vote next week.

Unpassable energy bill delayed on way to House floor

        House Speaker Nancy Pelosi (D-Calif.) is working with a singular focus to bring the revived energy bill to the House floor though certain facets of the current version are unlikely to stick.
        It didn't show up today, as had been expected, because Pelosi is hitting resistance in attempting to force into the package measures that would raise taxes on oil companies by around $15 billion during a 10-year period.
        If the bill passes the House, it faces an even greater hurdle in the Senate from its insistence on a Renewable Portfolio Standard - the proposed requirement that electric utilities produce 15% of their power from renewable sources by 2020.
        Sen. Pete Domenici (R-N.M.), for one, is strongly opposed to the measure, and it is not clear whether Majority Leader Harry Reid (D-Nev.) and the Minority Leader Mitch McConnell (R-Ken.) can collect enough votes among moderate Republicans to resist a filibuster if Domenici’s camp decides to mount one.
    President Bush is also opposed and has hinted that he would veto the entire bill if the version that shows up on his desk contains either the tax increase on oil companies or renewable electricity provisions.
        Meanwhile, in the Senate today, Democrats introduced a $21 billion tax package that excludes income of major integrated oil companies derived from the production, refining, processing, transportation, or distribution of oil and natural gas, permanently setting the deduction allowed at its current law level of 6% of qualified production activities.
        The proposal would also eliminate the distinction between foreign oil and gas extraction income and foreign oil related income.

House RFS caps corn ethanol

Image: Superbug via CafePress

House Dems have proposed scaling down the Senate's Renewable Fuels Standard and are heard to be nearing a deal that would require 20.5 billion gallons a year of renewable fuels by 2015. Congressional staff are trying to bring this to the floor next week.
        Interestingly, it seems that even in the renewed momentum of the RFS, critics of corn-based ethanol have been able to stir in a backwash tide. Policymakers in the House are capping the sought-after corn ethanol RFS at just 15 billion gallons of that 20.5 billion, leaving the rest as specific carve-outs for so-called next generation biofuels such as renewable diesel and ethanol fed by cellulosic feedstocks.
        This is an astute turn by House Dems and should keep the RFS portion energy bill from being viewed strictly as a bail-out for the Midwest's ethanol producers.         
        Meanwhile, the CAFE compromise, which would give vehicles such as SUVs lower standards for fuel efficiency, remains viable given Rep. John D. Dingell (D.-Mich.) ever-dutiful push for concessions to help struggling American automakers.
        House Speaker Nancy Pelosi said this week that she hoped to gain passage of an energy bill containing the new mileage rules by the middle of next week.

IMF calls out U.S. biofuels policy

Image courtesy of newconsumer.com

    As each week goes by, it seems the criticism against biofuels subsidies gets louder. On the heels of an International Monetary Fund (IMF) report calling for the United States and the European Union to cease biofuels tariffs and incentives, the Geneva-based Global Subsidies Initiative also advised that biofuels subsidies should be eliminated and that mandates should not be established.

    In a new report, "Biofuels – At What Cost? Government support for ethanol and biodiesel in the United States: 2007 Update," the Global Studies Initiative, which is a program of the International Institute for Sustainable Development, found that U.S. policy is too focused on existing agricultural and energy arrangements, such as subsidies. Instead, the focus should be on trying to find overarching ways to reduce the country's energy consumption.

    The Initiative recommended that U.S. lawmakers should: 

• Introduce a mechanism to reduce biofuels manufacturers' subsidies during periods when oil prices are high;
• Consider the environmental impact, as well as the biomass cycles, of any subsidies program;
• Create competition within the transportation sector to encourage alternatives to liquid- fueled vehicles; and
• Establish an evaluation process that assesses the cost effectiveness of policies made at all levels of government.

    "U.S. lawmakers...should ensure that any new measures put in place can be dismantled rather than 'set in stone.' And they should ascertain whether support for biofuels is actually undermining the outcomes they seek to achieve," the report said.