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DAVID KRUSE

By Staff | Jun 5, 2009

Whenever the issue of climate change legislation was brought up, it was always suggested that it would benefit agriculture and that farmers would make money from it.

They would reduce tillage to sequester carbon and get a check in the mail. I don’t know if such a plan would ever be realized, but it certainly appears that whatever provision is there to pay farmers, other provisions in the proposed legislation would cost farmers far more.

As proposed, climate change legislation would be devastating to the biofuel’s industry, which, in turn, would significantly weaken corn/soybean prices. Sequestering carbon by reducing tillage doesn’t pay well enough to make that up.

The Obama Administration and House Energy Committee dealt blows to biofuel industries. The Obama Administration’s new U.S. fuel economy standards have unintended consequences for ethanol. When they are trying to raise the fleet average to 35 mpg, using fuel that produces less mileage per gallon, as is the case for ethanol, they are undermining the effort, giving automakers an incentive to avoid it.

Flexfuel cars using 85 percent ethanol get lower mileage than gasoline. Ethanol typically costs less than gasoline and has other benefits that make up for poor mileage that needs to be accommodated for in the fuel economy standards.

I would not think that it would be difficult to score ethanol differently to arrive at an acceptable mileage equivalent. But even the simplest things are difficult in Washington, D.C. Every road block put in front of ethanol is manned and defended by ethanol opponents looking for such opportunities to hamstring the biofuels industries.

They have been given a lot of help by the Obama administration and EPA.

Ethanol is higher octane than gasoline and E-20 and E-30 blends have gotten good mileage. Engine modification could utilize the higher octane in ethanol, but these new technologies have to move from development to adoption before they can solve the problem.

EPA needs to quickly raise the blending cap from E-10 to E-15. I filled up with E-20 recently at a local blending pump, but most ethanol is limited to 10 percent. We can’t reach the 15 billion gallon ethanol mandate unless the cap is raised.

Even more concerning was Nancy Pelosi’s inclusion of an indirect land use provision in climate change legislation. Ethanol scores well as an environmental fuel unless it gets blamed for deforestation in Brazil.

They cut the trees down in the Amazon for the lumber. Then they typically graze cattle on the land. Eventually they may plant soybeans. That last decision may be based on the price of soybeans, but the first two uses were based on the price of lumber and the price of cattle.

How does corn grown in the U.S. fit into this? It’s a remote connection, but one adopted by both California and the EPA even though it’s still under “further study.”

The theory goes that increased demand for corn results in expanded corn acreage in the U.S. reducing U.S. soybean production and increasing soybean prices so that more land in Brazil is cleared and planted to soybeans. Land that has been cleared and grazed is often the first new land transitioned to soybeans.

Brazil has been restricting deforestation.

The vast majority of “new” soybean acres in Brazil have not been developed anywhere near the Amazon or rainforest, but converted from Cerrado in West Central Brazil. Cerrado is grassland and savannah, not rain forest. The corn-based U.S. ethanol industry is mandated to 15 billion gallon. The indirect land use effect of growing corn for 15 billion gallons of ethanol, minus the distiller’s grain byproduct, which many analysts have left out when computing their connection to deforestation in Brazil, is so negligible to be ludicrous.

Yet there it is included by California in its greenhouse gas scoring of ethanol and included in the bill that passed the House energy committee. Agriculture’s political forces are being marshaled to defend biofuel, but it appears it will be a big fight. The Obama Administration has one foot on the gas promoting the biofuel industry and the other on the brake, pushing down hard to stop it.

It doesn’t make any sense from an administration that is supposed to be smart enough to properly operate the vehicle or from an administration that contends to want to reduce reliance on foreign oil.

Including indirect land use provisions in greenhouse gas scoring gives agriculture the incentive to oppose climate change legislation.

House ag committee Chairman Collin Petersen is on top of the issue for agriculture, but is not on top of the politics yet. Until President Obama can publicly voice his support for biodiesel and corn-based ethanol again, we’re not on the road heading in the direction that we need to be.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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