Colorado Corn

By Chris Clayton
DTN Staff Reporter

WASHINGTON (DTN) -- With oil reaching the $100-a-barrel threshold, Democratic senators Thursday spotlighted some of the energy provisions of the farm bill that Senate Agriculture Committee Chairman Tom Harkin said would cause cellulosic plants to "mushroom" across the country.

With a backdrop declaring "Feeding and Fueling the World," Democratic senators emphasized the energy aspects of the farm bill as debate continues to stall over procedural matters. Energy has become a key component in the farm bill.

Harkin, D-Iowa, further emphasized the energy aspects of the farm bill by naming it "The Food and Energy Security Act of 2007." The farm-bill debate in the Senate is expected to go through at least the end of next week. The Senate and House would then conference to work out differences in the farm bill. President Bush's advisers have recommended he veto either version of the farm bill at this point. Given the energy demands on the country and the need to produce more renewable energy, Harkin said he thought it was "unconscionable" that the president would consider a veto. Criticisms about energy provisions are minimal, which was reflected Thursday when the Republican staff for the Senate Budget Committee held a press briefing to raise questions about several measures in the farm bill. The minority staff did not cast stones at the bill regarding energy expenses and energy tax cuts.

The bill's cellulosic provisions will try to deal with incentives for producers to grow biomass crops while spurring investment in plants. That's a struggle right now largely because producers don't want to grow without a market, and investors don't want to waste capital if there isn't enough biomass for plants.

"We have to confront a classic chicken-and-egg dilemma," Harkin said.

Ethanol production topped 6 billion gallons this year, Harkin said, though it was actually closer to 7 billion gallons. He said the provisions in the farm bill, if implemented, could reach much higher levels than 6 billion gallons.

"The new farm bill will put us on a path to produce 10 times that," Harkin said.

Sen. Amy Klobuchar, D-Minn., said the bill also has incentives for E-85 pumps and infrastructure. Oil companies have continued to discourage E-85 pumps, but that has to come to an end, she said.

"As we look at $100 a barrel for oil, I don't think we can afford to do that," Klobuchar said.

The Senate farm bill and accompanying tax package combine for $2.5 billion in spending and tax incentives for energy. The House Agriculture Committee spends roughly $100 million more, though the House leans more heavily on spending costs without the tax breaks. The Senate uses a mix of spending provisions and then also includes tax provisions, some of which are also built into the Senate's energy bill.

Right now, it's unclear what amendments would be offered directly related to energy provisions. Sen. Kit Bond, R-Mo., said on the Senate floor Thursday afternoon that he would offer an amendment that would allow farmers to grow cellulosic feedstock on Conservation Reserve Program land and receive a reduced CRP payment in the process.

One difference in the House and Senate bills is that the House would require biorefineries using federal money from the farm bill to comply with the federal labor-wage law known as the Davis-Bacon Act. The provision irks conservatives who claim the act artificially inflates wages. Harkin said that would likely be worked out once the House and Senate go to conference.

The House bill provides $2 billion in loan guaranties for biorefineries with half the money going for loans of less than $100 million and the other half going to loans of up to $250 million.

The Senate bill provides $994 million to spark cellulosic ethanol, including $227 million to spark biomass crop production through incentive payments for production, harvesting, transportation and storage. There also is $345 million to help cellulosic facilities buy feedstocks.

The House and Senate have parallel language regarding the $422 million that would go for business research and development projects to help achieve commercial biorefineries, or cellulosic production facilities.

Another $270 million in the Senate bill would go to the Rural Energy for America Program, which has grants and loans for renewable and energy-efficiency programs. At least 15 percent of this money would have to go to programs to convert animal waste into energy.

The House also has $500 million over five years for grants to develop rural and renewable energy programs. The Rural Energy for America Program would see loan levels increase to up to $25 million.

Under the tax provisions, the 51-cent-per-gallon blenders credit would also be dropped to 46 cents a gallon on years following the U.S. reaching the 7.5-billion-gallon renewable fuels standard. That proposal is projected to generate $854 million, which would be shifted to help pay for other tax credits in ethanol and biofuels.

A new credit would pay cellulosic ethanol plant producers a new 67-cent-per-gallon credit for every gallon of ethanol produced up to 60 million gallons per year. That would cost about $282 million over five years.

With all of the credits, a 60-million-gallon cellulosic ethanol plant would be able to generate $1.23 in tax credits for every gallon with the 67-cent credit, the 46-cent blenders credit and the 10-cent credit as a small ethanol producer, though the blenders credit goes to the gasoline refiner who actually blends the fuel.

The package also creates the "small fossil-free alcohol producer credit." This credit would provide a 25-cent-per-gallon credit for up to 60 million gallons of production for a fossil-free facility. These facilities must use at least 90 percent of the fuel from a "biomass." That could directly boost plants that use livestock manure for methane.

To further spark cellulosic ethanol plant development, the bill would create accelerated tax depreciation for biomass ethanol plants. Those plant producers would be able to write off up to 50 percent of equipment costs on their first year of tax returns for plants using biomass matter such as sugar cane, corn stalks or switchgrass. The proposal has further tax-depreciation provisions for cellulosic plants.

The proposal also would extend the 50-cent biodiesel mixture credit, which is $1 per gallon for agri-biodiesel plants such as soydiesel. The 10-cent small producer credit for agri-biodiesel plants up to 60 million gallons would also be extended to 2012 as well.

Chris Clayton can be reached at Chris [dot] Clayton [at] dtn [dot] com.