Washington Insider-- Friday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Cornyn Proposes Novel Solution for Highway Infrastructure Funding

Congressional Republicans are said to be considering allowing crude oil exports and increasing energy production on federal lands as a way to raise funding for surface transportation programs. Senate Majority Whip John Cornyn, R-Texas, said the idea of allowing crude oil exports, which are currently prohibited by law, to provide additional revenue to raise money for the Highway Trust Fund "has some potential."

Lifting the export ban, which was put in place in 1975 following the Arab oil embargo, would raise an estimated $1.3 billion in government revenue, according to ConocoPhillips.

Other ideas being considered to pay for the fund, which expires at the end of May, include expanding domestic energy production on federal land and using the increased revenue for transportation.

Eleven weeks may seem like a long time for Congress to act on this reauthorization bill. But with hundreds of billions of dollars figuring into the equation over the next six years or so, and no agreed upon source of those funds, don't expect a resolution until nearly the last moment in May.

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Mexico Likely to Retaliate if U.S. Border is Closed to Its Trucks

The U.S. Department of Transportation earlier this month decided to open the country's southern border to eligible Mexican trucking firms, an action the North American Free Trade Agreement required the United States to have undertaken 20 years ago. The International Brotherhood of Teamsters brought a lawsuit seeking to keep the border closed.

In response, Mexico says it plans to begin consideration of retaliatory steps it can take against imports of U.S. goods and services. It is too early to tell whether Mexico will feel it needs to talk retaliatory steps against the United States or the amount of retaliation it might seek. However, when the Obama administration started and then cancelled a similar trucking program in 2009, Mexico imposed $2.4 billion annually in retaliatory tariffs on U.S. agricultural and manufacturing goods.

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Washington Insider: Renewable Fuels Policies Take Another Hit

U.S. energy policies, especially those supporting renewable fuels, have long been opposed by the petroleum industry and others, especially earlier when renewables received major subsidies. Still, the 2005 energy law was supported broadly by both parties and was readily expanded in 2007. It required refineries to blend increasingly large amounts of biofuels into gasoline and envisioned 36 billion gallons of renewable fuels by 2022. To limit harmful effects on the food supply, no more than 15 billion gallons of that total could come from corn.

The additional 21 billion gallons was supposed to come from advanced biofuels, but that technology has been slow to develop. The advanced fuel industry produced 1.9 billion gallons in 2014, with 1.7 billion gallons coming from biodiesel and 180 million gallons from other alternative fuels — only a fraction of the more than 3.7 billion gallons the 2007 law had initially required for the year.

Still, advocates argued that the policy was successful as biofuel use grew. It was credited with helping reduce carbon emissions and weaning the nation off foreign oil at a time when the United States was importing two-thirds of its oil. Today, though, given the new competitiveness of domestic oil and higher fuel-economy cars, the country is consuming less gasoline and importing less petroleum than the 2005 and 2007 laws envisioned.

When the policy was crafted, it was solidly supported across agriculture, even by many groups that did not produce fuel feedstock. Then, especially during the 2012 drought, competition for grains pushed feed costs to stratospheric highs. The livestock and dairy sectors began to reconsider — and some demanded that the blending standards be relaxed, at least temporarily. Now, there are growing calls for "reforms" of the policy itself.

Earlier this week, a renewable industry group surprised many by beginning to push for a revamp of the alternative-fuels mandates. The proposal ignited a new battle within an industry already struggling with tough economic metrics and regulatory uncertainty. Low gasoline prices are also making alternative fuels less cost-competitive.

The Advanced Biofuels Association, a Washington-based trade group representing about 30 companies which are developing biofuels from non-corn products, announced a campaign to revamp Renewable-Fuel-Standard policies.

"The Renewable Fuel Standard — the very tool that was created to foster our industry — has become one of the greatest obstacles to continued development of the advanced and cellulosic biofuel industry, due to inconsistent and poor implementation," Michael McAdams, the group's president, told a conference in Washington. In an earlier interview, McAdams said Environmental Protection Agency delays in updating alternative-fuels rules and lower oil prices are making it harder for companies to raise funding capital from banks.

The plan drew bitter criticism from others in the biofuels sector who said they questioned motives of the group and charged that "all they are doing now is throwing more uncertainty into the process by calling for legislative action when legislation isn't needed," said Bob Dinneen, president and CEO of the Renewable Fuels Association, which represents all parts of the ethanol business, including largely corn ethanol. "Adding more uncertainty into the process hurts the development of next-generation biofuels."

Press reports indicate that the legislative changes McAdams wants are relatively minor, and mainly involve removing what he calls a "loophole" that allows refineries to get a waiver from purchasing advanced biofuels. He also wants more certainty that the legal blending mandates will continue.

The biofuels industry has been united in opposing legislative changes to the mandates, fearing opponents who would love to end the requirements entirely. This includes oil refineries who say that they cannot comply with any increased blending requirements and auto makers who worry more biofuels in gasoline could damage engines.

It is fair to say, however, that a large share of industry uncertainty is coming from the government itself. EPA enforces the blending standard and is obligated to establish new blending requirements each year. The agency now is almost 12 months behind with requirements for 2014 and already six months late for 2015 requirements, although the Wall Street Journal says this is partly because "refineries have resisted fuel-blending requirements higher than the current 10 percent level." It says "the agency is planning to issue the levels for 2014-2016 in the spring."

Overall, the unwillingness of EPA to publish recent-year targets underscores charges that the policy is not working well, and may no longer be workable over the longer term — a development emphasized by the new competitiveness of U.S. domestic fuel production.

Now, the emergence of a new division within the renewable fuels producers themselves indicates internal tensions that increase the possibility of moving that debate into the relatively near future, Washington Insider believes.

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(GH/CZ)

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