Washington Insider- Wednesday

Iowa Election Results and Ethanol

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

House Ag Panel to Budget Panel: Look Elsewhere for More Savings

Between reforms from the 2014 Farm Bill, sequestration reductions that agriculture programs have experienced and the downturn in U.S. farm income, the House Ag Committee is urging that “areas constituting the other 98% of the Federal budget ought to be looked to first for any additional savings being sought this Congress.”

In their budget, views and estimates letter to the House Budget Committee, the Agriculture Committee noted the following in support of their push for reductions to come from other spending areas:

Congressional Budget Office (CBO) and other spending estimates: “When comparing the CBO baseline used during the farm bill with CBO’s January 2016 baseline update, we estimate that anticipated taxpayer savings have increased. These savings are in addition to the almost $5 billion that agricultural policies have been sequestered since fiscal year 2013, accounting for a disproportionate 30% of the non-defense, non-Medicare mandatory sequester in fiscal year 2016.” Plus, the panel also pointed out, “Had the 2014 reforms not been enacted and the 2008 Farm Bill remained in effect, the Food and Agricultural Policy Research Institute (FAPRI) estimates that farm policy spending would be $17.7 billion higher than it is today.”

Deficit picture would look different if all spending areas produced savings/taken reductions that ag has: “While additional, responsible savings might be achieved by our Committee in the future depending upon the outcome of an examination of the policies within our jurisdiction, truly meaningful deficit reduction will necessarily depend on contributions from beyond the jurisdiction of the Committee on Agriculture, where more than 98% of Federal spending resides. In fact, if the rest of the federal budget was reduced by the same percentage as the Commodity Title as estimated at passage of the 2014 Farm Bill, the entire federal budget would balance within the next 10 years with the surplus paying down debt held by the public by almost 50%.”

Farm income has plummeted: The combination of price declines for several crops and types of livestock is producing “an estimated 55% decline in net farm income from 2013 to 2015, the largest 2-year percent decline since the farm crisis of the 1920s. Yet, despite this economic turbulence in rural America, CBO’s January baseline projects that the Commodity Title of the farm bill is still slated to save taxpayer money relative to the repealed Direct Payment Program over the next 10 years.”

Crop insurance spending also is down: “Recent calls for cuts to crop insurance are especially ill-timed and unwise given falling crop insurance costs and Washington’s requirement on farmers to rely more upon risk management tools that they must help pay for under crop insurance. Despite the importance of crop insurance, the 2008 Farm Bill reduced crop insurance by an estimated $6.8 billion at the time; the renegotiation of the Standard Reinsurance Agreement further reduced the CBO baseline for crop insurance by more than $6 billion; and a recent re-rating of crop insurance led to even further reductions in crop insurance spending.”

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EIA: Renewable Generation Projected to Grow This Year

Utility-scale renewable power generation is expected to grow by 9% in 2016 and should account for 14% of total electricity generation in the US for the year, according to the Energy Information Administration (EIA).

Most of the expected growth in renewable electricity generation will come from new wind and solar plants, as well as increases in hydroelectric generation after a relatively dry 2015. Electricity from utility-scale renewable sources is projected to account for 14% of all U.S. electricity generation for 2016, with wind and solar expected to account for 5.2% and 0.8%, respectively.

The renewal of several federal tax credits aimed at promoting renewable energy is not expected to factor strongly in the growth expected for renewable energy growth in 2016, as much of the capacity expected to come online was already planned years in advance.

Electricity generation from other renewable sources is expected to increase modestly for 2016. While biomass-derived electricity is expected to remain flat for the year, geothermal electricity generation is expected to grow 4%. The wetter El Nino weather pattern is expected to contribute to robust hydroelectric generation, after years of drought had constrained it.

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Washington Insider: Iowa Election Results and Ethanol

Well, the Iowa Caucus results are in, sort of, although there is heated disagreement over exactly what their implications will be. One thing is clear—there was more discussion about renewable fuels policy in recent days than there has been for some time.

Throughout the campaign, Texas Senator Ted Cruz took a very unusual approach to Iowa’s economics. He argued loudly against the Renewable Fuels Standard that requires national blends of fuel ethanol made from corn and called that policy a Washington-driven, anti-free market scam that makes people rich. About 47% of Iowa’s corn goes for ethanol, the Daily Caller said on Tuesday.

The Cruz approach was derided as heresy by many across the State who note its dependence on corn. And, it led to anti-Cruz push-back from Iowa’s popular Republican governor and to strong pressure from a local ethanol lobby group. In the past, even strong anti-government advocates have pledged support for ethanol.

However, that seems to have ended Monday night. Cruz won the Republican caucuses with 28% of the vote, defeating both Trump, who received 24% and Florida Sen. Marco Rubio who got 23%.

These results were a considerable shock to many observers. “I think a clear message coming out of Iowa is that whatever political influence ethanol used to have in the state, those days are now over,” George David Banks, executive vice president of the anti-ethanol mandate group the American Council for Capital Formation, said in a statement on the caucus results.

The ethanol issue was prominent throughout the campaign. Trump had charged that Sen. Cruz would destroy the ethanol business “within a year, six months, it’s gonna be gone,” he warned. And, Trump did win three of Iowa’s five top corn counties, the Caller said but Cruz won Iowa’s ethanol-dependent 4th district with not only the top corn-producing counties but also the most ethanol jobs in the state, it said. Ethanol supports more than 24,000 jobs in this district, Fuels America noted.

So, the question now is what this means. The Daily Caller suggests Hawkeye State voters are less beholden to the ethanol lobby than they were in previous years. However, press reports also pointed out that the argument Cruz used was complex. He argued and apparently convinced a significant number of voters that by stopping the ethanol program he would also remove EPA’s “blend wall,” which he said “has kept the amount of ethanol that can be blended into gasoline below 10%.” The blend wall is “keeping ethanol from expanding its markets,” as it has done overseas, Cruz said.

Cruz also says he wants to do away with subsidies on all energy sources, leveling the playing field and allowing the market to dictate conditions and prices.

While it will take some time and effort to determine what really drove the Iowa results, it likely was a far broader set of concerns than simply ethanol, as shown by results in the heavy ethanol producing counties. And, poll numbers by The Des Moines Register and Bloomberg Politics showed that some 43% of those surveyed had said they were bothered by Cruz’s position on the RFS, suggesting that that could still have meant something of headwind for him.

At the same time, there seems to be evidence that the issue of federal dependence was important, too. “Ending the subsidy is very important to me,” one Iowan told the Caller, ahead of the vote. “It makes everyone dependent on Washington,” he said.

While interpreting the Iowa results, policy observers often point to the long history of failed opposition to renewable fuels policies. And, ClearView Energy Partners LLC commented on Tuesday, “Despite Cruz’s opposition to the Renewable Fuels Standard, we continue to give low odds to statutory reform this year.” Still, it is important to note that U.S. renewable fuels policies have many more enemies than they once did and change now seems at least somewhat more likely than it once was, Washington Insider believes.


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(GH/CZ)