U.S. coalition to fight American biofuel subsidies

Oil companies, meat and dairy groups and nutrition advocates are likely to form a coalition to oppose higher renewable-fuel mandates and tax breaks for alternative energy in the farm bill, said Charles Stenholm, a lobbyist and former House Agriculture Committee member.

Stenholm said the coalition would support research, particularly on cellulosic ethanol, but in other aspects of alternative energy urge Congress to "be careful about the way the government subsidizes it" and "let the market be the determinant as much as is humanly possible."

If indeed the market were to be allowed to work in a genuine and truly global way, the developing world would get a major boost, because it can produce biofuels much more competitively than U.S. farmers. In this sense, we hope the American anti-subsidy coalition succeeds in its mission (as far as tax breaks are concerned). A recent report by the Global Subsidies Initiative showed that uncompetitive and energy inefficient biofuels ("lobby fuels") made in the U.S. receive billions in subsidies via hundreds of schemes, without which they would never survive (earlier post). The subsidies have created a market for ethanol and biodiesel in the U.S. - mission accomplished. But it is now time to abandon them and allow more efficient and competitive producers in.

U.S. agricultural subsidies have a global effect, and were the cause of the collapse of the World Trade Organisation's Doha Round, last year. Trade specialists however see the development of a global biofuels industry as an opportunity to revive the talks and close a deal on Doha. If biofuels create a viable global market for farmers, then the need for subsidies would disappear and the dispute could be partly resolved (earlier post).

But things will not be that easy. There are signs that the U.S. administration will pump even more billions worth of subsidies into the sector.

Stenholm, who is a senior government affairs adviser at a large law firm, said he has been hired by the American Petroleum Institute to protect its interests in the renewable-energy debate and that his clients also include the International Dairy Foods Association, the National Pork Producers Council and the Livestock Marketing Association:
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Oil companies have long argued that government intervention favorable to renewable fuels is unfair. Stenholm said meat and dairy groups are concerned that increased use of corn for ethanol is leading to higher feed prices while nutrition advocates are concerned that food prices may rise, making it harder for poor people to afford food. As a veteran of farm bill debates in Congress, Stenholm said, "Until you get the nutrition community behind your overall (bill), you can't pass it."

Agriculture Department Chief Economist Keith Collins said at a Farm Bureau session Sunday that the use of ethanol has so far not increased food costs because producers and processors have made their decisions based on past years' supply and demand, but that the demand for corn for ethanol could increase food costs in future years.

Stenholm said he believes the basic commodity programs that subsidize crops such as wheat and cotton will be reauthorized. The high prices for corn, soybeans and wheat, Stenholm said, means the Congressional Budget Office will project that subsidies for those commodities won't be high.

He said Congress does need to deal with a World Trade Organization ruling that a farm bill provision banning the planting of fruits and vegetables on land that receives subsidies means that that a direct payment program that the United States has classified as non-trade distorting is trade-distorting.

But he added, "I'd be surprised there's any real opposition (in the commodity title) that can't be compromised into a winning position. ...You know the ingenuity of the agriculture committee."

Stenholm represented the 17th District of Texas until the Republican-controlled Legislature reconfigured the boundaries of the district. He lost a race for re-election in 2004.