By ANN HINCH
Assistant Editor

NAPLES, Fla. — During a recent announcement about federal support for more biomass energy research, USDA Secretary Tom Vilsack also said he also hopes Congress will reinstate the biodiesel production tax credit and renew the Volumetric Ethanol Excise Tax Credit (VEETC) – often called blenders’ credits.

The VEETC was passed in 2004 to provide blenders a refundable tax credit of 51 cents per gallon of ethanol; the 2008 farm bill dropped it to 45 cents. It is set to expire Dec. 31. Vilsack wants Congress to extend it “long enough for this industry to meet the goals that we’ve set for it.”

He said he knows VEETC cannot remain in effect indefinitely, but believes it would be premature to end it now. He referred to the $1 biodiesel credit that expired Dec. 31, 2009, which has not been renewed, saying in the months since, the industry has lost 12,000 jobs.

“It’s obvious there are going to have to be adjustments made in our budget,” he said, his context suggesting the credit amounts might have to be reduced.

“Significant investments” are required for the biofuel industry – including ethanol – he said, because those plant owners are building a new industry from the ground up and still need financial help. Vilsack wants to see incentives included in the 2012 farm bill.
“It’s about making sure the playing field is relatively level,” he said, since biofuel has to be competitive with petroleum at the pumps.

Food for fuel in question

But there are those who say that competition imposes a high price on consumers, including a former World Bank insider and a former Shell Oil executive who spoke at a Global Financial Leadership Conference panel in Naples Oct. 19. It was sponsored by the CME Group (which runs the Chicago Board of Trade); this was broadcast on the Web.

First – the use of corn ethanol is driving up food prices, said Ian Goldin, director of Oxford University’s Oxford Martin School and former vice president of the World Bank.

He referred to various studies to back up his claim, including a World Bank paper that found ethanol is driving up world food prices – but he didn’t say which paper.

In July 2008, World Bank economist Donald Mitchell argued: “The increase in internationally traded food prices from January 2002 to June 2008 was caused by a confluence of factors, but the most important was the large increase in biofuels production from grains and oilseeds in the United States and EU (European Union).
“Without these increases, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate.”

But in July 2010, the World Bank released another paper in which authors John Baffes of the World Bank and Tassos Haniotis of the European Commission wrote in part, “The effect of biofuels on food prices has not been as large as originally thought, but the use of commodities by financial investors may have been partly responsible for the 2007-08 spike.

“Clearly U.S. maize-based ethanol production, and (to a lesser extent) EU biodiesel production) affected the corresponding market balances and land use in both U.S. maize and EU oilseeds. Yet, worldwide, biofuels account for only about 1.5 percent of the area under grains/oilseeds. This raises serious doubts about claims that biofuels account for a big shift in global demand.”

Second is the argument that food-based biofuel takes from the hungry. “It’s insidious to use food for fuel,” said John Hofmeister, also at the Naples conference and former president of Shell Oil Co., founder of Citizens for Affordable Energy and author of Why We Hate the Oil Companies: Straight Talk From an Energy Insider.
“Food is a here-and-now commodity. Food has to be consumed by people who are hungry. Food for fuel is, to me, a non-sequitur … I think this is a rich/poor issue.”

“We need to be clear in our minds, this causes people to die of starvation,” Goldin said of higher food prices. “We’re not talking about ‘The price will adjust and it’ll all be fine.’ For some people, the long run never comes.”

Third, the two  men said subsidies for food biofuel in the U.S. and Europe distort the market. Goldin called these policies “economically illiterate” and said they don’t make sense for anyone who believes in market forces.

He referred to a Rice University/Baker Institute study earlier this year that stated in 2008, the U.S. spent $4 billion in subsidies to replace 2 percent of its petroleum supply with ethanol, or $1.95 per gallon to taxpayers on top of pump price.

Hofmeister said such policies are enacted by politicians looking for popularity in the short-term. He believes, however, biomass such as grasses and algae are good investment opportunities, as well as other non-food crops.

Fourth, both said food biofuel is not as “green” as it is marketed to be. Goldin claimed ethanol has a low effect on carbon emission reductions, and increases emissions in some cases (such as preparing new ground to grow corn). He did say, though, where corn is grown makes a difference. “Some of the corn in the U.S. is leading to carbon reductions; others (aren’t) and you have this huge distortion behind it,” he said.

More variables than biofuel

Also in Naples was Tim Gallagher, executive vice president of grain and biofuels for Bunge North America, which he said has “significant” sugar investments in Brazil and more modest investment in U.S. bioenergy. He claimed grain prices have come down since 2008 because farmers are growing more acres with better seeds that have higher yields.

He said it could be argued that the food price increases of 2008 were on the cost of oil. Further, he said grain costs are affected by more than biofuel: a lower U.S. harvest than expected, tightening global stocks, shortfalls in grains elsewhere (such as the Russian and Ukraine wheat losses), demand from Asia and a weak dollar. Gallagher said ethanol makes distillers dried grains to go back into livestock feed, displacing some corn and soy meal. He said government incentives driving ethanol production are designed to improve the environment and reduce dependence on foreign fuel.
The private sector should be encouraged to sustainably produce biofuel, he said, with incentives. Meanwhile, he believes government should focus on measures for conservation in fuel use and support alternative biofuel production, as well as seed technology research.

“When we talk about food versus fuel, it goes back to 2007, 2008, when it was such a debate,” Gallagher said. “I feel like I’m looking in the rearview mirror.”

Hofmeister said sustainable energy has to be both widely and continuously available to work. He worries about the ideology of “‘clean and green’ versus ‘brown and dirty’” being used to create political agendas, saying to reduce the debate to that is “superficial thinking” and that from somewhere in the middle is where energy should be sourced.

“Beware the reckless Right, they’ll destroy the earth; beware the ludicrous Left, they’ll destroy society,” he quoted from his own book. “It’s kind of that simple of a formula.”