Washington Insider-- Monday

New Renewable Fuel Mandates

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

Finance Committee Working Group Optimistic on Tax Simplification

The Senate Finance Committee has established a working group on individual taxes that is preparing to offer several potential changes to the tax code aimed at benefitting individual tax payers, yet don't focus on tax rates.

Sens. Chuck Grassley, R-Iowa, and Debbie Stabenow, D-Mich., who co-chair the working group, recently told reporters that tax simplification appears to have broad support on the committee, among other areas of the tax code that appear close to agreement. Stabenow earlier told the press that other areas of potential agreement are in streamlining education credits and in the benefits for charitable contributions. Grassley said the working group has narrowed its discussion to four tax policy areas to be addressed, although he declined to provide any details.

The working group has decided not to address the contentious issue of tax rates, which remains an area of sharp disagreement between Republicans who want to reduce rates and Democrats who want to preserve them. The top individual rate currently is 39.6 percent.

If there is to be significant reform of the federal tax code, it needs to be concluded this year because Congress will be hard-pressed to take up controversial legislation in the election year of 2016.

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House to Focus on Trade Legislation, 2016 Appropriations This Month

Congress is back in Washington today following its one-week Memorial Day recess, with Republican leaders saying that fiscal 2016 appropriations and Trade Promotion Authority (TPA) are high on their agendas.

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House Majority Leader Kevin McCarthy, R-Calif., last week sent a memo to House Republicans outlining that in addition to spending bills and TPA, the agenda in June also would focus on agricultural legislation, measures targeting the Affordable Care Act and bills addressing Environmental Protection Agency regulations.

McCarthy said that beginning next week he plans to bring up bills that previously were approved by the Agriculture Committee. On the schedule the week of June 9, he said, would be legislation to reauthorize the Commodity Futures Trading Commission and a bill that would repeal country of origin labeling (COOL) for meat.

There don’t appear to be major rifts among Republican House members regarding most of the legislation on McCarthy’s agenda, meaning that early prospects are for a relatively productive month of June for the House.


Washington Insider: New Renewable Fuel Mandates

The news across Midwestern farm country last weekend focused on the Environmental Protection Agency’s long-delayed proposal for biofuel requirements for blending into conventional vehicle fuel. However, Friday’s announcement was a disappointment to almost everybody, with the new required levels much higher than some groups wanted but lower than many farm groups had hoped. EPA clearly is struggling to reduce mandate growth formerly required by law while supporting some increases over the next few years.

The proposal is to become final by the end of November. It would require levels actually produced last year but push up the required volume blended by 1.5 billion gallons, about 9%, by the end of 2016 to 17.4 billion gallons. This represents a level that is quite a bit below the 22.25-billion-gallon mandate Congress set for that year.

The original mandate was unrealistic, according to Janet McCabe, the acting EPA assistant administrator. “These proposed volumes are achievable in the time frames under consideration, McCabe said. She notes that the “proposed volumes steadily increase every year, reflecting Congress’s clear intent to drive up the nation’s use of renewable fuel.”

Still, the announcement pleased few. Analysts note that U.S. energy conditions are much different than they were when Congress began boosting levels of ethanol to be incorporated into vehicle fuel under laws passed in 2005 and 2007. Then, U.S. dependence on foreign oil was high, and so were U.S. fuel prices. Now, gasoline and other energy prices are lower and the market is nearly saturated with corn-based ethanol. In addition, cellulosic biofuel production is far below amounts refiners are required to use.

As a result, many critics are pressing for changes. “Every year since the Renewable Fuel Standard was expanded, EPA has missed implementation deadlines, waived entire portions of annual required volumes and has had to approve imported feedstocks for RFS compliance,” said Republican Sen. James Inhofe, who is chairman of the Senate Environment and Public Works Committee. “All of these actions by EPA give a clear case for a mismanaged program in need of rigorous oversight.”

Even broader criticisms is being directed at EPA efforts to surmount the “blend wall,” the amount of ethanol that would be required to make all gasoline 10% ethanol. Most gasoline now contains that percentage and most vehicles are not designed to handle more. Press reports cite the AAA as noting that few of the country’s vehicles are designed use gasoline containing 15% ethanol. Yet EPA asserts, based on a Department of Energy study, that nearly all vehicles built since 2001 can safely use E15.

Bob Dinneen, chief executive of the Renewable Fuels Association, a trade group, is highly critical of the EPA announcement and argues that it “has eviscerated the program’s ability to incentivize investments.” He wants the mandates to continue to grow at the former pace.

So, it seems that EPA’s intention to avoid inflaming renewable fuels politics just now was hopeless from the start. The renewable fuels industry –– and much of agriculture –– have enjoyed the market boosts from these policies and would like to find a way to make them continue or even expand. However, the realities of U.S. energy economics have changed dramatically, especially as U.S. fossil fuels have become both more competitive in cost and much less dependent on Middle Eastern supplies. In addition, renewables have lost much of the environmentalist support they once had at the same time they have picked up opposition from livestock and dairy producers.

There is still strong support for the mandates from a broad block of rural voters and others in Congress, so any efforts toward even more fundamental shifts likely will be contentious and slow in coming. Perhaps those details will be sharpened in the coming primaries, and even in the general election.

This fight has long been festering, a process likely to continue over the coming months, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

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(GH/CZ)

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