Washington Insider - Thursday

Vilsack on the Jawbone Trail

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

Next Congressional Recess to Begin Early

With not much going on in the world and most of the country's problems well in hand, both the House and Senate are making plans to adjourn perhaps as early as this evening and not return to the Capitol until mid-November.

Both chambers originally planned to be out of town next week, before returning to Washington for the last two days of September and first two of October. Now, House Republican leaders say they are on track to complete action on the must-pass measure to fund the government and then have votes on jobs and energy packages before sending lawmakers back to their districts tomorrow so they can resume their reelection campaigns.

House members have no plans to return for the post-election, or lame-duck, session until Nov. 12, lawmakers said. On the other side of the Capitol, Senate Majority Whip Dick Durbin's office indicated that its lame duck session also would begin Nov. 12, with the first three days of the session devoted to the orientation of new senators and leadership elections for the 114th Congress.

A spokesman for Senate Majority Leader Harry Reid, D-Nev., told the press "We could be out of here Thursday" if work on the continuing resolution is finished by that time. That scenario looks increasingly likely. (Also see item below.)

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Skids Appear Greased for Quick Senate Consideration of Continuing Resolution

To allow lawmakers to leave Washington as soon as possible, House and Senate leaders have been working feverishly in anticipation of quickly approving a must-pass government funding measure. Leaders of both parties say they strongly back the continuing resolution (CR) to fund the government through mid-December.

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The House yesterday approved the CR and sent it to the Senate, where action on the measure is expected later today.

Included in the CR is a provision that gives President Obama the authority he requested to use existing funds to combat the Islamic State (ISIS). However, the ISIS authorizing legislation sunsets with the expiration of the CR in December or the passage of a stand-alone defense authorization bill, whichever comes first. So the administration likely will be back before Congress with another Iraq-Syria funding request just before Christmas.

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Washington Insider: Vilsack on the Jawbone Trail

Agriculture Secretary Tom Vilsack is known for his sometimes opaque pronouncements and his even more opaque motives, but may be breaking new ground even for him. He baffled some observers earlier this week when he said he is "reasonably sure" the Environmental Protection Agency will increase the renewable fuel blending mandate for 2014 when its final rule emerges later this year.

That sounds pretty positive, right? However, there's more. He also told biofuel producers that they need to be "exploring opportunities in foreign markets and developing new co-products in order to grow the industry." Pursuing these new markets will help drive production and consumption of renewable fuels, Vilsack told a conference hosted by Growth Energy, a trade organization representing ethanol producers and supporters.

To be fair, the state of play on the Renewable Fuels Standard is complicated. EPA sent the long overdue 2014 final rule to Office of Management and Budget for interagency review Aug. 22 — a proposal it had made in November 2013 which would reduce the blending requirement for petroleum refiners and importers to 15.21 billion gallons of renewable fuels. That is less than the 18.15 billion gallons that would be required by the Energy Independence and Security Act. The reduction is seen as an effort by EPA to bring the standard in line with the 10 percent ethanol "blend wall." There likely will be an increase only relative to the original proposal — and, most observers expect that.

Tom Buis, chief executive officer of Growth Energy, said the EPA decision to propose a reduction from the annual blending requirement in the Act "puts the oil industry in the driver's seat in the future of biofuels not just ethanol." No rosy scenario there.

Vilsack agreed that renewable fuels producers are up against the oil industry, which is a "big industry, tough industry, powerful industry, lots of tentacles." So, Vilsack's overall statement of confidence had little effect. In fact, a number of press reports went immediately to the bottom line — that Vilsack is merely attempting to buck up the ethanol folks ahead of the administration's decision to move the mandate to a blend level the market can legally support.

Vilsack also attempted the Scarlett O'Hara defense of not being "overly" focused on the Standard just now. He said that sends a "negative message" to the effect of, 'My God, if this doesn't get fixed, we're done.' "We don't want to be saying, 'We're done,' because we're not," Vilsack said. "You're just getting started, so you can't let one decision, I don't care what it is, you can't let it slow the process down." He mentioned the possibilities of greater exports, more government use and other potential markets.

The fact is, the ethanol industry is facing a number of problems these days as the era of rapid demand growth fades into the rear-view mirror. Overall growth in gasoline use has been diminished by better auto efficiency and there has been widespread pushback against blends above 10 percent that are seen as damaging to some engines. This has been making efforts by advocates to lock in Standards above the 10 percent "wall" seem increasingly futile. In fact, the once-united efforts across agriculture to support escalating renewable fuel standards are not nearly as solid as they formerly were, especially since the recent livestock feed cost run-up.

So, Secretary Vilsack has a really tough sell as he tries to calm ethanol producers who came to town to attempt to push the administration to pull back the unfavorable decision on the standard believed to be working its way through the process. Vilsack probably has known for some time that the new standard, when it appears, will be bad news for the industry given its current orientation, and that outlining a path for growth will be difficult indeed. But this is hardly a surprise for anyone who has been following current trends.

Still, it may seem ironic for Vilsack to preach the wonders of trade in ethanol — a term that has all too rarely crossed his lips. Perhaps the export market has new promise for ethanol, as it may for other sectors of agriculture assuming emphasis on policies that favor international competition, Washington Insider believes.


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