Washington Insider-- Thursday

By DTN's Washington Insider

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

Hatch to Start Over on Tax Extenders Next Year

Before the Senate adjourned for the rest of the year, it approved the so-called "tax extenders" bill, legislation that revives a package of tax credits that had expired in 2013. However, the bill extends those credits only through the end of 2014, meaning Congress will be required to go through a similar exercise in 2015.

Sen. Orrin Hatch, R-Utah, who is set to become chairman of the tax-writing Senate Finance Committee when the new Congress convenes, says he plans to take up and pass legislation that would authorize selected tax credits for longer than one year. Just which ones and for how long will depend in large measure on the preferences the new GOP majority in the Senate next year.

For his part, outgoing Finance Committee Chairman Ron Wyden, D-Ore., has said some panel members would have preferred a two-year deal in which some provisions — such as the research and development credit and expensing — were made permanent. That did not happen with the extenders legislation, a failure that could provide added momentum for more tax reform actions beginning in in early 2015.

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U.S. West Coast Port Problems Continue

The union representing 20,000 dockworkers remains at loggerheads with a group of employers at 29 U.S. West Coast ports in contract talks seen by the shipping industry as a factor in chronic cargo backups. The talks between the International Longshore and Warehouse Union and the Pacific Maritime Association, representing terminal operators and shipping lines at the ports, opened in May and the two sides agreed to continue negotiations after their old contract expired June 30.

Management sees an eventual settlement as key to easing severe cargo delays that began in mid-October at several container ports that account for nearly half of U.S. maritime trade and over 70% of the imports from Asia. The congestion has been most pronounced at Los Angeles and Long Beach, the nation's two busiest shipping hubs, which together handle 43% of all container cargo entering the United States.

The union so far has opposed federal mediation because it says the two sides are still making headway. How long the talks will continue before mediation may be required is an open question at this point.

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Washington Insider: New Market for Water Quality

Yesterday, we wrote about the Commonwealth of Virginia and its decision to join a federal program to allow farmers to participate in "market-based nutrient trading" in hopes of improving water quality in the Chesapeake Bay.

State and federal officials along with Virginia's Department of Environmental Quality joined in introducing a "demand and supply market" for land conservation projects. These are intended to support the agency's storm water program to reduce phosphorus runoff from industrial projects such as road construction.

Under the proposal, farmers could earn credits for "nutrient reductions beyond their on-farm obligations." These would be purchased by local governments and developers to reduce their nutrient reduction obligations. The program is expected to establish a rigorous certification and inspection program for the agricultural credits, which would be sold through brokers. These would require "perpetual" runoff control benefits that would be cheaper, and possibly more effective than construction and upkeep of conventional storm water management structures.

However, the program description about just what the proposed projects would include remains extremely vague. The mandatory Chesapeake Bay restoration program requires major reductions in pollution from all sectors, including agriculture, industry and municipal sources. Virginia officials apparently see this proposal as a way to reduce some of those costs of industrial controls by including changes in farming practices, including the possible shift of some lower quality land to non-ag uses.

Don Parrish, the American Farm Bureau Federation's regulatory affairs chief, told the group at the proposal rollout that AFBF was skeptical that many farmers would take land out of production, and that the definition of specific targets and projects would be key.

Still, advocates of the trading scheme claim that it will "encourage economic investment while reducing phosphorus pollution."

The program is complex. For example, credits generated by Virginia farmers in the Potomac River and James River watersheds would be earned by changes in farming practices that "permanently reduce the amount of phosphorus flowing into those rivers and, ultimately, the Chesapeake Bay." They then could sell credits for those practices that are certified by the state as "nutrient credit banks." These sales would generate new, direct revenue streams for participating farmers.

State and local officials suggest that this approach would cost Virginia significantly less than direct expenditures and upkeep for more traditional industrial pollution control practices. In addition, there was talk of these projects advancing other goals such as wildlife habitat, stream buffers and land preservation. The federal Environmental Protection Agency and USDA say they are working together to implement and coordinate policies and programs and will release a web-based water quality trading roadmap tool in early 2015.

As part of a joint memorandum of understanding to support trading and environmental markets, the two agencies are centralizing information for buyers and sellers to utilize water quality trading and the agencies say they will sponsor a national conference in 2015 for stakeholders to share experiences and move forward with trading as a valuable tool for driving environmental improvement, they say.

The new scheme goes well beyond crop agriculture — which apparently would still have its own pollution reduction goals to achieve even if producers undertake projects to reduce industrial pollution. This raises the question of how extensive the ag projects would need to be to meet those goals.

Clearly, definition of a trading scheme with such vague goals and objectives would seem to involve extensive bureaucratic intervention in terms of defining and certifying acceptable programs, overseeing the nutrient bank transactions and insuring that all these are transparent enough to attract private participation with meaningful returns for producers. This would include the reality of the needs of the private firms and municipalities who are to buy the credits, as well as the follow through on the part of the producers who sell them.

Still, the agencies involved in the design and operation of such programs have high hopes for their success and certainly would be helpful for conservation efforts if they do succeed. The Virginia program test should be watched carefully as it proceeds, Washington Insider believes.

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(GH/CZ)

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