Verenium chairman says $320 million loan guarantee program in new US Farm Law not enough support for cellulosic ethanol

Verenium Chairman Carlos Riva said that the new Farm Law did not provide sufficient loan guarantee support for the needs of the cellulosic ethanol industry, although he praised the new Law as a good start. Riva said that the $320 million earmarked in loan guarantees represented just over the cost of two cellulosic ethanol plants, which have an approximate price tag of $150 million each. Riva said that, although another $150 million may be added to the fund, the US needed to do more to support the development of the 21 billion gallon capacity of the cellulosic ethanol industry by 2022.

Farm Law background

The Farm Bill was enacted into law when the US Senate and the US House of Representatives voted to override President Bush’s veto. The $289 billion bill includes more than $200 billion for food stamps and nutrition programs over the next five years, an increase of $10 billion to recognize the higher cost of food. The Senate is expected to vote today, and is also expected to override. If the Senate votes to override the veto, the bill will become law on Senate passage.

The bill contains a historic two-tiered ethanol incentive, with corn ethanol subsidies dropping to $0.45 per gallon and a new $1.01 subsidy introduced for cellulosic fuels. A last minute amendment had changed the language of the higher subsidy from “cellulosic ethanol” to “cellulosic fuels”, which otherwise would have exempted companies such as LS9 and Gevo.

The Farm Bill had not been vetoed since 1956, and originally observers did not think that an election-year veto was possible, since the top ten states in farm subsidies control half the electoral votes for the presidential campaign. The White House budget director said that the bill “doesn’t have hardly enough reform.”

A controversial feature has been the cap on farmer income in order to receive subsidy payments. The new bill forbids subsidies to farmers with more than $750,000 in income, or $1.5 million for a married couple.

EWG has published a list of the leading subsidy recipients, who received as much as $900,000 in subsidy payments in 2006.

In Iowa, Senator John McCain said that, as drafted. he would veto the Farm Bill because of excessive subsidies, which he called unnecessary. McCain added, “I do not believe we should have tariffs against imported products, but I want to promise you as president of the United States of America I will recognize one fundamental fact, and that is the farmer in the state of Iowa and the United States of America is the most productive, the most efficient and the best, and I will open every market in the world to your products and I will sell them.”

The Farm Bill contains a reduced 45 cents per gallon ethanol subsidy and a $1.01 per gallon subsidy for cellulosic ethanol. Tax credits for biodiesel were removed from the bill, and the tariff on Brazilian ethanol is extended through 2010.

The bill contains $900 million for biofuels development, $900 million for nutrition programs aimed to offset higher food prices, while land stewardship programs would received an additional $4 billion, and specialized crops $1.35 billion.

In the recently enacted Farm Bill, a provision calls for the US Government to purchase overstocks of sugar — caused by the opening of the US sugar market under the NAFTA agreement. Observers say that the government is likely, but not required, to sell the excess sugar to ethanol producers. The most plausible scenario is that the Commodity Credit Corporation will buy sugar juice or syrup made from cane or sugarbeet, and sell it to be mixed with corn as feedstock for conventional corn ethanol plants.

At a World Trade Organization meeting aimed at reviewing new proposals for the Doha Round of trade talks, New Zealand’s WTO ambassador Crawford Falconer reported that a number of countries had expressed unhappiness over the new US Farm Bill, just passed last week over President George Bush’s veto.

Under WTO rules, the US would have to amend the Farm Bill to bring it into compliance with the Doha Round trade agreement, if WTO negotiators can produce a breakthrough for the stalled trade talks. Agricultural protection by rich nations is the stumbling block to progress on a new world trade agreement.

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