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Ethanol Industry Leaders Call for Elimination of Indirect Land Use Change

posted on May 29, 2009

Hello, I'm Mark Pearson. Thanks to a revision of previous data, it now appears the U.S. economy fared better in the 1st quarter of 2009 than originally reported.

The Commerce Department's updated reading on gross domestic product, the broadest measure of economic activity, contracted at a 5.7 percent annual rate from January to March… a slight improvement over the 6.1 percent annualized decline reported last month.

Gains were readily apparent in the manufacturing sector this week as well, where a separate report confirmed orders for durable goods rose nearly 2 percent in April, marking their largest gain in 16 months.

Meanwhile, the National Association of Realtors reported April sales of existing homes grew nearly 3 percent from March to an annual rate of 4.7 million units. The gain marked the second increase in the past three months as foreclosure auctions and cheaper prices spurred bargain hunters, pushing the median home price down 15 percent from the previous year, reflecting the second-biggest decline on record.

And the Conference Board announced its Consumer Confidence Index rose unexpectedly to its highest level since September buttressing sentiment that the worst of the recession is over.

One sector that's endured a bit of a confidence problem over the past year is the ethanol industry. The trend continued this week, as farm state lawmakers lamented the potential impact of changes in Renewable Fuels Standards.

Ethanol Industry Leaders Call for Elimination of Indirect Land Use Change

Internationally praised when it was introduced, President Obama's Renewable Fuels Standard 2, or R-F-S 2 came under fire late last week. Containing the first-ever federal carbon emission standards, the measure distressed House Agriculture Committee Chairman Collin Peterson.

Chairman Collin Peterson, D-Minnesota: "I feel very strongly that right now we don't have the right policy to be sure that we can produce a cost effective domestic supply of clean renewable fuel."

The ranking Republican, Oklahoma Congressman Frank Lucas, agreed.

Frank Lucas, R-Oklahoma: "...we must make sure our energy policies are not held hostage by those who are not friends of production agriculture. We must focus on incentives, innovation and research to address environmental issues not mandates."

Among its many regulations, RFS-2 requires biofuels like ethanol to comply with the landmark standard using a theory known as Indirect Land Use Change, or I-L-U-C. Developed by Tim Searchinger of Princeton University, I-L-U-C theorizes that when land previously used to grow food is switched to raising crops for renewable fuels farmers in other parts of the world will plant virgin ground to make-up the difference. Claiming the theory is flawed, representatives of the ethanol industry pointed to the period between 2004 and 2007 when ethanol output increased by a factor of three and the rate of deforestation in the Amazon was cut in half.

Tom Buis, CEO, Growth Energy: "How can we possibly hold our American farmers responsible for farming practices in sovereign foreign countries. I think the more you look at it the harder it's going to be. A lot of factors affect land use changes in other countries."

The witnesses testified the theories used to create the carbon standards in RFS 2 are not based on universally accepted science, economic modeling, or "real world" measurements.

Bob Dineen, CEO, Renewable Fuels Association: "This is a debate largely about the future. It is about being able to demonstrate that the technologies that are going to be employed will indeed achieve the greenhouse gas benefits that we believe that they will. And if all those benefits are undermined because of this unrealistic, unsubstantiated penalty of international land use then the finance community is not going to be able to support those projects and the evolution of the industry will stop."

Dinneen was joined by those testifying that RFS-2 unfairly singles out ethanol for scrutiny ignoring other fuels like gasoline.

Bob Dineen, CEO, Renewable Fuels Association " absolutely have to apply that same standard to other alternatives and to petroleum that we are being compared against, otherwise, you're creating a situation where you have an unlevel playing field. The fact of the matter is that petroleum has more indirect consequences than biofuels or any other alternative and yet it is getting a free pass."

House Agriculture Committee Chairman Peterson wants a larger say in pending climate change legislation that emerged from the House Energy Committee late last week. Before debate can take place on the House floor, the measure must go through a half-dozen other committees including the House Agriculture Committee. According to the New York Times, Peterson is expected to tack-on verbiage blocking the use of Indirect Land Use Change theory. After weeks of difficult negotiations, it is unclear how much flexibility the authors of the measure will give Peterson on a bill they want to arrive on the floor relatively untouched.


Tags: agriculture biofuels ethanol industry news renewable fuels