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Fueling a New Farm Economy

Creating Incentives for Biofuels in Agriculture and Trade Policy

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Watch Jake Caldwell discuss the 2007 Farm Bill  (YouTube)

Complex problems require detailed solutions underpinned by a clear vision of the future. When each of those problems individually seems almost intractable, the need for an overarching view of the desired outcome becomes all the more important. Without a doubt that is the case today when policymakers confront global warming, global poverty, energy security, and global free trade.

All four issues boast numerous problems and challenges. Yet consider a vision of the world where renewable energy extracted sustainably from crops and agricultural wastes across the planet fuels a new farm economy that simultaneously produces food and fuel amid economically robust and environmentally sound rural landscapes. This new way of thinking about agriculture and rural communities worldwide offers a way past our world’s unsustainable reliance on fossil fuels and our inability to build a global trading community that enriches farmers worldwide. Once embraced, this new vision offers humanity a viable approach to help reverse the dire effects of climate change.

These are bold visions. The tools needed to craft this new rural economy, however, are within the grasp of the new 110th Congress, which this year must reauthorize our nation’s farm legislation. At the same time, the latest round of World Trade Organization negotiations remains on the brink of final collapse due to seemingly insurmountable disputes over farm subsidies and tariffs. Congress this year has the chance to hurdle past these obstacles by enacting agricultural policies that create a clean and prosperous countryside in the United States and around the world.

This paper will detail exactly how Congress can work toward this new vision. Specific policy recommendations are presented in each section of the report so that members of Congress can grasp what needs to be enacted in separate legislative vehicles. In short, this paper is a policymaking roadmap toward that larger vision of growing the world’s energy and moving forward constructively on global trade.

The first section, beginning on page 7, presents the current state of play in the U.S. biofuels marketplace and then offers detailed legislative proposals to further boost the burgeoning alternative fuels industry. The purpose: Rapidly and deliberately develop the next generation of advanced cellosic biofuels by:

  • Targeting “green payments” to farmers for performing environmental services on their working lands, including growing dedicated energy crops, while decreasing our reliance on commodity-based direct payment subsidies.
  • Rewarding farmers for agricultural practices that combat climate change.
  • Increasing funds in the new farm bill for existing renewable energy programs.
  • Encouraging farmer-owned-and-operated biorefineries and local-owned biofuel plant cooperatives.

The second section, beginning on page 12, analyzes in greater detail the advantages and some of the safeguards required in order to bring dedicated energy crops such as switchgrass, miscanthus, jatropha, and poplar to market as biofuels and bioproducts. The incredible potential of these dedicated energy crops to supplement and diversify our energy production, increase rural revenues, and reduce greenhouse gas emissions could allow the United States to substitute 25 percent of our petroleum energy needs with cellulosic biofuels, generate $700 billion of new economic activity on our rural communities and earn farmers $180 billion in new net income within two decades. To get there, detailed policy suggestions include:

  • Providing new tax credits and loan guarantees to bring this next generation of biofuels to commercial scale production now.
  • Boosting the Renewable Fuel Standard to ensure demand for new biofuels keeps pace with production capacity.
  • Lowering the current import tariff on foreign biofuels to further broaden the market for these new alternative fuels.
  • Reforming current federal support for biofuels to be more market responsive with a countercyclical federal subsidy that ensures that as oil prices rise, federal support for biofuels decreases, and vice-versa.
  • Extending current Renewable Energy Tax Credits for wind and biofuel production to encourage new investment.
  • Creating new tax and production incentives for private sector investments in biofuel production infrastructure and clean energy marketplaces.

The paper then turns to the complex state of current international trade negotiations in the next section of the paper, beginning on page 18. This section offers clear suggestions of ways to create flexibility in entrenched positions as a means to jumpstart the stalled Doha Round of multilateral trade negotiations, among them:

  • Rewarding all U.S. farmers for environmental stewardship on their working lands, including growing dedicated energy crops, by implementing a WTO-compatible “green payment” program and encouraging modest reinvestment of current commodity-based subsidies. Other WTO-member nations must make similar farm tariff and subsidy reductions in their agricultural sectors.
  • Reducing gradually the current 54-cent-per-gallon U.S. tariff on imported biofuels to grow the global market in biofuels and take steps towards meeting the Doha Round’s overarching trade and development goals.
  • Supporting “development-friendly” agricultural support for the world’s poorest nations with specific capacity-building and “Aid for Trade” programs involving infrastructure, energy, and other sectors.

The final section draws upon the analysis and recommendations of the first three sections to presenta vision of a global agricultural economy fully engaged in alternative energy production. Thissection, beginning on page 20, walks readers through the role of biofuels in contributing to povertyreduction and combating climate change in the developing world and then details how this effort isinexorably linked to U.S. farm policy reforms and a successful conclusion to the Doha Round.

The paper makes a number of suggestions for the United States and our trading partners around the globe to consider, but then turns directly to the need for U.S. leadership at home and abroad to see this alternative energy vision translated into action. Without immediate legislative action by Congress to deliver biofuels to consumers, the overwhelming promise of alternative energy production will take decades longer to bear fruit, and in the process probably bypass the rural communities most in need of a fresh start. Accordingly, the recommendations in this section focus on:

  • Creating a nationwide network of service stations selling E85 fuel, a blend of 85 percent ethanol and 15 percent gasoline.
  • Promoting the sale of Flexible Fuel Vehicles that run on E85 fuel.
  • Encouraging public awareness of biofuel alternatives in the marketplace through a federal biofuels certification and labeling program.
  • Boosting research and development in advanced biofuels and biobased technologies through a variety of legislative funding avenues.

If all or most of the policy recommendations presented in this paper are acted upon by Congress and matched by our trading partners abroad then it is not hard at all to envision, three decades from now, a far wealthier global agricultural sector contributing strongly to a far cleaner global environment and a far more innovative and diversified energy future. It is a vision that transcends political parties and national boundaries. It is a vision that is within reach.

Contact our experts Jake Caldwell and Gayle Smith for additional information and comments:

For TV, Sean Gibbons, Director of Media Strategy
202.682.1611 or sgibbons@americanprogress.org

For radio, Theo LeCompte, Media Strategy Manager
202.741.6268 or tlecompte@americanprogress.org

For print, Trevor Kincaid, Deputy Press Secretary
202.741.6273 or tkincaid@americanprogress.org

To speak with our experts on this topic, please contact:

Print: Katie Peters (economy, education, poverty, Half in Ten Education Fund)
202.741.6285 or kpeters@americanprogress.org

Print: Anne Shoup (foreign policy and national security, energy, LGBT issues, health care, gun-violence prevention)
202.481.7146 or ashoup@americanprogress.org

Print: Crystal Patterson (immigration)
202.478.6350 or cpatterson@americanprogress.org

Print: Madeline Meth (women's issues, Legal Progress, higher education)
202.741.6277 or mmeth@americanprogress.org

Spanish-language and ethnic media: Tanya Arditi
202.741.6258 or tarditi@americanprogress.org

TV: Lindsay Hamilton
202.483.2675 or lhamilton@americanprogress.org

Radio: Chelsea Kiene
202.478.5328 or ckiene@americanprogress.org