Support for the wind-energy production tax credit

Press release:

For Immediate Release
August 2, 2012

Support for the wind-energy production tax credit

M E M O R A N D U M

TO:    Reporters and Editors
RE:    Support for the wind-energy production tax credit
DA:    Thursday, August 2, 2012

Senator Chuck Grassley issued the following comment about the inclusion today of a one-year extension of the wind-energy tax credit in The Family and Business Tax Cut Certainty Act of 2012 reported by the Committee on Finance.  The overall package includes an amendment written by Senator Grassley and accepted this morning as part of the modified proposal of Committee Chairman Max Baucus.

Grassley comment:

“The wind-energy production tax credit is designed to level the playing field for this renewable resource against coal-fired and nuclear electricity generation.  The credit has been successful in developing clean, renewable, domestically produced wind energy and the jobs that go along with it.  The one-year extension approved today would make the credit effective for producers for one more year.  In the face of an effort to end this incentive, I persuaded committee leaders to include the extension in a way that keeps it at full value and that puts the wind-energy production tax credit in a strong position for the floor debate this fall.  No single energy tax incentive should be singled out over others, energy-related and not, before a broad-based tax reform debate.  Congress and the President need to take up tax reform to make American business more competitive with lower rates, a broader tax base, and a simpler code.  Until tax reform is undertaken, workers and employers need certainty in existing tax law.”

Description of the Grassley amendment to The Family and Business Tax Cut Certainty Act of 2012:

Extend for one year, through December 31, 2013, the section 45 production tax credit for wind which expires on December 31, 2012.  Modify placed-in-service date for wind to a “begin construction” rule.

Background information:

Senator Grassley authored the legislation that created the wind-energy production tax credit in 1992 and has won passage of extensions a number of times.

Today, wind-energy production supports 75,000 American jobs and drives as much as $20 billion in private investment.  During the last five years, 35 percent of all new electric generation in the United States was wind.  There are nearly 400 wind-related manufacturing facilities in the United States today, compared with just 30 in 2004.

Conventional energy sources, including oil, gas and nuclear, enjoy countless tax incentives and many of them are permanent law.

The Renewable Fuels Standard, Ethanol, and the U.S. Corn Crop

Press release:

For Immediate Release
August 1, 2012

The Renewable Fuels Standard, Ethanol, and the U.S. Corn Crop

Mr. President,

The President and CEO of Smithfield Foods, Larry Pope, took to the opinion pages of the Wall Street Journal again to blame all that ails him on the Renewable Fuels Standard.

Some may recall that he did the same thing back in April of 2010 when commodity prices were rising.  At that time, he perpetuated a smear campaign and blamed ethanol in an attempt to deflect blame for rising food prices while boosting Smithfield’s profits.  And now he’s at it again.

I may start referring to Mr. Pope as Henny Penny from the children’s folk tale Chicken Little.  Every time Smithfield has to pay a little more to America’s corn farmers to feed his hogs, Mr. Pope starts up with the same argument that the sky is falling and it’s all ethanol’s fault.

Mr. Pope’s opinion piece in the Wall Street Journal might lead some to believe that he’s very knowledgeable about the ethanol industry.  But there are many areas where he’s not.  He continues to perpetuate the myth that ethanol production consumes 40 percent of the U.S. corn crop.  Mr. Pope states, “ethanol now consumes more corn than animal agriculture does.”

Everyone with a basic understanding of a livestock farm, a corn kernel or an ethanol plant knows that’s not true.  According to USDA, 37 percent of the corn supply is used in producing ethanol. But the value of the corn does not simply vanish when ethanol is produced.  One-third of the corn re-enters the market as a high value animal feed called dried distillers grains.

I would imagine that millions of hogs raised by Smithfield every year are fed a diet containing this ethanol co-product.  Mr. Pope appears unaware of its existence.  When the distillers’ grains are factored in, 43 percent of the corn supply is available for animal feed.  Only 28 percent is used for ethanol.

This is the inconvenient truth for ethanol detractors.  They prefer to live in a bubble where they believe that ethanol is diverting corn from livestock use.  That’s just not the case.

Mr. Pope also proclaims, “Ironically, if the ethanol mandate did not exist, even this year’s drought-depleted corn crop would have been more than enough to meet the requirements for livestock feed and food production at decent prices.”

I’d like to ask Mr. Pope, why do you think that is?  Why did farmers plant 96 million acres of corn this year?  Why have seed producers spent millions to develop better yielding and drought resistant traits?  The answer is simple:  Ethanol.

If not for ethanol, farmers wouldn’t have planted 96 million acres of corn this year.  Without ethanol, I doubt we’d have seen investment in higher yielding and more drought tolerant corn plants.

I’m sure Mr. Pope is an intelligent man.  But he’s woefully uninformed on the issue of what the ethanol industry and the demand for corn has done for the size and genetic improvement of the corn crop.

It’s easy to understand Smithfield’s motive.  They benefit from an abundant supply of corn, just not the competing demand for it.  What is Smithfield’s primary problem?  Again, the answer is simple:  cost and profit.  They still want to pay $2 for a bushel of corn.

This is an important point that I hope people understand.  For nearly 30 years, until about 2005, companies like Smithfield had the luxury of buying corn below the cost of production.  Corn prices remained at about $1.50 to $3.00 a bushel for nearly 30 years.  Farmers routinely lost money.

The federal government then provided economic support for the farmers.  Producers like Smithfield had the best of both worlds.  They were able to buy corn below the cost of production, and let the federal government subsidize their business by guaranteeing a cheap supply of corn.

In the view corporate livestock producers, subsidies are just fine if they allow them to buy corn below the cost of production.  Anybody could look like a genius with that business model.

Mr. Pope also continues to overstate the impact of corn prices on the consumer.  Agriculture Secretary Vilsack recently stated that farmers receive about 14 cents of every dollar spent on food at the grocery store.  Of that, about three cents is the value of the corn costs.

A research economist at the USDA recently stated that a 50-percent increase in the price of corn will raise the total grocery shopping bill by about one percent.  To put it in perspective, the value of corn in a four-dollar box of corn flakes is about ten cents.

Mr. Pope also exaggerated the impact of ethanol on food prices in 2010, and he’s doing it again today.  He’s using the devastating drought to once again undermine our nation’s food, feed and fuel producers.  And he’s doing it to make more money.

Repealing the Renewable Fuels standard won’t bolster Smithfield’s profits.  Because of the flexibility built into the renewable fuels mandate, a waiver won’t significantly reduce corn prices.

A recent study by Professor Bruce Babcock at Iowa State University found that a complete waiver of the Renewable Fuels Standard might reduce corn prices by only 4.6 percent.  The report states, “The desire by livestock groups to see additional flexibility in ethanol mandates may not result in as large a drop in feed costs as hoped.”  And, “…the flexibility built into the Renewable Fuels Standard allowing obligated parties to carry over blending credits from previous years significantly lowers the economic impacts of a short crop, because it introduces flexibility into the mandate.”

The drought is enormous in both scale and severity.  But we won’t know the true impact until September, when the harvest begins.  The latest estimates from USDA indicate an average yield of 146 bushels per acre.  That would result in a harvest of 13 billion bushels.  This would still be one of the largest corn harvests.

I would suggest that those claiming the sky is falling withhold their call for waiving or repealing the Renewable Fuels Standard.  It’s a premature action that will not produce the desired result.  And it would increase our dependence on foreign oil and drive up prices at the pump for consumers.

Grassley on the President’s Visit to Iowa on Wind Energy

For Immediate Release
May 23, 2012

Grassley on the President’s Visit to Iowa on Wind Energy

Sen. Chuck Grassley of Iowa authored and won enactment of the first-ever wind energy production tax credit in 1992.  The incentive was designed to give wind energy the ability to compete against coal-fired and nuclear energy and helped to launch the wind energy industry.  He has worked to extend the credit ever since.  He made the following comment on President Obama’s visit to Iowa on wind energy this week.

“I’m glad the President likes Iowa but his visit won’t have much to do with getting the wind energy tax credit extended.  He could travel down the street from the White House to the Capitol and talk to the congressional leadership instead, especially in the Senate, controlled by his party.  It was surprising to read in the paper this week that he hasn’t talked to key committee chairmen in his own party in months.  Maybe the lack of communication is why the President and the Senate Democrats let the biodiesel tax credit expire at the end of 2011 and made that industry suffer from uncertain tax policy.

“There’s strong bipartisan support in both the House and the Senate for extending the wind energy tax credit.   I introduced a bill with bipartisan co-sponsors in March, for example.  The provision is hung up in the lack of a way forward on dozens of expiring tax provisions.  The President could exert his leadership by working with Congress on a way forward instead of calling for a provision that’s a no-brainer for many of us.  He’s focusing on the easy part of a bigger task.  The stakes for the wind industry and the country in general will only get worse with delay.    It’s time to act, not politick.”

Information on Grassley’s bipartisan bill to extend the wind energy tax credit is availablehere.