The case for cutting energy programs from the farm bill

The case for cutting energy programs from the farm bill
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As the armwrestling continues over how to reform the renewable fuel standard, more colloquially known as the ethanol mandate, policymakers should also set their sights on the economically destructive and wasteful energy provisions in the farm bill. Since 2002, every rendition of the farm bill has contained a title that includes provisions that promote the production of alternative energy sources, such as biofuels and bioenergy, as well as other renewable energy sources and conservation efforts.

The current House farm bill keeps these programs but folds them into the Rural Infrastructure and Economic Development title. The bill would strip mandatory funding for the energy provisions and subject the programs to annual discretionary spending. Congressman Andy Biggs (R-Ariz.) filed an amendment similar to his Farewell to Unnecessary Energy Lifelines Reform Act that would eliminate the energy programs altogether.

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Peeking under the hood of the farm bill’s energy programs reveals that these programs have squandered taxpayer money on economic failures and promoted corporate welfare by distributing funds to established and successful companies.

Exhibit A is Coskata, an Illinois energy company that received the maximum $250 million bioenergy loan guarantee from the U.S. Department of Agriculture (USDA). It also had backing from General Motors and billionaire venture capitalist Vinod Khosla.

In 2008, Coskata said that it could produce biofuels for less than $1 per gallon using cornhusks, wood chips, and municipal trash. “It’s not five years away,” said Coskata’s vice president of development. “It’s not 10 years away. It’s affordable, and it’s now.”

Except it wasn’t. Unable to produce commercial volumes of biofuels, Coskata switched to using natural gas in 2012, only a year after the USDA awarded the loan guarantee. Coskata then went out of business, only to have its technology reemerge as Synata Bio in 2016.

Exhibit B is Range Fuels, a wood-to-ethanol producer that received a $76 million loan guarantee from the U.S. Department of Energy (DOE) in 2007, an $80 million loan guarantee from the USDA in 2010, and $6.2 million in grants from the state of Georgia. The company, which broke ground in 2007 on its cellulosic plant, closed in 2011, with federal taxpayers losing more than $75 million from the DOE and USDA loans.

The Atlanta Journal Constitution details how repeated warnings from USDA experts went ignored and the financial health of the company did not meet the USDA’s lending requirements. “Nobody ever expected them to produce anything,” Hosein Shapouri, a now retired senior economist with the USDA, later remarked. “I told them not to finance it. They didn’t listen to me. They decided to rush, rush, rush and give them the money.”

Exhibit C is Sapphire Energy, a California company that received a $50 million stimulus grant in 2009 and a $54.5 million loan guarantee finalized by the USDA in 2011. The company produced a renewable crude oil, effectively converting algae into a fuel that has the same properties as crude oil. Sapphire Energy paid back the USDA loan in 2013, announcing that the company expected to produce 100 barrels of renewable crude oil in 2015, ramping up to commercial scale that same year.

But something apparently went awry. In 2017, Algae World News reported, “Since [the] beginning of this year, Sapphire Energy no longer exists. It was bought by a farmer for pennies on the dollar. There was an announcement on [the] Sapphire Energy website but the new owner took it down. Nothing to do with biofuels anymore, only farming.”

The San Diego Business Journal revealed that Sapphire shifted from renewable fuel to vitamin supplements. The pivot dates back to 2014, when new chief executive officer James Levine said, “I was tasked with looking for non-biofuels applications for the technology. I was not optimistic about biofuel, and wanted to diversify.” Even though Sapphire paid back the loan, the business model shift illustrates the inability of the federal government to pick commercially viable projects.

Exhibit D is the Bioenergy Program for Advanced Biofuels, which provides quarterly or annual payments to companies producing advanced biofuels. This program is a clear example of corporate welfare as multimillion-dollar payments have been allocated to large agribusinesses like Louis Dreyfus Company, Archer Daniels Midland and Cargill. The USDA awarded more than half of the program funding to facilities that had nothing to do with the production of advanced biofuels, even though the program’s intentions are to encourage the production of advanced biofuels.

The evidence is quite clear. Examples abound of the federal government betting taxpayer money on economic losers, encouraging corporate welfare, distorting energy markets, propping up specific products, and trying to generate a market when one ceases to exist. These problems run rampant through the energy programs. Any single one is sufficient reason strip them from the farm bill. Will lawmakers finally act?

Nicolas Loris is an economist who focuses on energy and environmental issues as the Herbert and Joyce Morgan fellow at The Heritage Foundation.