The U.S. Congress is in the process of enacting its new federal legislation in areas of agricultural and energy policy. In July, the House Agriculture Committee passed its version of the farm bill, while the Senate will tackle its version in September. Meanwhile, both Houses have passed quite different versions of the energy bill. These bills will also need a stamp of approval from the Executive Branch in the fall. Subsidy Watch has asked three experts to highlight what they consider the good and bad in these bills. Kimberly Ann Elliot, senior fellow at the Center for Global Development and the Peterson Institute for International Economics, and Timothy Josling, professor emeritus at the Food Research Institute of Stanford University, provide their views on the farm bill. Robert Rapier, a chemical engineer and frequent blogger on energy matters, weighs in on the energy bill.

Kimberly Ann Elliott

Center for Global Development and the Peterson Institute for International Economics

The 2007 U.S. Farm Bill

The 1996 farm bill reduced some crop subsidies and moved toward making them less market-distorting, but it had barely been implemented when the U.S. Congress started retreating from reform. The retreat began with emergency bills in the late 1990s that provided billions of dollars in disaster relief. It continued with the 2002 farm bill, which increased payments for several commodities and restored market-distorting subsidies similar to those eliminated earlier. The farm bill passed by the House of Representatives in late July suggests a continuation of the trend.

The House legislation was particularly disappointing to reform advocates because high commodity prices and a coordinated effort by a wide range of non-governmental organizations-ranging from Bread for the World and Oxfam to the free-market Cato Institute-seemed to create a propitious environment for reform. Moreover, under the current system, more than half of all American farmers, mostly those growing fruits and vegetables, do not receive traditional subsidies, and 70% of payments go to just 10% of farm operations. Of the $10 billion in payments for specific commodities in 2004, 60% went to just two crops-corn ($4.5 billion) and cotton ($1.6 billion).
 
But rather than reform this inequitable system, the House leadership decided to co-opt opponents by adding money for nutrition and conservation programs, while also increasing trade-distorting subsidies for wheat and other grains, and soybeans. The House farm bill also maintains or even increases support for cotton and sugar, two products of particular interest to African exporters, and it blithely ignores a WTO ruling that certain subsidies violate U.S. commitments. Such cavalier treatment of legally binding international obligations undermines the already dim prospect for completing the Doha Round and invites new challenges to U.S. policies in the WTO, which could result in retaliation against US exporters. The question now is whether the U.S. Senate will be willing and able to reverse direction.

Timothy Josling

Stanford University

The 2007 U.S. Farm Bill

The best that can be said about the version of the 2007 Farm Bill that passed the House of Representatives on 17 July is that it can still be changed. The present text will have to be reconciled with the Senate version of the Bill expected in late September and then survive the possibility of a Presidential veto. But one should not expect any radical changes to come from the Senate, and the chance of the President vetoing a Bill that has the full support of farm organizations is also remote. So the new legislation likely to emerge in October will look much like the House version.
 
The House Bill extends the main features of the 2002 Farm Bill, widely criticized for its reversion to price-related subsidies abandoned in the 1996 Farm Bill. Current support programs for the major crops (such as corn, wheat, cotton, rice and soybeans) are continued with only minimal changes. The Bill adds to the funding of conservation and nutrition programs, as well as boosting subsidies for the production of biofuels and for the marketing of fruits and vegetables, but does so without any reduction of funds available for support of the major crops. The extra money is supposed to come from alterations in the tax treatment of certain businesses, and it is this that has drawn the promise of a veto.
 
The unfortunate message that the Farm Bill sends is that the US Congress is unlikely, without external pressure, to dismantle the support programs that transfer billions of dollars to the producers of a handful of crops. Hence the importance of the WTO has been underscored. A successful conclusion to the Doha Round, with a tight limit on U.S. spending on farm support, would help greatly. Otherwise it will take continued litigation by trading partners to restrain the excesses of US farm policy. Unlike the EU, that continues to change the CAP for internal reasons, the US has lost its sense of direction in its farm policy. The rest of the world will not be well-served.

Robert Rapier

http://i-r-squared.blogspot.com

The 2007 U.S. Energy Bill

The recently passed energy bill from the U.S. House of Representatives signals a commitment to renewable energy. The Renewable Energy Standard mandates that by 2020, 15% of the electricity produced by investor-owned utilities is produced from renewable sources. The bill also contains an important incentive for plug-in hybrid electric vehicles (PHEVs), which should accelerate adoption of these vehicles by consumers. However, special interests succeeded in torpedoing several measures, including an increase in fuel efficiency standards, and a tax credit designed to boost second-generation renewable diesel technologies.

The oil industry was put on notice with this bill. The definition of renewable diesel was modified to exclude "any fuel derived from co-processing biomass with a feedstock which is not biomass", a moved aimed at refiners who might wish to utilize existing refineries for biofuel production. Eligibility for the full renewable diesel credit was also modified by striking language that allowed for production of renewable diesel "using a thermal depolymerization process." These changes appear to be in response to recent announcements that some oil companies would begin producing renewable diesel in existing refineries. However, unless Congress wishes oil companies to remain entirely focused on petroleum, this is exactly the wrong signal to send to the industry.
 
The bill also singled out the oil industry for punitive measures. In a section entitled "Denial of Oil and Gas Tax Benefits", the industry was singled out for revocation of a tax credit that had been available for companies engaged in "manufacturing based in the United States." The bill has created an exception for companies engaged in "the sale, exchange, or other disposition of oil, natural gas."
 
The House bill differs in many important respects from the Senate version. The next step is to reconcile those differences and put forth a unified bill. Preliminary comments from the Executive Branch indicate that a presidential veto looms. Regardless of whether the bill passes, the exercise demonstrates the difficulty of developing a consistent, long-term energy policy. Each new election cycle brings a brand new direction in energy policy, which makes the planning and execution of long-term projects - from wind projects to deep-water oil platforms - exceptionally risky.