CODEL PETERSON DISCUSSES U.S., SPANISH BIOFUELS

UNCLAS MADRID 000639

SENSITIVE
SIPDIS

H PASS TO MARTHA JOSEPHSON, HOUSE COMMITTEE ON AGRICULTURE
STATE PASS USTR FOR JIM MURPHY, ROGER WENTZEL
STATE PASS USDA/FAS FOR ROBERT RIEMENSCHNEIDER, GREGG
YOUNG, CHUCK ALEXANDER, ROBERT CURTIS, CHRIS CHURCH, SUSAN
SCHAYES, FRANK LEE, DAVID YOUNG
PARIS FOR ELIZABETH BERRY
USEU BRUSSELS FOR DEBRA HENKE

E.O. 12958: N/A
TAGS: EAGR BEXP OREP ENRG KGHG SP
SUBJECT: CODEL PETERSON DISCUSSES U.S., SPANISH BIOFUELS
ISSUES


1. (U) Summary. In meetings with GOS and private sector
officials during its May 31-June 3 visit to Spain, CODEL
Peterson discussed the recent farm bill,s biofuels
provisions and the Spanish biofuels industry. The delegation
also visited Abengoa's cellulosic ethanol plant in Salamanca
on June 1 and met with GOS and industry leaders at a
reception hosted by Ambassador Aguirre. The CODEL was led by
House Agriculture Committee Chairman Collin Peterson (D-MN)
and included Representatives Tim Holden (D-PA),Lincoln Davis
(D-TN),Frank Lucas (R-OK),Virginia Foxx (R-NC),Linda
Sanchez (D-CA),and Dan Burton (R-IN). End Summary.

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Biofuels Industry Representatives
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2. (U) The delegation met on June 2 with Jorge de Saja,
Director of the Spanish Feed Compounders' Association, and
Miguel Vila of the biofuels division of the Association of
Renewable Energy Producers (APPA). Vila said biodiesel was
much more prominent in Spain than bioethanol because oil
companies did not like to mix bioethanol. He, and later de
Saja, said that U.S. B99 biodiesel was a major problem for
the Spanish industry because the U.S. tax credit (Note: also
known as the 'splash and dash' credit) enables product to
arrive in Europe at a lower cost than the cost of the raw
materials in Europe. Because of this competition, only three
of 22 plants in Spain are currently operating. Chairman
Peterson said that the House had passed a tax bill
eliminating the tax credit for B99 and that he expected the
Senate to pass legislation containing the provision this
year.


3. (U) De Saja said that, as in the U.S., Spain's food
industry was not sympathetic to biofuels, though it was more
supportive of biodiesel than bioethanol. He explained how
Europe's biofuels industry had arisen out of Brussels'
interest in providing an alternative use for arable land that
was no longer covered by the EU Common Agricultural Policy.
He said that individual EU governments had not come up with
sufficient strategies for developing the biofuels industry.
He predicted that cereals prices would fall in Spain in the
coming months. He added that a GOS requirement for blending
would take effect in 2009. He thought that Spanish public
transportation would use biofuels but not private
transportation. At present, neither ethanol nor biodiesel
was competitive because of the high prices of food. Vila
said that Spanish oil refiners already produced more gasoline
than was needed to supply the domestic market and that they
were not interested in using bioethanol because it would
displace their gasoline in the domestic market. De Saja also
briefly mentioned inconsistencies in Spain's policies on
imports of agricultural biotechnology, saying that unless the
European Commission reforms its biotechnology approvals
process, Spaniards would not be able to import U.S.
genetically modified (GMO) soybeans as early as next year
when Roundup Ready 2 comes on the market. He added, however,
that high food prices were putting more pressure on Brussels
to act more favorably toward GMOs. Vila said that APPA
wanted separate Spanish government mandates for the amount of
biodiesel and bioethanol to be used, while most companies
wanted one combined target. Vila said that one target would
lead to production of more biodiesel and less bioethanol than
would be the case under separate mandates.

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Secretary General of Energy
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4. (SBU) The delegation then met with Pedro Marin, the
Secretary General of Energy in the Ministry of Industry,
Tourism and Commerce, and members of Marin's staff. Marin
said the GOS was deciding whether to have separate mandates
for use of biodiesel and bioethanol or one combined target.
He also said that mandates were key to developing the
industry. Director General of Energy Policy and Mines Jorge
Sanz said Spain's biofuels incentives included both
compulsory targets for the use of biofuels and the exclusion
of fuel tax on ethanol and biodiesel. The GOS was
considering eliminating the tax incentive as unnecessary.
The country's production capacity was 800,000 tons of
biodiesel and half that much ethanol. Sanz said that

biodiesel capacity would grow, as 70 percent of new cars sold
in Spain were diesel and Spanish vehicles used 25 million
tons of diesel a year versus only 4 million tons of gasoline.
On electricity, Marin described Spain's successful use of
feed-in tariffs to encourage the development of wind and
solar power, though he said that the tariff for solar
photovoltaic electricity was too high. He said the GOS was
fighting EU efforts to impose structures different from
feed-in tariffs. On nuclear power, Marin said that political
opposition and waste disposal were issues, although high oil
prices might influence opinions.


5. (U) Chairman Peterson outlined the biofuels research
provisions of the farm bill, saying that they totaled over a
billion dollars and focused on cellulosic ethanol (CE). He
outlined the changes to production subsidies - an increase
from 51 cents/gallon to $1.01/gallon for CE, and a decrease
from 51 cents/gallon to 45 cents/gallon for corn-based
ethanol. He described USDA's $400 million loan guarantee
programs in the farm bill for second-generation plants and an
existing similar U.S. Department of Energy (DOE) program, as
well as DOE's six grants (Note: one of which was awarded to
the Spanish company Abengoa) for second-generation CE plants.
He also described the renewable fuels standard included in
the December 2007 energy bill. He noted that in a separate
bill, H.R. 6049, the House had eliminated the B99 ('splash
and dash') loophole and that he expected Senate approval this
year. The Chairman said he thought the U.S. eventually could
become totally independent of foreign oil. He said that oil
companies had been fighting biofuels since the 1970s but had
lost the battle. He emphasized farmers' need for a stable
market that would give them the confidence to invest.


6. (U) The Chairman said that in the U.S., the economics for
biodiesel were not as good as those for ethanol. He expected
to see sales of cellulosic ethanol begin in about five years,
but biodiesel might take longer. He disagreed with reported
criticism that the corn ethanol industry has led to increased
food prices, saying that the food versus fuel debate was
being generated by the livestock and grocery industries and
oil companies. He said the corn ethanol industry had built
infrastructure that would make next-generation biofuels
possible, and he said that 15 billion gallons of corn ethanol
per year was about the maximum amount. On electricity,
Chairman Peterson described Minnesota's experience with its
renewable portfolio standard for wind-generated electricity
and said he expected that the USG eventually would have a
nationwide federal renewable portfolio standard.

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Environment/Rural Development/Marine Affairs Ministry
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7. (SBU) The delegation then met with officials at the former
Ministry of Agriculture, which recently expanded to become
the Ministry of Environment, Rural Development, and Marine
Affairs. The Ministry was represented by Secretary of State
(Vice Minister) for Climate Change Teresa Ribera, accompanied
by Under Secretaries Santiago Menendez de Luarca and Alicia
Villaruiz and other officials. Ribera said biofuels were an
important way to reduce dependency on fossil fuels and, that
while Spain was below EU objectives so far, it should be able
to catch up if new plants come on line. She said the GOS
wanted to give industry a signal to move into non-food
second-generation crops for biofuels as soon as possible.
Villaruiz said the GOS was trying to comply with the EC
directive that 10 percent of fuels be biofuels by 2010. She
noted widespread belief that the use for non-food purposes of
crops was one of the main causes of the rise in food prices
that was affecting vulnerable countries, and she cited a
debate over finding an equilibrium.


8. (U) The Chairman said the food versus fuel debate was
being pushed by people trying to manipulate public opinion.
He commended to the Ministry officials a Financial Times
article ("The End of Abundance" 6/1/08) that said food had
been too cheap and that selling food and livestock feed below
the cost of production had spoiled consumers and led to less
research being conducted. He said that U.S. corn production
had risen by more than the amount of corn used in biofuels.
He added that the problem was not biofuels, but that we had
stopped improving technology. He said the EU was causing

problems by stopping biotechnology, and that use of
biotechnology would cause food prices to fall. He said the
U.S. was trying to move to second-generation (non-food)
biofuels and that the farm bill contained funding for
research and loan guarantees in that direction, but that we
still would have first-generation biofuels for many years.
Committee Vice Chair Tim Holden reviewed some of the biofuels
provisions of the farm bill, and Representative Frank Lucas
noted that the U.S. conservation reserve was being reduced
(from 36 million acres) by 3 million acres this year, and
would be reduced by another million in 2009. He predicted
that food production would increase and that in two or three
years we would have food surpluses again.


9. (U) In response to Ministry officials' questions about the
farm bill's consistency with WTO obligations and its impact
on WTO Doha Round negotiations, the Chairman said the farm
bill was well within WTO requirements. He said the
Administration was not telling the WTO what the reality was
in the Congress, even though the Congress had told it to do
so. He said this had led to surprises in Geneva when the
Congress had not done what the Administration had said it
would. The Chairman also encouraged the GOS to support the
candidacy of USDA's Dr. Karen Hulebak to become Chairperson
of the FAO/WHO Codex Alimentarius Commission.

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Chairman,s Meeting with Subsecretary Villaruiz
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10. (SBU) In their June 2 lunch meeting, Subsecretary
Villaruiz told Chairman Peterson and Embassy AgCounselor
Hammond that the GOS would support the candidacy of Dr.
Hulebak. In addition, Villaruiz voiced Spanish concerns
about the possibility of a marketing order (MO) for
Clementines. The most pressing GOS concern was that the
additional inspection requirements and delays at the port of
inspection that might result from a MO could lead to product
loss and reduced earnings for Spanish exporters. Chairman
Peterson and AgCounselor encouraged Villaruiz to make contact
with the California growers in a collaborative effort to
further develop the U.S. market for production, both from
California and Spain.


11. (U) CODEL Peterson did not have the opportunity to clear
this cable before departing Madrid.
Aguirre