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. -------------- Biofuels Industry Representatives -------------- ¶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. �A;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. -------------- Secretary General of Energy -------------- ¶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. -------------- -------------- Environment/Rural Development/Marine Affairs Ministry -------------- -------------- ¶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. -------------- - Chairman,s Meeting with Subsecretary Villaruiz -------------- - ¶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