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Posted Nov 2, 2009; 3:57 AM
New farm subsidy program could boost paper mill profitsGannett Washington BureauWASHINGTON — A new farm subsidy program that was created to jump-start the development of next-generation biofuels could turn out to be a cash cow for a decidedly old business — paper mills and their suppliers.
The 2008 farm bill created the program to subsidize the harvesting, storage and shipping of biomass, including corn cobs, grasses and wood waste, that could be used to make fuel or generate electricity.
The program, which was originally estimated to cost taxpayers $70 million over five years, is now expected to pay out hundreds of millions of dollars just over the next year because of demand from paper companies and wood-burning power plants.
It's "bad policy and it's taking the money from what we desperately need, which is to help farmers get going with biomass crops," said Loni Kemp, a consultant who advises agricultural and environmental groups on bioenergy programs. Her concern is that the program will subsidize mature industries and harvesting that's already happening.
The program placed no limits on how much any individual player can get, the number of participants, whether they are doing new work or getting subsidies for existing work, or the total size of the program.
Promoting bioenergy
The U.S. Agriculture Department has yet to finish writing rules for the program but announced this summer that it would start paying the subsidies as part of an effort by the Obama administration to promote bioenergy.
The department has been swamped with applicants, the vast majority from power companies that use wood residue to produce electricity, manufacturers of stove and furnace pellets, and forest-products firms that use wood scraps to fuel their plants.
USDA officials say paper companies qualify for the program because they buy bark and other tree residue to produce their own electricity. Few facilities that have signed up for the program plan to use grass, crop residue or other feedstocks besides wood.
The Biomass Power Association, which represents power plants that burn biomass, warned recently that the program could become so expensive because of demand from paper companies that it will "fall victim to its own popularity."
Canada has raised concerns with the Obama administration that the subsidies could give the U.S. forest products industry an unfair advantage.
The payments don't go to the companies that use the biomass but instead to their suppliers.
However, the firms still benefit because the government subsidizes the cost of the biomass they buy.
The government payments match dollar for dollar what facilities give their suppliers, up to a maximum subsidy of $45 a ton for two years. There's no limit to the subsidy any individual supplier can receive.
Wood supplies demand
Carlton Carroll, a spokesman for the American Forest and Paper Association, said his industry didn't ask for the program but should be allowed to participate. One of the industry's fears is that the program could drive up demand for wood supplies, increasing costs to International Paper and other manufacturers. The subsidies could help offset those higher prices.
"When the government chooses to create incentives or mandates, it should provide equal treatment for all renewable energy producers, including existing users of biomass for energy," Carroll said.
International Paper executives said in a quarterly conference call last week that they were weighing the potential benefits of the program. A company spokeswoman, Kathleen Bark, said later that it's not certain that the program would end up being a net plus for the industry, given the potential impact on prices of wood supplies.
It isn't clear yet how big the program will get. USDA officials said the farm bill put no limit on the program's size or the number of participants.
The department announced the first payments at the end of August and authorized $23.5 million in subsidies by the end of September with only about 25 facilities then approved for the program. The list grew to 118 by Oct. 26, and the department is considering applications for as many as 140 more. Five to 10 additional applications reach the department daily from around the country, said Michael Linsenbigler, who helps oversee the program for the USDA.
Power plants that burn biomass for electricity could account for $400 million to $500 million in subsidies alone, according to industry officials.
The White House's Office of Management and Budget is reviewing the USDA's proposed rules for the program. Depending on how they are written, the final regulations could limit the cost of the program, said Tom Gavin, a budget office spokesman. USDA spokesman Justin DeJong said in a statement that the department will "implement this program as Congress intended."
A second part of the USDA program, which hasn't started, will subsidize the cost to farms of growing switchgrass and other energy crops.
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Biofuels are a wide range of fuels which are in some way derived from biomass.
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