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Farm bill planting energy seeds

As the five-year spending plan heads for a full House vote this week, advocates praise bipartisan effort while foes still find weaknesses.

By Jeff Cox, CNNMoney.com contributing writer

NEW YORK (CNNMoney.com) -- Through a series of creative financing proposals that includes guaranteed loans, grants and aggressive research, the 2007 Farm Bill now before Congress provides seed money for the growth of alternative fuel production in the United States.

The legislation, a five-year spending plan that sets agricultural priorities across a broad spectrum of issues, could gain final House approval this week. When finished, the bill will establish farms, not oil refineries, as the focal point of U.S. energy policy.

Republicans and Democrats alike agree that the nation must break its addiction to foreign oil. Less clear, though, is how it goes about achieving that goal amid the tangled web of special interests that influence energy policy.

What has resulted from many months of often acrimonious and arduous debate is a $300 billion amalgamation of programs and allocations, a fairly significant chunk of which is aimed directly at developing technologies to produce ethanol and other fuels. The farm bill addresses a slew of other agricultural issues, but has been eyed this year primarily for how it will tackle alternative energy production.

Agriculture Committee members who helped forge the bill touted it Tuesday as a rousing testimony to bipartisan resolve, even amid often scathing criticism from such unusual allies as environmentalists and the oil industry - both of whom say too little thought has been given to how the lofty goals set forth in the companion energy bill will be achieved.

"This bill represents reform. We have made changes that nobody thought we could ever do," committee chairman Rep. Collin C. Peterson, D-Minn., said during a congratulatory news conference that officially released the bill to the House floor. "Frankly this is more than we ever expected out of the Agriculture Committee."

The bill reauthorizes $2.17 billion for the Renewable Energy and Energy Efficiency loan guarantee program and throws in another $500 million in grants under the same program. There's $100 million to help share the cost of developing crops for ethanol production other than corn - switchgrass, corn stalks, woodchips and other materials - and $18 million toward expanding markets for those products.

The bill also allocates millions for education programs as well as $150 million for cellulosic ethanol research grants and another $500 million for university-level bioenergy research.

House Majority Leader Nancy Pelosi, D-Calif., has indicated to members that she wants the farm bill put to a vote Thursday. Various Congressional sources also have indicated that Pelosi is in little mood for further compromises on the legislation.

Among the leading proposals in the bill are the billions allocated for guaranteed loans to help development of both corn-based and non-corn, or cellulosic, ethanol. The Renewable Fuels Standard as outlined in the energy bill mandates 36 billion gallons of ethanol produced by 2022, more than half of which must come from cellulosic ethanol.

Environmentalists have howled, though, over the ethanol plans, saying they are being pushed forward without regard to conservation measures. Oil companies, meanwhile, complain that the alternative energy plans are too ambitious and exclude the necessary contributions from oil to the national energy picture.

Some ethanol supporters, in fact, have accused their environmental opponents of fronting for the oil industry.

John Urbanchuk, an economist whose Pennsylvania firm LECG compiled an economic analysis of the farm bill for Pelosi, concedes that the bill is not so much groundbreaking as it simply helps lay important groundwork for the future of alternative energy.

"Anything new of this nature is going to be very risky, and that provisional loan guarantee is going to be a very big help," he said. "You need the fertilizer to make those seeds grow, and the farm bill provides some of that important fertilizer."

Some free-market economists, though, argue that the various loan guarantees and outright grants provide an artificial foundation for the growth of biofuels. They believe the government should stay as far away as it can from the process, and let the market dictate which direction the alternative fuel industry heads.

"They'll catch on without government mandates and subsidies," said Ben Lieberman, senior policy analyst at the conservative Heritage Foundation. "This is just another turn away from the free-market direction. The track record for this kind of thing is not good."

But Urbanchuk said the farm bill effectively helps shift the attention away from simply corn-based ethanol. Corn won't be able to meet all the nation's energy needs, and some fear a run-up in corn prices because of high ethanol demand will hike other food prices as well.

Giving entrepreneurs enough confidence to invest in non corn-based technologies will be key for ethanol development, Urbanchuk said, and providing financial incentives through guaranteed loans is a critical component.

Still, skeptics abound.

Otto Doering, an economist at Purdue University, has been critical of the White House's alternative energy aspirations and wrote recently in a research paper that the proposed allocations "are insufficient for the renewable fuels expansion timetable that the administration has laid out."

Urbanchuk, though, encouraged patience and praised the House for putting together a workable bill, though he too acknowledged that funding is an issue.

"I think it's a very positive step," he said. "Considering the constraints that the Congress is working under with regard to budgetary constraints I don't know that they could have gone a lot further." Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.