VZCZCXYZ0000
RR RUEHWEB

DE RUEHMD #0639/01 1581507
ZNR UUUUU ZZH
R 061507Z JUN 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4910
INFO RUEHFR/AMEMBASSY PARIS 1503
RUEHBS/USEU BRUSSELS

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. 
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