Obama and McCain seen resolute on biofuel push

WASHINGTON (Reuters) - Republican presidential candidate John McCain and his likely Democrat rival, Barack Obama, will remain steadfast in their support for biofuels on the road to the White House, despite rising global discontent over the idea of using crops to make fuel.

But if food prices keep soaring, there could be weakening of incentives for the biofuels sector during the next administration, although Obama, hailing from second highest corn producing state in the country, would likely be the most aggressive initially in support of the industry.

Democrats and Republicans are moving toward the same general energy policy -- a pace that may quicken with the average U.S. gasoline price near $4 a gallon and oil around $130 a barrel. Both sides want more energy to be produced domestically and more to come from renewable fuels.

"It is a mistake to think that there is a real gulf between these two candidates or these two parties on energy policy," said Jerry Taylor, a fellow at the Cato Institute, a libertarian think-tank in Washington, D.C..

But, he added, Obama would "more aggressively use government" to advance the renewable industry through larger subsidies and more aggressive biofuel mandates.

Obama, from the corn-belt state of Illinois, has pushed ethanol since he was elected to the Senate in 2004. He has pledged higher renewable fuel standards for advanced biofuels such as cellulosic ethanol, building out distribution infrastructure and mandating "flexfuel" for vehicles.

Meanwhile, McCain believes high energy prices should be enough to increase demand for new energy sources. The one-time critic of ethanol now backs incentives to produce the fuel, but generally opposes tariffs on imported ethanol and subsidies that distort the marketplace.

Chad Hart, an agricultural economist with the Center for Agricultural and Rural Development at Iowa State University, said a key difference between the Obama and McCain is how they would treat more mature biofuels.

McCain, he said, would back the cellulosic ethanol credit of $1.01 a gallon through 2012 in the farm bill that passed last week, while removing a similar credit on corn-based ethanol and allowing it to compete in the marketplace.

The farm bill will cut the tax credit for corn-based ethanol by 6 cents to 45 cents a gallon beginning in 2009.

"Obama would support a full-spectrum from additional corn-based ethanol and soybean-oil based biodiesel all the way up to the new biofuels that are trying to come down the line," said Hart.

The biofuels industry has thrived under George W. Bush as president. The former Texas oil man has worked to increase biofuel production as part of his grander plan to trim the country's dependence on foreign oil imports.

UPHILL FIGHT

The new energy bill signed into law last year calls for the production of 9 billion gallons (35 billion liters) of biofuel in 2008 and 10.5 billion gallons next year. The requirement would rise to 36 billion gallons in 2022 - with ethanol supply from corn capped at 15 billion gallons. Obama voted in favor of the Senate energy bill, which passed in June, while McCain did not vote.

Since then, prices for wheat, corn, soybeans and rice have set record highs, generating a rising tide of criticism that using crops to make fuel is driving up world food costs.

A group of 24 Republican senators, including McCain, said earlier this month the Environmental Protection Agency should slow or even drop requirements to use corn-based ethanol to help ease food prices. Ethanol alone is forecast to absorb about a third of the U.S. corn crop in 2008.

Kenneth Green, who studies energy policy at the American Enterprise Institute, said it could be hard for McCain or Obama to see any measurable change on biofuels in the near future. He pointed to the considerable effort to pass the last energy bill and intense opposition from the corn industry as the two key obstacles.

"To change things significantly will be an uphill fight," said Green.

As criticism has grown in recent months, supporters of biofuels have downplayed its impact on higher food costs. The Bush administration and biofuel groups blame high oil prices, increased global food demand and drought for high prices.

The Renewable Fuels Association, which lobbies for the industry, defended the growth of ethanol production as a major factor in keeping gasoline prices lower than they otherwise would be.

"The American public continues to be strongly supportive of growing the renewable fuels industry," said Bob Dinneen, president of the group. "Whatever administration there is, I think they are going to have to reflect the will of the people."

But how the next president deals with biofuels could depend on a host of factors, including the growing food versus fuel debate, efforts to curb greenhouse gas emissions and if food and fuel prices keeping rising.

It is unlikely there will be any significant changes in biofuel policy before the election in November, but Bill Lesher, a private Washington, D.C.-area consultant, said the three supports helping corn-based ethanol -- an import tariff, blender credit and biofuels mandate -- could all be revisited next year.

"There are lots of elements yet to unfold, but one way or another I feel that there is too much interest, too much concern about food prices that you would not get some kind of airing of these issues next year," said Lesher. "It's really not Republican or Democrat. It's just not one of those partisan issues."

(Reporting by Christopher Doering; Editing by Marguerita Choy)