Top Financial News (B40)01/29/00

Sat, 29 Jan 2000, 7:42pm EST Auto,

Chemical Companies May Benefit From Proposals on Clean-Burning Fuels

By Katherine M. Reynolds

Car, Fuel Manufacturers Eye Boost From Clinton Plans

(Update1) (Changes references to clean burning to cleaner burning, non- polluting to less polluting.) Washington, Jan. 29 (Bloomberg)

-- Companies from Archer Daniels Midland Co. to Dow Chemical Co. to General Motors Corp. could benefit from proposals by President Bill Clinton to encourage businesses to develop or use cleaner-burning fuels. Clinton's fiscal 2001 budget will include a tax credit worth $2.1 billion over 10 years to support the use of renewable energy sources, such as farm products, according to a White House briefing paper. The budget also will propose a $240 million spending increase for research on such fuels and a tax credit to encourage people to buy more fuel-efficient cars.

``The government is encouraging consumers to buy the bio- fuels or products and these vehicles when they get into the showrooms,'' said Eric Vaughn, president of the Renewable Fuels Association, which represents ADM and other producers of ethanol, a corn-based alternative to gasoline.

"From the standpoint of the environment and agriculture it's a win-win.'' Clinton's push comes as his vice president, Al Gore, is seeking the Democratic nomination for president and courting votes from environmentalists. Gore has also sought to reassure automakers his policies wouldn't be anti-business. Last May, for example, he met with executives to discuss a new generation of automobiles and the possibility of making sport-utility vehicles more fuel efficient. At the same time, the Clinton-Gore administration is trying to give farmers the chance for another source of income. They've weathered two years of low commodity prices and natural disasters with the help of federal bailouts totaling $14.6 billion. This year, farm income is estimated at $49.7 billion, down 16 percent from 1999 and the lowest since 1986.

Fuel Research

Congress probably will support Clinton's plans to boost research on so-called bio-mass fuels, as the proposals track legislation the Senate Agriculture Committee passed in late 1999 and similar House bills, committee spokesman Andy Fisher said.

``There will be a strong bipartisan case made that this is an important initiative,'' Fisher said, adding that anything from old timber to a field of wheat is potential raw material for energy.

``It's very important to do it at this time because there's been breakthroughs in technology that really make the idea of bio-mass conversion competitive with petroleum-based products.'' Still, Texaco Inc. and other oil companies might resist the potential competition from agriculture-based fuels, Vaughn said.

Texaco officials couldn't be reached for comment. Clinton's bio-mass tax credit plan, which would apply to a range of facilities making energy from plants, could boost farmer income by $15 billion to $20 billion, the White House paper said. The tax credits would play an important role by making the raw materials more affordable. They now are too expensive once the cost of collection and transportation is added, said Pat Gruber, vice president of technology and operations at Cargill Dow Polymers. Cargill-Dow is a Minneapolis-based joint venture of Cargill Inc. and Dow Chemicals doing research on how to use organic material in plastics.

``Anything that's done to lower the cost of the feed stock has massive effects,'' Gruber said. ``It's too expensive to collect the raw materials, and the technology to convert it into useful feed stock doesn't exist in general.''

Raw Materials Potential

Raw materials include wood, rice, and byproducts from lumber or sugar plants, he said. In principle, they could be used to make a range of fuels, plastics, solvents, and chemicals. Clinton also proposed incentives for fuel-efficient cars. ``We should give a major tax incentive to businesses for the production of clean energy and to families for buying energy- saving homes and appliances and the next generation of super- efficient cars when they hit the showroom floor,'' Clinton said in Thursday night's State of the Union address. General Motors, Ford Motor Co. and DaimlerChrysler AG are working with the federal government to develop cars that are more energy efficient, said Bill Noack, GM's director of public policy communication. For instance, the group has developed two cars that get 80 miles and 108 miles per gallon of gas. Other Proposed Credits Clinton's proposed tax credits for purchases of such cars are good news for the industry, Noack said. ``There still are affordability and technical challenges, but GM and the rest of the companies are really working hard to bring these vehicles to the marketplace,'' he said.

``When they're in the marketplace, a tax incentive will certainly boost sales.'' DaimlerChrysler would be ready to market a hybrid-electric sport utility vehicle if Clinton succeeds in getting Congress to pass the tax credits, said DaimlerChrysler spokesman Max Gates.

Cars and light trucks account for 20 percent of U.S. greenhouse gas emissions, which are thought to cause global warming and health problems, according to the White House. The president also proposed tax credits for energy-efficient homes, for solar- and wind-powered systems and for energy- efficient heating and cooling systems. His fiscal 2001 budget, set for release on Feb. 7, will contain details.