Our View: Obama to Valley farming: Dry up
Most of stimulus money coming to state to be spent on environmental issues, not on addressing drought...Editorial
The Obama administration dispatched Interior Secretary Ken Salazar to California on Wednesday to announce $260 million in economic stimulus funding for water projects.
The most obvious question was how much would go to drought relief in the San Joaquin Valley, especially since Salazar was in California at the same time as the March for Water was being conducted on the Valley's west side.
The answer was a simple one from Salazar -- the vast majority of this money won't be seen in the farmworker-dominated communities that are experiencing 40 percent unemployment because of drought conditions.
But there was plenty of money for projects in Northern California for environmental uses.
No wonder so many Valley farmers, farmworkers and others in agriculture-related businesses are so angry with the federal government on the water issue.
Officials in the Obama administration, including Salazar, don't understand San Joaquin Valley agriculture and don't seem to want to learn.
The four-day water march from Mendota to the San Luis Dam would have been the perfect opportunity for Obama officials to throw a little money the Valley's way to let residents know that the pain being felt in communities such as Mendota is acknowledged in Washington, D.C. The symbolism would have been significant.
Instead, Salazar stiffed the Valley's west side. This is one more indication of the region's lack of political clout. Rep. Jim Costa, D-Fresno, said the federal stimulus money going to other water projects was "very disappointing." He should have said he was outraged, and the Obama administration had abandoned some of California's poorest communities by ignoring the west side in this round of stimulus payouts.
"There is absolutely nothing in there that would benefit us," said Sarah Woolf, a spokeswoman for Westlands Water District. Valley farm-water agencies wanted funding for fish screens in the Sacramento-San Joaquin Delta that would allow for more water to be pumped southward. They also wanted money for a pipeline to move water between Valley districts.
Sen. Dianne Feinstein says there will be some money for the region in the $40 million drought-relief portion of the package for Western states. She contends that most of that money will go to California and some is intended for the Valley. We appreciate Feinstein's efforts seeking drought relief, but we question the sincerity of the White House in dealing with agricultural issues in the Valley.
Many farmers get water from the estuary, but declining fish populations have led to pumping restrictions. The curtailments, combined with the three-year drought, have left growers with little water to grow crops, and that has resulted in massive joblessness in west-side communities.
Salazar went on a helicopter tour of the Delta Wednesday with Gov. Arnold Schwarzenegger, who praised the funding announcement. But the governor also said these funds will not immediately help Valley farmers, and the communities that rely on agriculture, and they need help now.
Schwarzenegger is correct, and it was good that he let Salazar know his water announcement didn't go far enough. We'd also like to see more passion out of the governor on the plight of the Valley communities during this drought.
There's a lot of anger in the Valley right now, and there's good reason for it.
Controversy dogs Campus Pointe project...Cyndee Fontana
The first piece of a $200 million mixed-use development at Fresno State should open this summer, even as a legal challenge lingers in court.
When complete, Campus Pointe will offer apartments, stores, a hotel and a 14-screen movie theater on about 45 acres. The land is being leased through the university's auxiliary organization to developer Ed Kashian.
Fresno State officials say the finished project will return $1 million annually in rent -- money that will help retire debt on the Save Mart Center and support campus ag programs.
University President John D. Welty called the project a "significant addition to the campus." He and others view Campus Pointe as a natural complement to academics and campus life.
Yet the idea of a commercial -- and competing -- enterprise on Fresno State property has drawn flak for years, especially in the business community. Several controversies, mainly involving fees for road improvements, had to be settled with Fresno, Clovis and Caltrans before crews started work.
One legal dispute remains unresolved even as the first Campus Pointe component -- a cluster of three-story apartments -- prepares to open as early as July.
This month, lawyers offered final arguments in a lawsuit filed in 2007 by the owner of Sierra Vista Mall in Clovis. In part, the lawsuit challenges the project's environmental work and approval process.
A judge is expected to rule within the next few months. Lawyer David Doyle, who represents mall owners LandValue 77, said if his clients prevail, construction could stop and officials could be required to correct flawed approvals and studies.
University officials said they considered it a small risk to start construction in late 2007 and to continue while the lawsuit is pending.
Today, the first apartments can be seen from Highway 168. The 144 one- and two-bedroom units -- featuring birch cabinets, textured Formica countertops and indoor washer/dryers -- are aimed at campus employees.
Nearby, walls are being framed for the second housing phase tailored toward students. More than 200 suite-style units are expected to open in time for fall 2010 classes.
"When the kids come back to school, we'll be ready," said Chris McKee, division president for Professional Constructors Inc., which is building the housing phases.
The final housing phase is a four-story senior complex for tenants 55 and older. Work should begin in late summer; the complex is expected to open in spring 2011.
Deborah Adishian-Astone, associate vice president for auxiliary operations at California State University, Fresno, which runs commercial operations at the university, said the project already has generated interest.
"We've had a number of retired faculty call us about the senior housing," she said. Part of the draw is the proximity to campus cultural, entertainment and sporting events, she said.
Last month, crews started infrastructure and road work on the retail section, which will include 150,000 square feet of shops and restaurants, the theater and lofts where residents can live and work.
The last phase will be the 200-room hotel, which may break ground next year but likely wouldn't open until 2012.
University officials see plenty of synergy between the campus and Campus Pointe -- more student housing, internship opportunities in the senior complex, hotel rooms for visiting scholars and retail services aimed largely at the campus.
"We don't have much retail" within walking distance, said Adishian-Astone. "You have to get in your car and drive."
Yet, the commercial, competitive aspects of the project have stirred controversy.
The Sierra Vista Mall, which operates a 16-screen theater about three miles from Campus Pointe, took its complaints to court.
The lawsuit alleges environmental and procedural flaws in the project's review, disputes any educational link and raises conflict-of-interest questions.
Moctesuma Esparza, whose Maya Cinemas will build the theater, was a member of the California State University trustees while Campus Pointe was being planned and discussed.
Esparza, who resigned from the board, did not participate in 2007 votes approving the project. Lawyers defend the project's environmental work and approvals, and say Esparza properly disclosed his interest when Maya Cinemas became involved in the project.
Developer Kashian said much of the lawsuit is aimed at stopping the movie theater. Doyle, the mall's lawyer, said private business owners simply "want a level playing field."
Both Kashian and the university deny that he received any special breaks.
The project was opposed by both the Fresno and Clovis chambers of commerce. Officials complained that it didn't meet the university's educational mission and would compete with local businesses.
"But it's there. There's not much you can do about it at this stage," said Al Smith, president and chief executive officer for the Greater Fresno Area Chamber of Commerce.
Payment sought for Shasta lands...Cathy Locke
Dancers in native dress filed into a small amphitheater and circled a ceremonial fire, shells and beads jingling out a gentle rhythm as they walked.
The Sunday evening ceremonies at Sacramento's Camp Pollock near the American River opened what the Redding-based Winnemem Wintu Indians billed as a H'up Chonas, or war dance.
But spiritual leader Caleen Sisk-Franco said the intent was to enlist the Creator's help before petitioning the federal government for redress of grievances dating from 1941 congressional action authorizing the acquisition of tribal lands for the construction of Shasta Dam.
Members of the tribe and their supporters will walk from Old Sacramento to the state Capitol at 10 a.m. today to formally announce the filing of a lawsuit in federal court.
Mark Franco, Sisk-Franco's husband and the tribe's head man, said the suit calls on the federal government to fulfill its obligation to replace tribal lands flooded when the dam was built and to provide funds to rebuild the infrastructure.
"There just comes a time when you can't lose any more of your things," he said.
When legislation for Shasta Dam was approved by Congress, it contained a promise to acquire property for the Winnemem to replace the 4,480 acres of tribal and allotment lands that would be flooded.
That promise has not been kept, Mark Franco said, and the government continues to appropriate areas that the tribe considers sacred. The tribe's permit to gather wood from a manzanita grove for ceremonial fires has been rescinded and the grove turned into a campground, he said.
In addition, he said, the Bureau of Land Management has refused to allow continued use of a tribal cemetery.
"So when we bury someone, we are in danger of being arrested," Franco said.
The lawsuit names several federal agencies, including the Department of the Interior, Department of Agriculture, Bureau of Reclamation, Bureau of Indian Affairs, Bureau of Land Management and the U.S. Forest Service.
About 70 members of the tribe and their supporters participated in Sunday's ceremony.
Wounded Knee De Ocampo of Vallejo said he came to support the Winnemem in their bid to protect sacred sites, adding that tribes statewide continue to suffer desecration of their lands at the hands of developers and bureaucrats.
He also backs the tribe's efforts to block plans to raise Shasta Dam, which he said would endanger salmon fisheries.
In 2005, the Winnemem Wintu tribe joined environmental groups in a lawsuit alleging that plans to change the operation of California reservoirs could harm Delta fish and migrating salmon.
In April 2008, Judge Oliver Wanger of Fresno found that the U.S. Bureau of Reclamation and National Marine Fisheries Service had ignored their own evidence that fish would be harmed as they looked to increase water exports from the Sacramento-San Joaquin Delta.
Wanger ruled that the agencies violated the Endangered Species Act in approving rules to guide these new operations, called a biological opinion.
The judge ordered the opinion rewritten.
Barry Nelson, senior policy analyst with the Natural Resources Defense Council, which partnered with the tribe in the 2005 lawsuit, said the revised opinion is to be released in a couple of months.
Nelson said he gained considerable respect for the Winnemem through the earlier legal actions and was on hand Sunday to support them in their latest quest.
Climate change's focus is still a bit blurry
Despite new reports, planning for future in S.J. isn't much easier...Alex Breitler
In late spring, an extreme heat wave roasts California. Three hundred people die, many of them poor, inner-city residents who lack air conditioning, or a car so they can escape their sweltering prison.
Energy demand spikes throughout the state. Reservoirs shrink as precious snow melt evaporates. One of San Joaquin County's most profitable crops withers during the harvest.
Climate change could bring such scenarios to pass, and more frequently, by century's end, new research suggests.
But the key word remains: "could."
A series of scary reports issued by state officials this month puts the local consequences of climate change in greater focus, yet it's still far from clear, to the frustration of those tasked with managing our natural resources.
"I don't think these reports help us very much," said Kevin Kauffman, general manager of Stockton East Water District. "Somebody needs to make a decision. Decide what model is least corrupt and political and let's move on, so that we can plan for the future."
A Record review of the nearly 40 technical reports compiled by the state's Climate Action Team suggests ramifications for the county and the San Joaquin Valley, though many questions remain.
Summer temperatures statewide could increase anywhere from 2.7 degrees to 10.5 degrees by century's end, depending on how successful California is at curbing greenhouse gas emissions.
It is a wide range, to be certain. But if the worst proves true, Stockton's average high temps in July and August could push from the 90s into the 100s.
The most dangerous heat waves, always possible in July and August, could occur as early as June or as late as September. As a result, electricity demand in the Valley could double by 2100, costing consumers as they crank up their air conditioners.
Events such as the 2006 heat wave - which officially contributed to 140 deaths but likely two to three times that number - will become more frequent.
Ron Baldwin, director of the county's Office of Emergency Services, said officials learned from the 2006 disaster.
"I think we're in better shape than we were then," he said. "Is this going to happen more often? It's a good question. I read that stuff too, and it's generally vague."
Valley dwellers may be in a better position to endure such heat waves, reports say, since many more have air conditioners than their friends in coastal counties. One report says Valley dwellers may even have biologically adapted to survive oppressive heat.
California will still have wet years and dry years, with much variability. But by the middle of this century, one study notes a drying trend from the Sacramento region to the south.
Even if the state gets the same amount of precipitation as it does today, some water held in reservoirs will evaporate, thanks to the warmer temperatures.
Then there is the dwindling snowpack. Less snow and more rain means reservoirs that may be overwhelmed during the rainy season, drained for flood control and dangerously low in the springtime thanks to less snow melt.
Stockton may be somewhat shielded from this; about half of the city's surface water comes from the Calaveras River, which is flushed by rain more than snow.
As for the ocean, the latest figures suggest a 23- to 55-inch rise in sea level by 2100.
One study estimated $50 billion in property at risk in the Bay Area, but did not address threats in the Delta.
Another study, however, says that when high tides coincide with bulging rivers, more pressure will be placed on Delta levees.
Some crops are expected to decline because of warming, while others may remain stable or even increase.
In San Joaquin County, the most imperiled crop might be cherries, worth an estimated $201 million in gross value in 2007. The crop could decline 20 percent by 2050, one report says.
Cherries, like all fruit crops in the Valley, need frigid winter temperatures.
The crop could also be imperiled by early season heat during harvest season, said Jim Culbertson, executive manager of the California Cherry Advisory Board in Lodi.
Personally, Culbertson does not believe humans are contributing to the changing climate, and called the report on which the cherry data was based "fictitious."
"Most of the people I'm dealing with are talking about how cold this winter has been," he said.
Almonds may see a slight upswing, and grapes a slight decline, the report says. Field crops, with the exception of alfalfa, also are expected to decline.
On the ranch, the production of forage for cattle may be cut 14 percent to 58 percent, a blow that could cost ranchers tens of millions of dollars.
In the foothills and mountains, the value of harvested timber is expected to decline, most acutely in the North Coast but also in the Mother Lode and Sierra Nevada.
Wildfires, meanwhile, may blacken 57 percent to 169 percent more land than in past years, with annual damage to homes in the billions of dollars by mid-century.
Changes in the timing of peak rivers flows could harm migratory fish such as salmon, whose numbers have already plummeted.
Floods could scour gravel from river bottoms, making salmon eggs vulnerable to destruction. Juveniles could be swept away in the floodwaters.
And lower river flows during spawning periods could block fish heading upstream to spawn.
Climate change isn't only about water or temperature or fish. It is about people.
Low-income and minority residents often live in areas with lots of asphalt but few trees and little vegetation, making them susceptible to the "heat island" effect.
Agricultural workers, including many Mexican and Central American immigrants, may be at greater risk of heat-related illness, one of the studies says. And they'll be the first to lose their jobs during severe droughts.
Climate change "is not only an environmental issue; it is also a human rights, public health, and social equity issue," read a report by California Climate Change Center at the University of California, Berkeley.
Betsy Reifsnider, who heads an environmental justice program for the Catholic Diocese of Stockton, said protecting creation also involves protecting the poor.
"We create most of the problem, and it's the poorest among us who are going to face most of the consequences," she said. "That's just not acceptable."
What's already happened
• The Earth has warmed about 1 degree over the past century.
• The distribution of native plants and mountain trees has changed.
• Butterflies in the Central Valley are fluttering earlier each spring.
• Small mammals at Yosemite National Park have moved to higher elevations.
• Sea levels over the past few decades have risen at a rate of about 6 inches to 7 inches per century.
Don't hold your breath for Legislature's promised Delta bill...Editorial
Last week, Interior Secretary Ken Salazar and Gov. Arnold Schwarzenegger were captured by a news photographer looking out the window of a helicopter as they flew over the Sacramento-San Joaquin River Delta.
To say the photo was reminiscent of the infamous picture of then-President George W. Bush gazing out the window of Air Force One as he flew over New Orleans in the wake of Hurricane Katrina is to overstate the case. But just.
Salazar was in California as part of a Western swing to yammer about $1 billion from the Bureau of Reclamation for water projects that will create jobs in the West.
California, a big state, with arguably the biggest water problems, will get $260 million for state water projects, including work on the Delta's nettlesome woes. That money will do little to cure the Delta's ailments, but Salazar said it's a start.
As anybody who's paid attention knows, this state has dealt - but mostly not dealt - with its water problems in fits and starts for decades. Nothing much changes. Farmers and environmentalists fight. Northern California and Southern California fight. State agencies and federal agencies fight. And all these groups and others realign themselves, raise new issues, claim new ground and refight yesterday's battles.
And with this history, Assembly Speaker Karen Bass and Senate President Pro Tem Darrell Steinberg said lawmakers intend to craft a comprehensive water bill by the summer.
Two words: state budget.
If lawmakers thought coming up with a budget, any budget, was tough, wait until they try to decide whose straws and how many straws can be dipped into the Delta. About two-thirds of the nearly 38 million Californians drink from the Delta. Many people water their crops with it or sail their boats on it. There are the fish, endangered and otherwise, that have rights, too. And then there's the simple but horribly complex reality that no matter what people do, the Delta is a living, breathing ecosystem that is constantly changing.
A water bill by this summer? Sure.
Salazar said he wants the federal government and the state to partner in finding solutions.
One word: CALFED.
That state-federal partnership in the 1990s was supposed to come up with a comprehensive water plan for the Sacramento-San Joaquin river system, including the Delta. Hundreds of millions of dollars were spent before the effort collapsed in a nasty series of fights over turf.
Still, we have to do something. We've had three consecutive drought years, but more than one engineering study on the system's aging and poorly maintained public and private levees has cautioned that the Delta is a flood and ecological disaster waiting to happen. Stockton and Sacramento will find themselves smack in the middle of it when it happens, whether triggered by collapsing levees, high water, an earthquake or some combination.
Salazar was careful not to take sides in the battle over more surface storage, new dams, levee repair and removal, and a peripheral canal, perhaps the hottest of all the hot buttons surrounding California water.
Schwarzenegger favors most of that, including a conveyance canal outside the Delta. He also wants a multibillion-dollar water bond to pull it off.
Sadly, the chances of the governor getting his way, no matter the crisis staring us in the face, is about as great as the chance that the Legislature will put a water bill on his desk this summer.
San Francisco Chronicle
As we use less, we could pay more for water...Kelly Zito
Dwindling demand for anything - gasoline, DVDs, hamburgers - usually forces prices down.
Not with water. Shorter showers, brown lawns and water-efficient dishwashers translate into red ink for water agencies because their revenue relies heavily on how much water everyone uses.
When people use less, water agencies struggle to cover their large, fixed costs.
Their solution: Hike prices.
"We're out there telling people to use less water, and yet a lot of the revenue we have is based on what people use, said Gary Breaux, finance director for the East Bay Municipal Utility District, which serves 1.3 million people in Contra Costa and Alameda counties. "It's a circular thing."
The district was the first in the Bay Area to enact water rationing last year after the driest spring since the Gold Rush days. Now it faces a conservation-related shortfall of about $12 million.
Last week, the agency's board of directors moved to end drought-related rationing and to boost regular rates by 7.5 percent.
Across the nine-county region, water agencies are facing the same catch-22 after three years of dry conditions and receding reservoirs. Many of them are raising rates - in large part because customers are heeding the call to conserve.
The San Francisco Public Utilities Commission, the largest water district in the region, is leaning toward 10 percent annual rate increases over the next four years. Marin Municipal Water District plans a 7.3 percent bump.
Customers are perplexed, to say the least.
At a public workshop last week at the East Bay water district's headquarters in Oakland, Berkeley resident and environmental consultant Juliet Lamont lambasted a water system that would thrive on selling more, rather than less, water.
"Right now the system says if you use more water, (water districts) get more money," Lamont said, adding that during the mandatory water cutbacks, "people stopped using hoses and letting water run down the driveways. That should end permanently, drought or not."
Ninety percent of the district's costs - salaries, debt service - are fixed, Breaux said. Only about 10 percent of its costs fluctuate - electricity, chemicals and certain maintenance fees.
But a whopping 80 percent of the agency's monthly revenue comes from the amount of water it sells. When customers use a normal amount of water, the system works. But during a drought or a cool summer, revenue tumbles. Because water districts operate at a break-even level, they are forced to react with price increases when demand plunges.
Some districts in California, historically those with plentiful supplies, charge a flat monthly fee for water. Although those districts recoup costs, experts agree that such an approach doesn't promote conservation, and many of the agencies are switching to volume pricing.
David Zetland, a UC Berkeley water economist, says water pricing in California must be overhauled. In his view, each ratepayer should fork over a much higher fixed price for a base amount of water every month. Customers who use more should be charged considerably more money, he argues.
EBMUD customers now pay $1.82 for each 748 gallons they use, up to 5,236 gallons - which is enough to fill about 100 bathtubs. For comparison's sake, a 16-ounce cup of Starbucks coffee costs $1.75.
For each 748 gallons after that, up to 11,968 gallons, customers pay $2.26, or 24 percent more. Above 11,968 gallons, each 748 gallons costs $2.77 - a 23 percent increase.
Zetland proposes that customers in the two upper tiers pay closer to $4 and $8 respectively.
"If you double the variable costs of water, conservation goes up and (water district) costs for energy and treatment go down," Zetland said. "You could actually have a 'profit' which you could rebate back to the water misers. If you use little water, you could actually have a negative water bill."
Even if Bay Area water officials agree, they face a major roadblock: Consumers like cheap water.
Ron Thompson, an East Bay builder, recently finished six homes in Castro Valley. The monthly water bill for each unoccupied home is more than $50, he told EBMUD directors last week. "How do I face a prospective buyer and say the monthly charge without using any water is $54.46?" Thompson said. "It's nothing to add $30 or $40 onto that - and soon you have a $100 water bill for a family of four. There's something wrong with this scenario."
Pricier water inevitable
Despite consumer outcry, pricier water is necessary and inevitable, experts say.
California's population is growing fast, the climate is becoming drier and warmer, aging infrastructure will need replacing and agencies will most likely seek additional, more expensive water supplies such as desalinated ocean water.
"Water rates are going up, as they should," said Heather Cooley, senior research associate at the Pacific Institute, a water think tank in Oakland. "We have undervalued water as a resource for far too long.
"Shifting people toward these new rate structures needs to be done - but it can't be done overnight."
Central Valley Water...Sunday, April 19, 2009
Central Valley farmers and farm workers are suffering through the third year of the worsening California drought with extreme water shortages and job losses. The office of California Gov. Arnold Schwarzenegger has predicted Central Valley farm losses to reach between $325 million and $477 million with a total loss for crop production and related business between $440 and $644 million. Central Valley is expected to lose 16,200 to 23,700 full-time jobs and food prices are expected to rise nationwide. Interior Secretary Ken Salazar this week pledged $260 million in federal stimulus money to help address the California water crisis.
Los Angeles Times
California's proposed Low Carbon Fuel Standard
It isn't perfect, but it's an ambitious and worthy effort...Editorial
Until somebody comes up with a way to power a car with garbage, like the time-traveling DeLorean in "Back to the Future," our options are limited: gasoline and diesel, electricity, natural gas, liquid coal, hydrogen or plant-derived biofuels such as ethanol. Most people on both the right and the left agree that if we want to decrease our reliance on foreign oil and/or slow the progress of climate change, we're going to have to use less of the first two and focus on some combination of the remaining five. Yet pursuing the alternatives can cause environmental and economic damage that's as bad as, or worse than, that of oil and gasoline. So how do we come up with regulations that encourage cleaner fuels and discourage destructive ones, without making technology decisions that are better left to the free market?
That's the challenge the state of California is taking on by creating a Low Carbon Fuel Standard, which after more than a year of development and hearings by the state Air Resources Board is slated for approval Thursday. It's a daunting task, all the more so because the state is trying to do something that hasn't been tried before: regulate not just the direct "life-cycle" emissions from producing, transporting and using fuels, but the indirect emissions that result when land is converted to grow crops for biofuels.
This matters a great deal, because not all biofuels are created equal. Some of them, particularly ethanol produced from corn, raise food prices, pollute waterways as more fertilizer is spread over the fields, and encourage farmers in places such as Latin America to cut down more rain forest to grow crops. Yet measuring these indirect effects relies on untested and possibly unreliable science, which is why the biofuels industry is in an uproar over California's proposed regulation.
The goal of the Low Carbon Fuel Standard is to lower the "carbon intensity" of fuels sold in California 10% by 2020. It does this by using complexformulas to score each type of fuel based on its life-cycle emissions; carbon intensity is calculated by comparing the amount of greenhouse gases emitted by a fuel over its life cycle with the amount of energy it produces. Starting in 2011, companies that sell fuel in California will have to lower the overall carbon intensity of their various fuels at a rate that will increase every year until 2020, or else buy credits from companies that sell cleaner fuels.
Oil company lobbyists have sought to persuade the air board to delay adoption of the rule, saying it could raise fuel prices and disrupt supplies because there may not be enough low-carbon fuel available to meet the standards. Yet state analysts believe that the rule will actually lower wholesale fuel prices, producing a "savings" of $11 billion over a 10-year period. Whether this money will be passed on to consumers in the form of lower prices or collected as profit by fuel providers is an open question.
Actually, the questions don't end there. Fuel prices are affected by a host of unpredictable variables, so trying to predict them a decade in advance is usually a waste of time. And the new state standard is flexible; if it does produce price and supply disruptions, the air board can simply push back the schedule, giving fuel suppliers more time to comply.
The objections from biofuel producers are more troubling. They focus on a penalty for "indirect land use change" that would be applied only to biofuels when calculating their carbon intensity. This is triggered when production of a certain biofuel causes a rising demand for the plants it's made from.
There are two types of biofuels: the first-generation fuels in mass production today, which are mostly made from food crops, and the second-generation fuels still under development. The latter can be made from nearly any kind of plant material, including wood chips, agricultural waste or native plants that require little watering or fertilizer, such as switchgrass and miscanthus.
Clearly, second-generation fuels -- also called "advanced biofuels" or "cellulosic ethanol" -- will have less negative environmental and economic impact than first-generation fuels. The indirect land use change penalty would give the advanced fuels a boost and discourage food-based fuels by calculating the carbon emissions that result when farmers convert land to grow biofuel crops and adding that number to the fuel's carbon intensity score.
Corn ethanol, by far the most common biofuel in the United States, serves as an instructive example. Because of congressional mandates, ethanol production has risen dramatically in recent years. As American farmers began growing more of their crops for fuel instead of food, U.S. corn exports dropped and world corn prices rose sharply. Fields that were formerly used for crops such as soybeans and wheat were converted to corn, causing prices for those commodities to rise too. That prompted farmers in other countries to clear more forest land, which serves as a "sink" for storing atmospheric carbon, to grow corn, soybeans and wheat.
California plans to use a sophisticated computer model to calculate the environmental damage that results from such land use changes, and apply the penalty to land-intensive biofuels. According to some scientists, this model is inadequate. It can't predict changes in weather, politics or agricultural technology that can have big impacts on land use. Further, the biofuels industry argues that it's being unfairly singled out, because there is no indirect penaltycharged to other fuels, such as petroleum or electricity.
That last argument has little merit; the industry hasn't identified any indirect effects from those fuels that are anywhere near as significant as the emissions created by land-use changes. And while the potential unreliability of the computer model is troubling, biofuels backers are overstating the problem. The model is based on the best science available, and it will improve over time as the science improves. Just because it isn't perfect doesn't mean it isn't good. Moreover, it's vital to include indirect land use changes in the fuel standard, because failing to do so would encourage environmentally unfriendly fuels and defeat the purpose of the initiative.
California's efforts to regulate fuels are being watched very closely by other states and countries, many of which will base their own programs to clean up fuel supplies on the Golden State's. It's an ambitious and extremely worthy project that deserves to be approved Thursday.
Housing Data Could Signal If Bust Is Over...Monday, April 20, 2009
Economy-watchers are searching for evidence that the housing market is starting to hit bottom. And in recent months, there has been some evidence that the end of the great housing bust may be near.
This week offers a reality check, with three key pieces of housing-related data coming out. But to interpret the data, it helps to realize that the end of the housing bust means different things, and could come at different times, depending on what data you consider.
Home sales will likely hit a bottom first -- and may have already done so. Data on existing home sales in March is scheduled to come out Thursday and new home sales on Friday. Both measures of housing activity picked up in February, a sign that between cheap foreclosed-on houses and low mortgage rates, the volume of sales may finally have stopped falling. This week's data will be a test of that thesis. Analysts are expecting a mixed bag, with new-home sales rising modestly but existing home sales falling a bit.
Whatever the March numbers say, there are good reasons to think that home sales will improve as the spring selling season gets underway. Anecdotal reports suggest that low mortgage rates and an $8,000 first-time home-buyer tax credit are coaxing buyers back into the market. And while foreclosures are set to rise as banks begin to move on delinquent homeowners, that actually could boost home sales as banks auction homes for whatever the market will bear.
The prospects are less promising for home prices, a report on which is set to come out Wednesday. Analysts expect the Federal Housing Finance Agency's price index to have fallen 0.6 percent. The new wave of foreclosures may help home sales activity but is likely to keep driving home prices down.
Time lags are another issue. Even if low rates and tax credits bring buyers back into the market, it could take months for that increased demand to meaningfully affect prices, simply because of the time it takes a person to go from deciding it's time to shop again to actually closing on a house.
Big banks have a big credit problem
Bank of America and Citigroup have been sinking billions into rainy day funds, but problem loans are growing even faster...Colin Barr
NEW YORK (Fortune) -- Banks are socking away funds for future loan losses at a record clip. But at the sickliest institutions, problem loans are rising even faster. On Monday, Bank of America (BAC, Fortune 500) became the latest big bank to report a stronger-than-expected quarterly profit, posting net income of $4.2 billion, or 44 cents a share. Analysts had expected a profit of just 4 cents a share.
Like its rivals Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500), Charlotte-based BofA pointed to strong fixed-income trading results and a big rise in earnings from its mortgage business.
BofA managed to post the big profit even as it set aside more than $6 billion to cover future loan losses. The bank's loan loss reserve now stands at $30 billion -- double its year-ago level.
BofA expects more borrowers will fall behind on payments or default on their loans as job losses deepen and the economy struggles through its worst recession in decades.
"We understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment," CEO Ken Lewis said in a statement Monday morning.
Yet as much money as BofA is putting away, both it and Citi -- the two big banks that have received multiple infusions of federal aid over the past year -- are reporting sharp rises in problem loans, particularly on their big credit card portfolios. BofA posted a $1.8 billion loss in its global cards business in the latest quarter.
These high credit costs could weigh on the banks' earnings for many quarters -- and perhaps even affect the regulatory stress tests whose results are due to be revealed in coming weeks.
Not keeping pace
While BofA has doubled its loan loss reserve, nonperforming assets -- loans that are no longer producing income as borrowers fall behind on payments -- have more than tripled, reflecting the weakening economy and the acquisition of troubled Countrywide and Merrill Lynch.
As a result, BofA's loan loss reserve now covers just 121% of its nonperforming loans -- down from 203% a year ago.
That means the bank has a thinning cushion just as the industry braces for rising losses on commercial and industrial loans, as well as continuing declines in residential real estate.
Another bank with a thin cushion is Citi, which reported an unexpected $1.6 billion first-quarter profit Friday even as credit costs doubled from a year ago.
Though Citi's loan loss reserve has jumped 78% from a year earlier, nonperforming assets have more than doubled over the same span. As a result, Citi's loan-loss coverage ratio has slipped to 121%, from 177% a year earlier.
In contrast, the stronger big banks -- JPMorgan, which posted a $2.1 billion first-quarter profit last Thursday, and Wells Fargo, which said earlier this month it expects to make $3 billion in the quarter -- have healthier coverage ratios, thanks to extensive reserve building.
At JPMorgan, for instance, nonperforming assets have jumped to $11 billion from $4 billion in the span of a year. But the bank has been bulking up its reserves at a similar pace.
As a result, JPMorgan's loss reserves at the end of the first quarter amounted to 241% of nonperforming assets -- double the coverage at Citi and BofA, although down from 271% a year ago.
And Wells Fargo's reserve ratios have risen significantly over the past year, in large measure due to a $37 billion writedown of bad loans associated with its Dec. 31 acquisition of Charlotte-based lender Wachovia.
Wells' reserves were 255% of nonperforming assets at the end of the first quarter, according to estimates by analysts at Fox-Pitt Kelton, up from 134% a year earlier. (The bank has yet to report its full results for the first quarter.)
While coverage ratios are far from the only indicator of a bank's health heading into a prolonged period of economic distress, they are likely to be one factor in the stress tests being conducted by federal regulators.
The Federal Reserve and Treasury are expected to begin informing the 19 big banks taking the tests of their results in coming weeks. Those that with lower scores are expected to be forced to raise capital, though the terms and the timing aren't clear. Concerns about the health of the banking sector helped to send shares of most big banks down in midday trading Monday.
Still, even BofA -- the biggest loser Monday with a 15% decline -- has experienced a stunning rally since the sector hit its recent low in early March. At their lows Monday, BofA shares had tripled off their March 6 floor.