World Bank president says second generation of ethanol subsidies 'makes sense'

The head of the World Bank has been making a few stops in Minnesota this week to talk about global trade and the goal of overcoming world poverty.

Robert Zoellick has been president of the Washington D.C.-based World Bank Group since 2007. He's speaking Thursday to the Economic Club of Minnesota.

Zoellick caused a stir a couple years when he suggested that Western governments' push for biofuel use was a significant factor in soaring food prices, which aggravated the hardships of poor people globally.

"It is the case that at least for the first-generation ethanol using corn, that this obviously consumes a lot of corn, and that has had an effect at times of corn prices have been relatively tight," Zoellick said.

Minnesota is the nation's fourth largest producer of corn-based ethanol. Federal requirements oblige refiners to blend renewable fuels like ethanol into gasoline, and refiners get a 45-cent tax credit for each gallon of corn ethanol used. But that credit is set to expire this year, along with a tariff against imports of ethanol.

Some want the incentives continued.

Zoellick, who has held significant posts in the Treasury and State Departments, as well as the White House, questions the current system.

"When I was in the U.S. government, I asked myself about the logic of having a tariff on bringing in ethanol into the country, subsidies to produce something, and then also a requirement that it be used," he said. "So obviously that's very advantageous for the first generation of subsidies and it's up to people in the Congress and executive to decide if that's the right balance they want to strike between those three things."

"It is the case that at least for the first-generation ethanol using corn, that this obviously consumes a lot of corn, and that has had an effect at times of corn prices have been relatively tight."

On Wednesday, 17 U.S. Senators from both parties sent a letter to Senate leaders calling for an end to government subsidies of the ethanol industry.

Zoellick prefers supporting a "second generation" of ethanol production using cellulosic materials like wood or grasses that can't be used as food.

"If you want to support subsidies, maybe some subsidies for the second generation development would make more sense," Zoellick said.

The World Bank's focus on food is part of its overall mission to help impoverished countries, many of which have sent refugees to Minnesota in recent decades. The World Bank provides financial and technical assistance to developing countries through low interest loans, interest-free credits, and grants.

Zoellick said the World Bank is currently working with Hmong populations inside China to help them draw tourism. Ethiopia is also the recipient of about $1 billion in World Bank assistance.

Zoellick said their involvement in Ethiopia includes helping the country develop industrial zones that could be attractive for Chinese companies looking to outsource their production.

"It could be an example of the possibility that as China grows abroad, it develops more than the resource industries, it develops more than the resource industries; it creates an opportunity beyond textiles and apparels for basic manufacturing," he said.

But World Bank workers are not deployed to Ethiopia's eastern neighbor, Somalia, another African nation that has sent thousands of refugees to Minnesota. The war-torn country lacks a stable government, and Zoellick said security conditions are so dangerous that development projects are simply impossible.

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