Title: Bioenergy Policy Options
1Bioenergy Policy Options
- James Duffield
- Hosein Shapouri
- Agricultural Economists
- Office of Energy Policy and New Uses
- Office of the Chief Economist
- http//www.usda.gov/agency/oce/oepnu/index.htm
- Presented at the National Public Policy Education
Conference, September 21-24, 2003, Salt Lake
City, Utah
2Bioenergy
- Bioenergy uses renewable biomass resources to
produce an array of energy related products
including electricity, liquid, solid, and gaseous
fuels, heat, chemicals, and other materials.
Bioenergy accounts for about three percent of the
primary energy production in the United States. - Bioenergy resources come from biomass, i.e., any
plant derived organic matter available on a
renewable basis, including dedicated energy crops
and trees, agricultural food and feed crops,
agricultural crop wastes and residues, wood
wastes and residues, aquatic plants, animal
wastes, municipal wastes, and other waste
materials. -
- Source DOE, EERE http//www.eere.energy.g
ov/RE/bioenergy.html
3Types of Bioenergy
- Biofuels are liquid fuels including ethanol,
methanol, biodiesel, and gaseous fuels such as
hydrogen and methane derived from biomass
feedstocks. Corn-ethanol is most common biofuel
produced today, with biodiesel as a distant
second. Cellulosic ethanol is the hope of the
future. - Biopower is electricity generated from biomass.
All of today's capacity is based on
direct-combustion technology The burning of
biomass to produce steam in boilers. The steam is
used to produce electricity in steam turbine
generators. Most biopower produced today is from
waste wood. Future biopower technologies may
include co-firing, gasification (biogas),
pyrolysis, and anaerobic digestion. - Biobased chemicals and industrial products, other
than food and feed, derived from biomass
feedstocks. Examples green chemicals,
renewable plastics, natural fibers, and natural
structural materials. - Source DOE, EERE http//www.eere.energy.
gov/RE/bioenergy.html
4Motivation Behind Energy Policies
- 1) Energy Security
-
- Policymakers see domestic biofuels as potential
reserves during emergencies, such as war or an
energy crisis like the one experienced in the
1970s. -
- Improve energy security by reducing our
dependence on foreign oil from unstable
countries. A primary goal of the Energy Policy
Act of 1992 was to increase the domestic
production of alternative fuels to reduce our
dependence on foreign oil. - The Presidents National Energy Policy Group
reported that Federal programs designed to
promote alternative fuels, such as ethanol and
biodiesel, has helped to reduce U.S. reliance on
oil-based fuels.
5Motivation Behind Energy Policies
- 2) Environmental Benefits
- Many biofuels are considered to be cleaner
burning than their petroleum counterparts. They
are generally more biodegradable, nontoxic, less
likely to cause cancer, and have the potential to
reduce greenhouse gasses. - Environmental policies encourage bioenergy
production, such as the Clean Air Act Amendments
of 1990. Ethanol additives are used in EPAs
clean fuel programs to produce reformulated
gasoline and oxygenated fuels.
6Motivation Behind Energy Policies
- 3) Benefits to Farmers
- Bioenergy polices create new markets for
farmers, e.g., corn-ethanol and biodiesel. Tthe
primary goal of USDAs CCC Bioenergy Program is
to increase domestic consumption of agricultural
commodities by expanding or aiding in the
expansion of domestic markets for agricultural
commodities. -
- Increasing the demand for farm commodities
through bioenergy policies can result in higher
prices, for example, increasing corn demand by
100,000 bushels to produce ethanol, results in a
2-4 percent increase in corn price. - USDA benefits from bioenergy policies that
support farm prices because farm program payments
decline as farm prices rise. -
- .
-
7Methods Used to Encourage Bioenergy Development
- Federal Incentives
- Motor fuel excise tax exemption, e.g., ethanol
receives 0.52/gal tax credit - Blenders Income tax credit
- Income tax deduction on purchase of renewable
fueled vehicles - Income tax credit for businesses that sell or use
alcohol as a fuel
8Methods Used to Encourage Bioenergy Development
- Federal Incentives Continued
- Production tax credit for electricity generated
by qualified energy resources, defined as wind,
closed-loop biomass, or poultry waste - The Renewable Energy Production Incentive
provides financial incentive payments for
electricity produced and sold by new qualifying
renewable energy generation facilities. Eligible
technologies include landfill gas, wind, and
biomass - Guaranteed Loan Programs offered by USDAs Rural
Business Service provides funding for ethanol
plants - Source DOE, EERE http//www.eere.energy.gov/R
E/bioenergy.html
9Methods Used to Encourage Bioenergy Development
- Bioenergy Research
- Many Government agencies are involved in
bioenergy research, including DOE, EPA, DOC, DOD,
DOI, USDA and others - USDA research program focus on new uses for farm
commodities - - Biofuel technology (e.g., enzyme development
for ethanol production) - - Value added coproducts for biofuels (e.g.,
lactic acid and low-calorie sweetener) - - Energy crops (e.g., switch grass)
- - Finding new uses for animal fats (e.g.,
biodiesel) - - Biobased packaging from wheat straw
- - National Corn to Ethanol Pilot Plant in
Edwardsville, IL -
-
10Government Regulations Increase the Demand for
Bioenergy
- Air quality regulations have been a major stimuli
for ethanol production - Ethanol first started being used as a fuel
additive in the late 1970s when EPA began phasing
out lead in gasoline. Removing lead from
gasoline lowered the octane level of gasoline.
Because of its high octane content, ethanol soon
established a role as an octane enhancer. - The Clean Air Act Amendments of 1990 established
the Oxygenated Fuels Program and the Reformulated
Gasoline (RFG) to control carbon monoxide and
ground-level ozone problems. Both programs
require that certain urban areas in
non-attainment add oxygen to their gasoline
2.7 percent by weight for oxygenated fuel and 2.0
percent by weight for RFG. Blending ethanol
with gasoline is one way to meet the oxygenated
requirements. Blending methyl tertiary butyl
ether (MTBE) with gasoline also can be used to
meet the requirements.
11Alternative-Fueled Vehicle Requirements
Established to Encourage Biofuel Use
- Energy Policy Act of 1992 requires government and
state motor fleets to purchase alternative-fueled
vehicles (75 of new purchases). Alternative
fuel providers must also comply (90 of new
purchases). DOE has the authority to implement a
private and local government program if
necessary. - The Energy Conservation Reauthorization Act of
1998 amended EPACT to include biodiesel fuel use
credits. The rule, effective January 2001, gives
fleet operators one AFV credit for using 450
gallons of biodiesel. - Auto industry receives Corporate Average Fuel
Economy credits to manufacture flexible-fueled
vehicles
12Farm Security and Rural Investment Act of 2002
- 2002 Farm Bill Energy Title, IX
http//www.usda.gov/energy/ - Section 9002 Federal Procurement of Biobased
Products - Funding 1 million per year, FY 2002-2007
- Lead Agency Office of Energy Policy and New
Uses - Key Staff Contact Marvin Duncan,
Mduncan_at_oce.usda.gov - Section 9003 Biorefinery Grants
- Funding Authorized funding but no funding
appropriated - Lead Agency Rural Development Agency
- Key Staff Contact Bill Hagy, Bill
Hagy-RBS.GW.OCE_NET
132002 Farm Bill Energy Title, IX
- Section 9004 Biodiesel Fuel Education Program
- Funding 1 million per year, FY 2003-2007
- Lead Agency Office of Energy Policy and New
Uses - Key Staff Contact Jim Duffield,
Jduffield_at_oce.usda.gov - Section 9005 Energy Audit and Renewable Energy
Development Program - Funding Authorized funding but no funding
appropriated. - Lead Agency Rural Development Agency
- Key Staff Contact Bill Hagy, Bill
Hagy-RBS.GW.OCE_NET - Section 9006 Renewable Energy Systems and
Energy Efficiency Improvements - Funding 23 million year, FY 2003-2007
- Lead Agency Rural Development/Rural
Business-Cooperative Service - Key Staff Contact Bill Hagy, Bill
Hagy-RBS.GW.OCE_NET
142002 Farm Bill Energy Title, IX
- Section 9007 Hydrogen and Fuel Cell
Technologies - Funding No funds authorized
- Lead Agency Office of Energy Policy and New
Uses - Key Staff Contact Hosein Shapouri,
HShapouri_at_oce.usda.gov - Section 9008 Biomass Research and Development
- Funding 5 million in FY 2002 and 14 million,
FY 2003-2007 - Lead Agency Natural Resource Conservation
Service - Key Staff Contact Merlin Bartz, Merlin
Bartz-USDA.GW.OCE_NET -
152002 Farm Bill Energy Title, IX
- Section 9010 Continuation of the Bioenergy
Program - Funding Up to 115.5 million, FY 2003 and up to
150 million per year, FY 2004-06 - Lead Agency Farm Service Agency
- Key Staff Contact Jim Goff, BioenergyProgram_at_wdc
.usda.gov - Background on CCC Bioenergy Program
- Established by USDA in FY 2001 to encourage
ethanol and biodiesel production. Cash - payments available from the CCC to bioenergy
producers compensating them for a portion - of their increased commodity purchases
- Under 65 million gallons, payment on 1 bushel for
every 2.5 bushels of corn or soybeans used for
production - 65 million gallons or more, payment will be 1
bushel for every 3.5 bushels of corn or soybeans
used for production
16Results of FY 2001 Bioenergy Program
- Ethanol producers received 32.7 million for
141.3 additional gallons. The average payment
rate was about 0.23 per gallon - Biodiesel producers received 7.9 million for 6.4
million gallons. The average payment rate was
about 1.23 per gallon - Results of FY 2002 Bioenergy Program
- Ethanol producers received 66.1 million for
219.3 additional million gallons. The average
payment rate was about 0.30 per gallon - Biodiesel producers received 12.6 million for
8.9 million gallons. The average payment rate
was about 1.42 per gallon
17The 2002 Farm Bill Revised the CCC Bioenergy
Program
- 1) Extended the Program to FY 2007
- Broadened the list of eligible feedstocks to
include animal byproducts, e.g., lard and tallow,
and recycled fats, oils, and greases - Added payments on base for biodiesel producers.
The level of benefits paid for base production
will be gradually phased down from 50 percent in
2003, to 30 percent in 2002, and 15 percent in
2005. Base payments are eliminated in 2006 - 4) Payment rates on biodiesel made from
non-soybean oils and fats were adjusted to be
more equitable to biodiesel made from soybeans
18State Regulations Affect Bioenergy Demand
- Banning MTBE in California has Stimulated Ethanol
Demand - Because of its propensity to contaminate drinking
water, MTBE has been banned in California. The
ban begins in January 2004, but the California
refiners have already begun to replace MTBE with
ethanol. This is expected to increase the annual
use of ethanol in California by 600-900 million
gallons. U.S. ethanol production in 2002 was 2.1
billion gallons. - Altogether 16 states plan to ban MTBE and two
other states are likely to pass a law banning
MTBE. There also is a proposal in the Senate
version of the Energy Bill that calls for an
national ban of MTBE.
19Most States Have Bioenergy Incentives
- 16 states have tax credits and/or producer
payments for ethanol and biodiesel - 11 states have grant programs, personal income
tax credits and corporate income tax credits for
constructing biofuel facilities, conducting
research on renewable fuel technologies,
developing renewable energy systems, and
investing in alternative energy development - 23 states have a Renewable Energy Portfolio
Standard or other type of renewable electricity
program that provides incentives for biomass
power, anaerobic digestion and other renewable
fuels used to generate power - Only 14 states have no incentives for bioenergy
- Source http//www.dsireusa.org
20Largely due to Government policies, ethanol
production grew from about 62 million gallons in
1976 to over 2 billion gallons in 2002
Surface Transportation Assistance Act of 1983
increased ethanol tax exemption to 0.50/gal
and the blenders income tax credit to 0.50/gal
Energy Tax Act of 1978 gave ethanol a
0.40/gal credit on the Federal motor fuels tax
MTBE discovered in California drinking water in
1998
Regulations under the Clean Air Act Amendments
of 1990 started in 1992
RFG begins in 1995
Blenders Income tax credit of 0.40/gal
In 1999 California Governor banned MTBE by 12/03
Tax Reform Act of 1984 increased ethanol
tax exemption to 0.60/gal and the blenders
income tax credit to 0.60/gal
Energy policy Act of 1992 applied ethanol tax
credits to lower blends
Source U.S. Energy Information Administration
and USDA, ERS
21Biodiesel production remained flat until the
creation of USDAs Bioenergy Program in FY 2000
that caused production to jump from about 2
million gallons to 6.5 million gallons in FY 2001
The Farm Bill extends USDAs Bioenergy Program to
2006
USDA started the Bioenergy Program under the
authority of the CCC Charter Act
Congress amends EPACT to include biodiesel
The National Soy Fuels Advisory Committee
was Established in 1992
Source Anecdotal information and USDA, Farm
Services Agency
22Most states with higher ethanol consumption have
state incentives and/or participate in EPA clean
fuel programs that use ethanol
-Tax exemptions - Producer payments
States with incentives but little production
No current state incentives but large mandated
oxy-fuel and RFG markets encourage ethanol
production
States with significant ethanol production but no
major state incentives
Source Ethanol consumption estimated by U.S.
Department of Transportation, Federal Highway
Administration, 2000
23Ethanol consumption more likely to grow in States
that ban MTBE
States planning to ban MTBE
24Energy Bill Would Have Major Effect on Bioenergy
Development
- Renewable fuel standard renewable fuel blended
with motor fuel must increase from 2.3 billion
gallons in 2004 to 5 billion gallons in 2012 - Federal Government requirement to purchase
electricity from renewable fuel sources 3 in
FY 2003, increasing to 7.5 in 2010 - Renewable portfolio standard for electric
utilities increase their use of renewable
energy from 1 in FY 2005 to 10 in FY 2020 - Federal fleets required to increase their use of
alternative fuels - MTBE would be banned in the United States within
4 years - States have the authority to waive the 2-percent
oxygen content requirement for reformulated
gasoline - Appropriations for Energy research and
development, including renewables
25Energy Bill Would Have Major Effect on Bioenergy
Development
- Renewable electricity production tax credit
extended to 2007 - Amendment to small ethanol producers tax credit
to include farm co-ops - Alternative Vehicles and fuels incentives
provides tax credits for purchasing new
alternative fuel vehicles
26Estimated Effect of the renewable fuels
standard (RFS) on future ethanol production
Million gallons of ethanol
RFS results in 1.4 bill gal increase
RFS
USDA baseline
Historical estimates
27What is the effect of the renewable fuels
standard (RFS) on future biodiesel production?
- We dont know
- USDA doesnt have baseline for biodiesel
- Biodiesel has not been able to get beyond niche
markets - Ethanol may dominate the RFS market, particularly
in the early years - Biodiesel and other renewable fuels will have to
play catch-up with ethanol - - Ethanol industry already has a fuel marketing
and distribution system - - Already significant demand for ethanol
additives - - Consumer confidence has not been established
for biodiesel
28Proposed Legislation Could Increase the Future
Demandfor Biodiesel
- S.1149 Energy Tax Incentives Act of 2003 has
provision that proposes to provide tax credits
for production of biodiesel fuels - Agri-biodiesel receives 1 cent for each whole
percentage (not exceeding 20 percent) blended
with diesel fuel - Recycled biodiesel receives 0.5 cents for each
whole percentage (not exceeding 20 percent)
blended with diesel fuel - Tax credit is applied to the Federal motor fuel
tax of 24.4 per gallon and would reduce funds for
the Federal Highway Trust Fund. The funds
diverted from the Highway Trust Fund could be
reimbursed from USDAs CCC Program
29EPA Diesel Fuel Regulations Could Increase the
Demandfor Biodiesel as a Lubricity Additive
- EPAs low sulfur highway diesel fuel regulations
begin July 2006 and the Draft Nonroad Diesel Fuel
Regulations may begin June 2010. - Lowering the sulfur in diesel fuel also lowers
the fuels lubricity. As a result the demand for
diesel fuel lubricity additives is expected to
increase significantly. Research suggests that
Biodiesel is an excellent fuel lubricity agent.
Only a small amount of biodiesel (1-2 percent) is
needed to restore the lubricity level of ultra
low sulfur diesel fuel. - The lubricity additive market could provide a
much larger market than the niche markets that
currently exist for biodiesel.
30The combination of both Supply and Demand
Policies Could Increase Biodiesel Production
Significantly
- Supply Side Incentives
- CCC Bioenergy Program
- Energy Tax Incentives Act of 2003
- Demand Side Incentive
- Renewable Fuels Standard
31Conclusions
- Can Bioenergy Policies Meet Their Intended
Objectives? - 1) Increase bioenergy production Yes NO
- Is bioenergy production increasing?
- 2) Enhance energy security
- Can bioenergy help lower our dependence on
petroleum imports? - 3) Provide environmental benefits
- Can bioenergy help clean up our environment?
-
- 4) Benefit farmers
- Can bioenergy increase the demand for farm
commodities? -
-
-