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Major Federal Policies Promoting
Transportation Biofuels
John Stolzenberg and Larry KonopackiWisconsin Legislative Council
September 16, 2008
Special Committee on Domestic Biofuels
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Main Messages of the Briefing
• US government has adopted a number of significant policies to encourage the development and use of transportation biofuels◦ Regulations, incentives, R&D, studies,
etc.
• Thus, the Committee is not starting in a policy vacuum◦ How should Wisconsin respond to these
initiatives?
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2 Parts to the Briefing
• Overview of major initiatives◦ Especially from the 2007 Energy Act
and the 2008 Farm Bill
• Detailed review of the renewable fuel standard (RFS)
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Introduction to Federal Legislation
◦ Energy Independence and Security Act of 2007 (2007 Energy Act)
◦ Food, Conservation, and Energy Act of 2008 (2008 Farm Bill)
◦ Energy Policy Act of 2005 (2005 Energy Act)
◦ Funding terminology‣ mandatory funding ‣ discretionary funding / appropriations
process.
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Tax Incentives
Volumetric tax credit for ethanol-blended gasoline
◦ $0.51 per gallon◦ Soon reduced to $0.45 per gallon
Small ethanol producer credit◦ $0.10 per gallon of ethanol produced◦ May be claimed on first 15 M gal of
ethanol from a producer with capacity below 60 MGY
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Tax Incentives
Credit for production of cellulosic biofuel
◦ Tax credit of $1.01 per gallon ◦ US producers, cellulosic biofuel◦ For ethanol producers - reduced by volumetric
ethanol credit & small ethanol producer credit◦ Fuel produced after December 31, 2008
Biodiesel tax credit◦ $1.00 per gallon credit - “agri-biodiesel” ◦ or $0.50 per gallon – biodiesel from previously
used agricultural products like fryer grease.
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Tax Incentives
Small agri-biodiesel producer credit◦ $0.10 per gallon produced◦ May be claimed on first 15 M gal of ethanol
from a producer with capacity below 60 MGY
Renewable diesel tax credit◦ $1.00 per gallon tax credit ◦ Biomass-based diesel fuel produced through
a thermal depolymerization process
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Tariffs
Ethanol Import Tariffs ◦ $0.54 per gallon tariff◦ 2.5% ad valorem tariff ◦ Exception: Caribbean basin Initiative (CBI)
imports (can be up to 7% of US ethanol markets)
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Funding - Production
Bioenergy program for advanced biofuels
◦ Production payments for advanced biofuels◦ Mandatory $300 million for 2009-2012 plus
authorization for appropriation of $25 million per year in 2009-2012
Grants for production of advanced biofuels
◦ Prioritizes greatest lifecycle GHG reductions◦ must be at least an 80% GHG reduction over
2005 fuel◦ Authorized appropriation of $500 million from
2008-2015
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Funding - Production
Biorefinery Assistance◦ Commercial-scale biorefineries
‣ Advanced biofuels (not corn starch ethanol)‣ Loan guarantees ‣ Development, construction, and retrofitting
◦ Demonstration-scale biorefineries‣ Convert renewable biomass into advanced
biofuels
◦ Mandatory $320 million for loan guarantees in 2009-2010 plus authorization for appropriation of $150 million per year in 2009-2012
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Funding - Production
Biomass crop assistance program◦ Support establishment and production of
eligible crops for conversion to bioenergy◦ Assist agricultural and forest land owners
and operators with collection, harvest, storage, and transportation of biomass
◦ 1:1 matching federal funds, up to $45 per ton
Repowering assistance◦ For converting existing biorefineries from
fossil fuel to biomass power◦ Mandatory $35 million for 2009 plus
authorization for appropriation of $15 million per year in 2009-2012
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Funding - Other
Renewable fuel infrastructure grants
◦ DOE grant program - $ to motor fuel dealers for storage and dispensing infrastructure
◦ Applies to: ‣ Gasoline with 11-85% renewable fuel ‣ diesel fuel with at least 10% renewable fuel
◦ Limits:‣ 33% of cost of project‣ $180,000 for any one retail location
◦ May include retail technical and marketing assistance
◦ Large, vertically integrated oil companies not eligible
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Funding - Other
Refueling infrastructure corridors◦ DOE competitive grant pilot program ◦ Will provide up to 10 project grants to
establish refueling infrastructure corridors◦ $20 million cap per grantee / no less than
20% cost share◦ Appropriations authorized up to $200
million per year from 2008-2014
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Funding - Other
New Era Rural Technology Program◦ Grants for rural community colleges &
technical centers ◦ Support training a workforce in bioenergy,
renewable energy, and pulp and paper manufacturing
Biodiesel fuel education program◦ Competitive grants to educate on the
benefits of biodiesel use◦ Mandatory funding of $1 million per year
for 2008-2012
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Funding - Other
Rural Energy for America Program◦ To promote energy efficiency and
renewable energy development ◦ For agricultural producers and rural small
businesses‣ Energy audits‣ Energy efficiency improvements ‣ Renewable energy systems
◦ Mandatory funding of $255 million from 2009 through 2012 plus appropriations authorized up to $25 million per year from 2008-2012
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Research, Development, Demonstration and
ExtensionCellulosic ethanol and biofuels
research◦ Educational institutions eligible to compete
for 10 grants ◦ For ethanol and biofuels R & D◦ Authorization for appropriation of $50 million
Forest biomass for energy◦ Competitive R & D program to encourage use
of forest biomass for energy◦ Prioritizes low-value forest biomass◦ $15 million authorized for appropriation per
year for 2009-2012
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Research, Development, Demonstration and
ExtensionBiorefinery energy efficiency◦ DOE to establish a program of R & D,
demonstration, and commercial application ◦ For increasing energy efficiency in the
operation of biorefinery facilities
Biofuels distribution and advanced biofuels infrastructure
◦ DOE, DOT, and EPA to establish a program of R & D and demonstration
◦ transportation fuel distribution infrastructure‣ Focus on corrosion, sediments, filter clogging,
contamination, poor flow, instability, etc
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Research, Development, Demonstration and
ExtensionAgricultural bioenergy feedstock and
energy efficiency research and extension
◦ USDA competitive grant program ◦ Purpose: enhance production of biomass energy
crops & energy efficiency of ag operations ◦ Focus: improve ag biomass production, biomass
conversion in biorefineries, and biomass use, and on-farm energy-efficiency research
◦ 1:1 matching funds required◦ $50 million/year for 2008-2012 authorized for
appropriation
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Research, Development, Demonstration and
ExtensionPilot projects to develop biobased
products with commercial potential
◦ public-private cooperative agreements◦ extended until 2012 by the 2008 Farm Bill◦ authorized appropriation – such sums
necessary
Grants for rural biobased energy development & diversification
◦ Six regional centers ◦ Grants for research, extension, and
education programs on technology development and implementation
◦ $75 million authorized for appropriation from 2008-2012
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Research, Development, Demonstration and
ExtensionBiomass Research and Development
Initiative◦ USDA & DOE – R & D programs through the
Biomass Research and Development Initiative ◦ Establishes a Biomass Research and
Development Board◦ Establishes the Biomass Research and
Development Technical Advisory Committee◦ Non-federal cost-share required◦ Mandatory funding of $118 million from 2009
through 2012 plus appropriations authorized up to $35 million per year from 2008-2012
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Studies and Support
Biofuels infrastructure study◦ USDA, DOE, EPA, DOT to conduct an
assessment of infrastructure needs for expanding domestic biofuels
Comprehensive study of biofuels◦ National Academy of Sciences to produce
an analysis of current scientific findings to determine:‣ biofuels production, production capacity,
domestic effects of increased production, a comparison of corn ethanol and other biofuels, and specific areas for future research
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Studies and Support
Biodiesel study◦ DOE, in consultation with EPA, to submit a
report to Congress ◦ Report on “any research and development
challenges inherent in increasing” biodiesel sale.
Ethanol pipeline feasibility study◦ DOE and DOT to study the feasibility of
dedicated ethanol pipelines◦ $2 million appropriations authorized
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Studies and Support
Biodiesel engine study◦ DOE and EPA to study the effects of varying
concentrations of biodiesel on performance and durability of engines
Flex-fuel vehicle optimization study◦ DOE, DOT and EPA to study fuel efficiency
effects of optimizing flex-fuel vehicles for E-85
E-85 pump study◦ DOE and DOT to study requiring motor fuel
retailers to install E-85 dispensers ◦ Regions with at least 15% flex-fuel vehicle
penetration.
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Studies and Support
Renewable fuel transportation study
◦ DOE and DOT to study the transportation of renewable fuels by railroad and other modes of transportation
◦ Consider whether inadequate competition leads to unfair price or service problems
Study of algae as a potential biofuel feedstock
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Studies and Support
EPA Biofuels and Biorefinery Information Center
◦ Intended to serve all “interested parties”◦ Include information on:
‣ Renewable fuel feedstocks‣ Processing techniques‣ Infrastructure necessary for transport and
use‣ Fed / state laws and incentives related to
RF production and use‣ RF R&D advancements
◦ Authorization for “sums as are necessary to carry out this section”
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Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
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Regulations
Biodiesel Standard◦ American Society for Testing and Materials
must adopt B5 and B20 biodiesel standards, or EPA must adopt a standard
◦ EPA to establish an annual inspection and enforcement program
◦ $3 million authorized for appropriation for each fiscal year from 2008-2010
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Regulations
E-85 / renewable fuel sale◦ Service station franchise agreements –
cannot bar renewable fuel
Forest resources state-wide assessment
◦ States must develop a long-term assessment of forest resources
◦ Assessment must include multiple factors including “production of renewable energy”
◦ Appropriations authorized up to $10 million per year through 2012
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Renewable Fuel Standard (RFS) Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
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Caveats
• Focus on RFS as amended by 2007 Energy Act◦ Effective January 1, 2009
• EPA has not yet promulgated its rules on the expanded RFS in the 2007 Energy Act
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RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
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Amount of RFS
• Not 1 but 4 standards• Specifies total annual volume of:
◦ Aggregate amount of “renewable fuel”
◦ 3 types of “renewable fuel” ‣“Advanced biofuel”
–“Cellulosic biofuel”–“Biomass-based diesel”
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Total Renewable Fuels
05
10152025303540
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Year
Bil
lio
ns
of
Ga
llo
ns
Total
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“Renewable Biomass”
• Includes a variety of biomass material,◦ e.g., crops, tress, crop and tree
residues, animal waste materials, algae, yard and food wastes
• Slash, trees and tree residues may not be from federal forestlands or certain protected forests
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Advanced Biofuels
05
10152025303540
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Year
Bil
lio
ns
of
Gal
lon
s
Advanced Biofuels
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Total = Advanced + Conventional
orConventional = Total -
Advanced
05
10152025303540
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Year
Bill
ion
s o
f G
allo
ns
Conventional Advanced Biofuels
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Cellulosic
05
10152025303540
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Year
Bill
ion
s o
f G
allo
ns
Cellulosic
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Biomass-Based Diesel
05
10152025303540
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Year
Bill
ion
s o
f G
allo
ns
Biomass-Based Diesel
End of Statutory Schedule
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All Advanced Biofuels
05
10152025303540
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
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20
17
20
18
20
19
20
20
20
21
20
22
Year
Bill
ion
s o
f G
allo
ns
Cellulosic Biomass-Based Diesel Other Advanced Biofuels
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Total Renewable Fuels By Type
05
10152025303540
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Year
Bil
lio
n G
allo
ns
Conventional Cellulosic Biomass-Based Diesel Other Advanced Biofuels
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RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
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Post 2022 RFS
• Set by EPA based on statutory factors◦ e.g., energy security, fuel and food
prices
• Applies after 2022 for 3 standards • Applies after 2012 for biomass-
based diesel standard◦ Minimum of 1.0 billion gal/yr (2012 standard)
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RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
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Applicability
• RFS’ 4 annual volumes must be
contained in “transportation fuel”
◦ Sold or introduced into commerce
◦ In the continental US
◦ By refineries and importers
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Limits on EPA’s Implementation
Regulations• Can’t restrict geographic areas in
which renewable fuel may be used
• Can’t impose any per gallon
obligation for the use of a
renewable fuel
◦ e.g., an E10 requirement
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Application of the RFS
• EPA converts the national annual volume
of a renewable fuel in the standard to %
of transportation fuel projected to be
sold in the US
• A refinery’s renewable fuel obligation is
this % multiplied by its annual
production of transportation fuel in the
US
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Enforcement, Credits and Trading
• Every gallon of renewable fuel produced in the US is assigned a unique “Renewable Identification Number” (RIN)
• RINs transferred with fuel as ownership of the fuel is transferred through the distribution system
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Enforcement, Credits and Trading, con’t.
• Once fuel is obtained by a refinery or blended into a motor vehicle fuel, the RIN may be separated from the batch of renewable fuel and then used for◦ Compliance purposes, ◦ Held, or ◦ Traded
• Credits for “additional renewable fuel”
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RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
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Waivers of the 4 annual standards
• General waivers
• Cellulosic biofuel waivers
• Biomass-based diesel waivers
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Permanent Modification of Applicable Standards
• Starting in 2016, EPA must reduce the applicable standard going forward, if EPA waives◦ At lease 20% of the applicable
standard for two consecutive years
◦ At least 50% of the applicable standard for a single year
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RFS Briefing
• Components
• Post 2022• Application and enforcement• Waivers and permanent
modifications• Low carbon biofuel standard• Studies
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Low Carbon Biofuel Standard
For many renewable fuelsto be used to meet the RFS:
The fuel’s “lifecycle greenhouse gas emissions” must be less than the “baseline life cycle greenhouse gas emissions” by at least the specified %
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Lifecycle Greenhouse Gas Emissions Reductions Beneath
Baseline
0
10
20
30
40
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Year
Bil
lio
n G
allo
ns
Conventional - No LCBS Conventional - LCBS Cellulosic
Biomass-Based Diesel Other Advanced Biofuels
20%
60%
50%
50%
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“Lifecycle Greenhouse Gas Emissions”
Aggregate quantity of greenhouse gas emissions
“(including direct emissions and significant indirect emissions such as significant emissions from land-use changes),”
as determined by EPA,
related to the full fuel lifecycle from feedstock generation to ultimate customer
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Direct Emissions
http://web2.uwindsor.ca/courses/physics/high_schools/2007/AlternateFuels/co2cycle.jpg
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Examples of Indirect Emissions (No consensus on magnitude or offsetting
effects) Example #1
• High price of corn due to corn ethanol
• Leads to land taken out of CRP and used to grow corn for ethanol
• Thus, attribute carbon debt from land conversion to corn ethanol production
Example #2
• High price of corn due to corn ethanol
• Leads to higher feed costs, more corn acres and fewer soybean acres in US
• Leads to grassland or rain forest conversion in Brazil to grow more soybeans
• Thus, attribute carbon debt from land conversion in Brazil to corn ethanol production in US
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Modification of Greenhouse Gas
Reduction Percentages• EPA can lower any of the 4
percentages by up to 10% based
on specified criteria (e.g., 20% to
10%)
• Once EPA adjusts a percentage, it
must review and revise the
adjusted level within 5 years
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Implications of These Requirements
• Current uncertainty in methodology, up to EPA rules◦ Treatment of indirect land-use, etc.
◦ Interplay with California rules
• Regulatory risk for feedstock and fuel producers and investors
• Harbinger of linkage of energy and environmental (esp. GHG) policy
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RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
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Mandated Studies Re RFS
• FTC annual ethanol market concentration analysis
• Studies of the impact of the RFS on:◦ Production of feed grains, livestock, food,
forest products, and energy by NAS◦ Environmental and resource
conservation impacts by EPA every 3 years
◦ Impact on air quality due to changes in vehicle and engine emissions by EPA