The Food, Conservation The Food, Conservation & Energy Act of 2008:& Energy Act of 2008:Energy Provisions & Energy Provisions &

IssuesIssues

Jody L. CampicheJody L. Campiche

Larry D. SandersLarry D. Sanders

May 2009May 2009

OverviewOverview► Shift in support from conventional or grain-based biofuels Shift in support from conventional or grain-based biofuels

to cellulosic biofuelsto cellulosic biofuels

► Additional funding for renewable energy Additional funding for renewable energy

► Collaboration between USDA & DOECollaboration between USDA & DOE

► Sugar program in Commodity Title I calls for USDA Sugar program in Commodity Title I calls for USDA purchase of sugar for ethanol usepurchase of sugar for ethanol use

► Ethanol blending tax credit reduced by 12%Ethanol blending tax credit reduced by 12%

► NOTE: Key Bio-energy provisions for RFS are found in the NOTE: Key Bio-energy provisions for RFS are found in the Energy Independence and Security Act of 2007, not in Energy Independence and Security Act of 2007, not in Farm BillFarm Bill

Energy ProvisionsEnergy Provisions1.1. Biobased Markets ProgramBiobased Markets Program

2.2. Biorefinery AssistanceBiorefinery Assistance

3.3. Repowering AssistanceRepowering Assistance

4.4. Bioenergy Program for Bioenergy Program for Advanced BiofuelsAdvanced Biofuels

5.5. Biodiesel Fuel Education Biodiesel Fuel Education ProgramProgram

6.6. Rural Energy for America Rural Energy for America ProgramProgram

7.7. Rural Energy Self-Rural Energy Self-Sufficiency InitiativeSufficiency Initiative

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8.8. Biomass Research and Biomass Research and Development ProgramDevelopment Program

9.9. Feedstock Flexibility Feedstock Flexibility Program for Bioenergy Program for Bioenergy ProducersProducers

10.10. Biomass Crop Assistance Biomass Crop Assistance ProgramProgram

11.11. Forest Biomass for EnergyForest Biomass for Energy

12.12. Technology Transfer for Technology Transfer for Energy Crops and Energy Crops and Conversion FacilitiesConversion Facilities

13.13. Sugar purchaseSugar purchase

14.14. Cellulosic tax credit; Cellulosic tax credit; ethanol subsidy cut; ethanol subsidy cut; studies for infrastructure, studies for infrastructure, fertilizerfertilizer

U.S. Ethanol ProductionU.S. Ethanol Production

Source: Renewable Fuels Association

Biobased Markets ProgramBiobased Markets Program

► Continued from 2002 billContinued from 2002 bill

► Purpose: Provide government demand for Purpose: Provide government demand for biobased productsbiobased products

► Federal agencies will buy biobased Federal agencies will buy biobased productsproducts Meet performance standardsMeet performance standards Available at reasonable priceAvailable at reasonable price

►Mandatory and discretionary fundingMandatory and discretionary funding

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Corn Dry Milling/Ethanol Process

Corn

Coarse Flour

Mash (Sugars)

Ethanol

CO2

DDGS

Water

Enzymes

Yeast

Distillation

Fermentation

Saccharification

How ethanol is made – wet milling process

Corn

Steeping

Ethanol

Corn starch

Dilute H2SO4

Syrup

Corn oil

Poultry feed

Fiber Proteins

Corn steep liquor

Livestock feed

StarchGerm

Gluten meal

Biorefinery AssistanceBiorefinery Assistance► Continued from 2002 bill – now with mandated funding Continued from 2002 bill – now with mandated funding

► Purpose: Encourage growth of advanced biofuels Purpose: Encourage growth of advanced biofuels industryindustry

► Competitive grants to assist development and Competitive grants to assist development and construction of demonstration-scale biorefineries that construction of demonstration-scale biorefineries that convert renewable biomass to advanced biofuelsconvert renewable biomass to advanced biofuels may not exceed 30% of project costmay not exceed 30% of project cost

► Loan guarantees to fund development and Loan guarantees to fund development and construction of commercial-scale biorefineriesconstruction of commercial-scale biorefineries

► Eligible entitiesEligible entities individual, Indian tribe, state/ local govt, organization, corp., individual, Indian tribe, state/ local govt, organization, corp.,

farm coop, producer assn., National lab, higher ed, REC, public farm coop, producer assn., National lab, higher ed, REC, public power, consortium of thesepower, consortium of these

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Cellulosic ethanol productionCellulosic ethanol production

As my reviewer Francis Epplin (Oklahoma State University) notes, there are several alternate processes for cellulosic ethanol production, none of which have yet won the battle as “the best process”: enzymatic hydrolysis , acid hydrolysis, gasification, gasification-fermentation, liquefaction, mix alco. This slide is a generic representation of the process, followed by the next slide which is another process. Whether any of them are shown to be commercial and economic remains to be seen.

Repowering AssistanceRepowering Assistance

► New in 2008 billNew in 2008 bill

► Purpose: Encourage existing biorefineries to replace Purpose: Encourage existing biorefineries to replace fossil fuels used to produce heat or power with fossil fuels used to produce heat or power with renewable energyrenewable energy

► Payments made for installation of new systems that Payments made for installation of new systems that use renewable biomass or for new production of use renewable biomass or for new production of energy from renewable biomassenergy from renewable biomass

► Mandatory funding of $35 million through CCC for Mandatory funding of $35 million through CCC for FY 2009, until expendedFY 2009, until expended

Bioenergy Program for Bioenergy Program for Advanced Biofuels Advanced Biofuels

► Continued from 2002 bill – only advanced biofuels Continued from 2002 bill – only advanced biofuels producers are eligible – additional mandated producers are eligible – additional mandated fundingfunding

► Purpose: Encourage production of advanced Purpose: Encourage production of advanced biofuelsbiofuels

► Contract with biorefineriesContract with biorefineries payments based on quantity of advanced biofuel produced payments based on quantity of advanced biofuel produced

and net nonrenewable energy content of the fueland net nonrenewable energy content of the fuel

Biodiesel Fuel Education Biodiesel Fuel Education ProgramProgram

► Continued from 2002 billContinued from 2002 bill

► Purpose: Educate those with vehicle fleets and Purpose: Educate those with vehicle fleets and others about biodiesel benefitsothers about biodiesel benefits

► Eligible entities: Eligible entities: Nonprofits or higher educationNonprofits or higher education Demonstrated knowledge of biodiesel fuel Demonstrated knowledge of biodiesel fuel

production, use or distributionproduction, use or distribution Demonstrated ability to conduct Demonstrated ability to conduct

educational/technical support programseducational/technical support programs

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Biodiesel ProductionBiodiesel Production

Methanol

2. Transesterification

Crude glycerolCrude biodiesel

Biodiesel

Vegetable oil

Catalyst 1. Mixing

3. Separation

4. Washing

5.Methanol recovery

Source: Wen and Ogejo.

U.S. Biodiesel ProductionU.S. Biodiesel Production

Rural Energy for America Rural Energy for America Program Program

► Continued from 2002 bill – additional mandated fundingContinued from 2002 bill – additional mandated funding

► Purpose: promote energy efficiency & renewable energy Purpose: promote energy efficiency & renewable energy development for ag producers & rural small businessesdevelopment for ag producers & rural small businesses

► Provides competitive grants for energy audits, renewable Provides competitive grants for energy audits, renewable energy development assistance, energy efficiency energy development assistance, energy efficiency improvements & renewable energy systems improvements & renewable energy systems

► Eligible entities: state/tribe/local govt, land-grants/other Eligible entities: state/tribe/local govt, land-grants/other higher ed, REC or public power utility, other similar entityhigher ed, REC or public power utility, other similar entity

► Loan guarantees/grants to ag producers/rural businesses for Loan guarantees/grants to ag producers/rural businesses for energy efficiency improvements & renewable energy systemsenergy efficiency improvements & renewable energy systems Grants may not exceed 25% of costGrants may not exceed 25% of cost Loan guarantees capped at $25 million/loanLoan guarantees capped at $25 million/loan Combination of grant and loan guarantees may not exceed 75% Combination of grant and loan guarantees may not exceed 75%

of costof cost

Biomass Research & DevelopmentBiomass Research & Development

► Continued from 2002 bill – additional mandated fundingContinued from 2002 bill – additional mandated funding

► Purpose: USDA & DOE coordinate policies to promote Purpose: USDA & DOE coordinate policies to promote research/development for production of biofuels/biobased research/development for production of biofuels/biobased productsproducts

► Establishes Biomass R/D Board & Technical Advisory CommitteeEstablishes Biomass R/D Board & Technical Advisory Committee

► Biomass R/D InitiativeBiomass R/D Initiative Competive grants/contracts/financial assistanceCompetive grants/contracts/financial assistance Technologies for commercial, competitive biofuel productionTechnologies for commercial, competitive biofuel production Hi-value biobased productsHi-value biobased products Diversity of economical/environmentally sustainable domestic Diversity of economical/environmentally sustainable domestic

sources of renewable biomasssources of renewable biomass 3 areas: Feedstocks; Biofuels/biobased products; Biofuels 3 areas: Feedstocks; Biofuels/biobased products; Biofuels

development analysisdevelopment analysis

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Renewable Energy Self Renewable Energy Self Sufficiency Initiative Sufficiency Initiative

► New in 2008 billNew in 2008 bill

► Purpose: Provide financial assistance for rural communities to increase Purpose: Provide financial assistance for rural communities to increase energy self-sufficiencyenergy self-sufficiency

► Provides grants to conduct energy assessments, formulate plans to reduce Provides grants to conduct energy assessments, formulate plans to reduce energy use from conventional sources, and install integrated renewable energy use from conventional sources, and install integrated renewable energy systemsenergy systems

► Eligible renewable energy sourcesEligible renewable energy sources energy conversion systems fueled from solar, wind, hydropower, energy conversion systems fueled from solar, wind, hydropower,

biomass, or geothermal sourcesbiomass, or geothermal sources

► Allows direct lending from U.S. Department of Treasury as an alternative to Allows direct lending from U.S. Department of Treasury as an alternative to financing through Federal Financing Bankfinancing through Federal Financing Bank

► Authorizes appropriations of $5 million annually for FY 2009-12Authorizes appropriations of $5 million annually for FY 2009-12

► Federal-cost share for any grant is limited to 50% of project costFederal-cost share for any grant is limited to 50% of project cost

Feedstock Flexibility Program Feedstock Flexibility Program for Bioenergy Producers for Bioenergy Producers

► New in 2008 billNew in 2008 bill

► Purpose: Establishes purchase program 2008-2012 crop Purpose: Establishes purchase program 2008-2012 crop year for sugar (raw, refined, in-process eligible to be year for sugar (raw, refined, in-process eligible to be marketed in US for human consumption or for extraction marketed in US for human consumption or for extraction of sugar for human consumption)of sugar for human consumption)

► Sell sugar (by bid) to bioenergy producers at no net cost Sell sugar (by bid) to bioenergy producers at no net cost to Federal govt.to Federal govt.

► CCC funds/facilities used to purchase sugar at loan levelsCCC funds/facilities used to purchase sugar at loan levels

► Program only implemented in years Secretary Program only implemented in years Secretary determines it necessary to avoid Government costsdetermines it necessary to avoid Government costs

Biomass Crop Assistance Biomass Crop Assistance Program Program

► New in 2008 billNew in 2008 bill

► Purpose: BCAP supports establishment/production of eligible crops for Purpose: BCAP supports establishment/production of eligible crops for conversion to bioenergyconversion to bioenergy

► Payments up to 75% of establishment costs for crop (seeds/stock, planting, site Payments up to 75% of establishment costs for crop (seeds/stock, planting, site prep/tree planting)prep/tree planting)

► Payments to assist agricultural and forest landowners with w/collection, harvest, Payments to assist agricultural and forest landowners with w/collection, harvest, storage, transport to biomass conversion facility: match $1 for $1 per ton of storage, transport to biomass conversion facility: match $1 for $1 per ton of biomass up to $45/ton for 2 yrsbiomass up to $45/ton for 2 yrs

► 5 yr contracts for annual/perenial crops, 15 yr contracts for woody biomass5 yr contracts for annual/perenial crops, 15 yr contracts for woody biomass

► CCC funds used, Annual payments to support production CCC funds used, Annual payments to support production

► Eligible crops/biomassEligible crops/biomass Doesn’t include crops eligible for commodity payments, invasive or noxious plants, Doesn’t include crops eligible for commodity payments, invasive or noxious plants,

animal waste and byproducts, food and yard waste, or algaeanimal waste and byproducts, food and yard waste, or algae

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US Biomass Sources, 2005US Biomass Sources, 2005

Milbrandt, Anelia, 2005: “A Geographic Perspective on the Current Biomass Resource Availability in the United States”, National Renewable Energy Laboratory, Golden, CO.

Forest Biomass for Energy Forest Biomass for Energy ► New in 2008 billNew in 2008 bill

► Purpose: USFS will conduct competitive R/D to encourage use of Purpose: USFS will conduct competitive R/D to encourage use of forest biomass for energyforest biomass for energy

► Eligible entities: FS, other Fed agencies, state/local govt, tribes, Eligible entities: FS, other Fed agencies, state/local govt, tribes, land-grants, privateland-grants, private

► Project selection criteriaProject selection criteria Uses low-value biomass for energyUses low-value biomass for energy Integrate energy production into biorefineries and other mfgIntegrate energy production into biorefineries and other mfg Develop new transportation fuelsDevelop new transportation fuels Improve growth/yield of trees for energy productionImprove growth/yield of trees for energy production

► $15 million each fy 09-12 authorized$15 million each fy 09-12 authorized

Community Wood Energy Community Wood Energy Program Program

► New in 2008 billNew in 2008 bill

► Purpose: Development of community wood Purpose: Development of community wood energy plans and acquisition/upgradingenergy plans and acquisition/upgrading

► USFS will provide grants up to $50,000 to USFS will provide grants up to $50,000 to state/local govts. to develop community wood state/local govts. to develop community wood energy plans; competitive grants to energy plans; competitive grants to state/local govts. to acquire/upgrade state/local govts. to acquire/upgrade community wood energy systemscommunity wood energy systems

► $5 million each fy 09-12 authorized$5 million each fy 09-12 authorized

Renewable Fuel Studies Renewable Fuel Studies

► New in 2008 billNew in 2008 bill

► Biofuels infrasctructure studiesBiofuels infrasctructure studies assess infrastructure needs for expanding domestic assess infrastructure needs for expanding domestic

production, transport, and distribution of biofuelsproduction, transport, and distribution of biofuels

► Renewable fertilizer studiesRenewable fertilizer studies assess current state of knowledge regarding assess current state of knowledge regarding

potential for production of fertilizer from renewable-potential for production of fertilizer from renewable-energy sources in rural areasenergy sources in rural areas

Technology Transfer for Energy Technology Transfer for Energy Crops and Conversion Facilities Crops and Conversion Facilities

► Makes permanent existing programMakes permanent existing program ModificationsModifications

► reduced input costs, conserving energy resources, reduced input costs, conserving energy resources, diversifying through new energy crops and generation diversifying through new energy crops and generation facilities, and expanding agricultural commodity facilities, and expanding agricultural commodity markets for producers using practices that enhance markets for producers using practices that enhance environment, natural resource base, and quality of lifeenvironment, natural resource base, and quality of life

► Defines several specific characteristics of Defines several specific characteristics of organization to provide assistance to organization to provide assistance to farmersfarmers

► In Rural Development TitleIn Rural Development Title

Pilot Programs and New Product Development

►New in 2008 bill

►Purpose: Contract for studies of insurance policies for energy crops

►In Crop Insurance Title

Biofuel Tax Credit and Tariff Biofuel Tax Credit and Tariff ProvisionsProvisions

► Credit for production of cellulosic biofuel - $1.01/gallonCredit for production of cellulosic biofuel - $1.01/gallon

► Comprehensive study of biofuels by USDA, Treasury, Comprehensive study of biofuels by USDA, Treasury, DOE, EPA, NASDOE, EPA, NAS

► Modifies the subsidy paid to ethanol producers from Modifies the subsidy paid to ethanol producers from $0.51/gallon thru 2008 to $0.45/gallon beginning 2009$0.51/gallon thru 2008 to $0.45/gallon beginning 2009

Reduces tax credits to $0.45/gallon in calendar year Reduces tax credits to $0.45/gallon in calendar year after annual production or importation of ethanol after annual production or importation of ethanol reaches 7.5 billion gallonsreaches 7.5 billion gallons

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Biofuel Tax Credit and Tariff Biofuel Tax Credit and Tariff Provisions Provisions

►Calculation of Volume of Alcohol Calculation of Volume of Alcohol for Fuel Creditsfor Fuel Credits

Reduces amount of allowable denaturants Reduces amount of allowable denaturants to 2% of volume of alcohol (previously 5%)to 2% of volume of alcohol (previously 5%)

►Ethanol Duty ExtensionEthanol Duty Extension Extends additional duty on ethanol Extends additional duty on ethanol

imported for fuel use for 2 years through imported for fuel use for 2 years through Dec 31, 2010Dec 31, 2010

Biofuel Tax Credit and Tariff Biofuel Tax Credit and Tariff Provisions Provisions

► Limitations on Duty Drawback on Limitations on Duty Drawback on Certain Imported EthanolCertain Imported Ethanol

Phases out rebates available for imported Phases out rebates available for imported ethanol after Oct 1, 2008ethanol after Oct 1, 2008

► 2002 bill: U.S. businesses eligible for rebate of duties, 2002 bill: U.S. businesses eligible for rebate of duties, fees, or taxes paid on imported goods when the fees, or taxes paid on imported goods when the business subsequently exported a "commercially business subsequently exported a "commercially interchangeable" goodinterchangeable" good

► Rebate was available for exported jet fuel on basis of Rebate was available for exported jet fuel on basis of ethanol imports, even though imported ethanol was not ethanol imports, even though imported ethanol was not blended with exported jet fuelblended with exported jet fuel

The Energy Independence and The Energy Independence and Security Act of 2007 (HR 6)Security Act of 2007 (HR 6)

► Signed 18 Dec 07, in part amended Clean Air ActSigned 18 Dec 07, in part amended Clean Air Act

► Increases fuel efficiency standard from current 25 Increases fuel efficiency standard from current 25 mpg to 35 mpg in 2020mpg to 35 mpg in 2020

► Increases renewable fuels standardsIncreases renewable fuels standards 2007 - 7 billion gallons 2007 - 7 billion gallons 2008 - 9 billion gallons 2008 - 9 billion gallons 2022 - 36 billion gallons (15 billion gallons from corn grain 2022 - 36 billion gallons (15 billion gallons from corn grain

ethanol, 21 billion gallons from cellulosic ethanol)ethanol, 21 billion gallons from cellulosic ethanol)

► Grants for production, R/D, infrastructureGrants for production, R/D, infrastructure

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Source: United States Environmental Protection Agency (2007)

Grain Ethanol Production CostsGrain Ethanol Production Costs

Likely ConsequencesLikely Consequences

► To shift emphasis from grain-based to cellulosic could cost To shift emphasis from grain-based to cellulosic could cost billions (not yet commercially viable)billions (not yet commercially viable)

► Commitment to buy domestic sugar and sell to ethanol Commitment to buy domestic sugar and sell to ethanol producers could be very expensive with low-cost imported producers could be very expensive with low-cost imported sugarsugar

► Reduction in ethanol tax credit at a time of high corn prices Reduction in ethanol tax credit at a time of high corn prices will contribute marginally to decisions to halt plant will contribute marginally to decisions to halt plant constructionconstruction

► Debate continues over biofuel impact on food & feed pricesDebate continues over biofuel impact on food & feed prices

► Debate continues over “life cycle” issues (do renewable Debate continues over “life cycle” issues (do renewable fuels really have a smaller carbon footprint?)fuels really have a smaller carbon footprint?)

► Commodity, conservation and disaster assistance Commodity, conservation and disaster assistance provisions and their impact on renewable fuels remains for provisions and their impact on renewable fuels remains for further analysisfurther analysis

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Will renewable energy solve all the Will renewable energy solve all the “problems”?“problems”?

ProblemsProblems Energy independenceEnergy independence

High fossil fuel pricesHigh fossil fuel prices

Environmental concerns Environmental concerns (carbon footprint)(carbon footprint)

Fossil fuel shortageFossil fuel shortage

Solution?Solution?► Renewable energy likely to Renewable energy likely to

be a marginal part of supplybe a marginal part of supply

► Fossil fuel prices driven by Fossil fuel prices driven by many factors (China & India)many factors (China & India)

► New research suggests New research suggests ethanol not a solution to ethanol not a solution to environmental concernsenvironmental concerns

► Fossil fuel demand likely to Fossil fuel demand likely to continue to be highcontinue to be high

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Economic Stimulus:Economic Stimulus:American Recovery & Reinvestment Act American Recovery & Reinvestment Act

20092009► DOE

Energy Efficiency & Renewable Energy $16.8 bil. w/ $3.2 bil. For energy efficiency & conservation block grants

$5 bil. for weatherization assistance w/$3.1 bil. for Part D, Title III energy policy

$2 bil. for grants for mfg of advanced batteries $4.5 bil. for electricity & energy $3.4 bil for Fossil Energy Researcy & Development

plus $6 bil. for guaranteed loans Increases weatherization limits per home from $2500

to $6500 per dwelling

Oklahoma ActivityOklahoma Activity

►No active biofuel plants in OKNo active biofuel plants in OK►Many potential processing sites scrapped Many potential processing sites scrapped

or put on hold because of economy & lower or put on hold because of economy & lower gas pricesgas prices

►Existing biofuel activity:Existing biofuel activity: biodiesel facility in the Panhandle (which uses biodiesel facility in the Panhandle (which uses

hog fat as a feedstock)hog fat as a feedstock) Conoco Phillips synthetic biodiesel experimentConoco Phillips synthetic biodiesel experiment Hugoton, KS, Abengoa facility may contract Hugoton, KS, Abengoa facility may contract

w/OK producers w/OK producers