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

Jody L. Campiche Larry D. Sanders May 2009

Overview

► Shift in support from conventional or grain-based biofuels to cellulosic biofuels ► Additional funding for renewable energy ► Collaboration between USDA & DOE ► Sugar program in Commodity Title I calls for USDA purchase of sugar for ethanol use ► Ethanol blending tax credit reduced by 12% ► NOTE: Key Bio-energy provisions for RFS are found in the Energy Independence and Security Act of 2007, not in Farm Bill

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Energy Provisions

Biobased Markets Program 8.

Biomass Research and Development Program Biorefinery Assistance 9.

Feedstock Flexibility Program for Bioenergy Producers Repowering Assistance Bioenergy Program for Advanced Biofuels 10.

Biomass Crop Assistance Program Biodiesel Fuel Education Program 11.

Forest Biomass for Energy 12.

Technology Transfer for Energy Crops and Conversion Facilities Rural Energy for America Program 13.

Sugar purchase Rural Energy Self-Sufficiency Initiative 14.

Cellulosic tax credit; ethanol subsidy cut; studies for infrastructure, fertilizer 3

U.S. Ethanol Production

U.S. Ethanol Production (mgy)

10 000 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Source: Renewable Fuels Association

Biobased Markets Program

► Continued from 2002 bill ► Purpose: Provide government demand for biobased products ► Federal agencies will buy biobased products  Meet performance standards  Available at reasonable price ► Mandatory and discretionary funding

Corn Dry Milling/Ethanol Process

CO 2 Corn Water Coarse Flour Enzymes Saccharification Mash (Sugars) Yeast Fermentation Distillation Ethanol DDGS 6

How ethanol is made – wet milling process

Corn Dilute H 2 SO 4 Corn steep liquor Steeping Germ Corn oil Fiber Proteins Starch Livestock feed Gluten meal Poultry feed Corn starch Ethanol Syrup

Biorefinery Assistance

► Continued from 2002 bill – now with mandated funding ► Purpose: Encourage growth of advanced biofuels industry ► Competitive grants to assist development and construction of demonstration-scale biorefineries that convert renewable biomass to advanced biofuels  may not exceed 30% of project cost ► Loan guarantees to fund development and construction of commercial-scale biorefineries ► Eligible entities  individual, Indian tribe, state/ local govt, organization, corp., farm coop, producer assn., National lab, higher ed, REC, public power, consortium of these

Cellulosic 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.

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Repowering Assistance

► New in 2008 bill ► Purpose: Encourage existing biorefineries to replace fossil fuels used to produce heat or power with renewable energy ► Payments made for installation of new systems that use renewable biomass or for new production of energy from renewable biomass ► Mandatory funding of $35 million through CCC for FY 2009, until expended

Bioenergy Program for Advanced Biofuels

► Continued from 2002 bill – only advanced biofuels producers are eligible – additional mandated funding ► Purpose: Encourage production of advanced biofuels ► Contract with biorefineries  payments based on quantity of advanced biofuel produced and net nonrenewable energy content of the fuel

Biodiesel Fuel Education Program

► Continued from 2002 bill ► Purpose: Educate those with vehicle fleets and others about biodiesel benefits ► Eligible entities:  Nonprofits or higher education   Demonstrated knowledge of biodiesel fuel production, use or distribution Demonstrated ability to conduct educational/technical support programs 12

Biodiesel Production

Catalyst Vegetable oil Crude biodiesel 4. Washing

Source: Wen and Ogejo.

1. Mixing Methanol 2. Transesterification 5.Methanol recovery 3. Separation Crude glycerol Biodiesel

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U.S. Biodiesel Production

300 200 100 0 700 600 500 400 2000

U.S. Biodiesel Production (mgy)

2001 2002 2003 2004 2005 2006 2007 2008

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Rural Energy for America Program

Continued from 2002 bill – additional mandated funding ► Purpose: promote energy efficiency & renewable energy development for ag producers & rural small businesses ► Provides competitive grants for energy audits, renewable energy development assistance, energy efficiency improvements & renewable energy systems ► Eligible entities: state/tribe/local govt, land-grants/other higher ed, REC or public power utility, other similar entity ► Loan guarantees/grants to ag producers/rural businesses for energy efficiency improvements & renewable energy systems  Grants may not exceed 25% of cost   Loan guarantees capped at $25 million/loan Combination of grant and loan guarantees may not exceed 75% of cost

Biomass Research & Development ► Continued from 2002 bill – additional mandated funding ► Purpose: USDA & DOE coordinate policies to promote research/development for production of biofuels/biobased products ► Establishes Biomass R/D Board & Technical Advisory Committee ► Biomass R/D Initiative  Competive grants/contracts/financial assistance  Technologies for commercial, competitive biofuel production    Hi-value biobased products Diversity of economical/environmentally sustainable domestic sources of renewable biomass 3 areas: Feedstocks; Biofuels/biobased products; Biofuels development analysis 16

Renewable Energy Self Sufficiency Initiative

► New in 2008 bill ► Purpose: Provide financial assistance for rural communities to increase energy self-sufficiency ► Provides grants to conduct energy assessments, formulate plans to reduce energy use from conventional sources, and install integrated renewable energy systems ► Eligible renewable energy sources  energy conversion systems fueled from solar, wind, hydropower, biomass, or geothermal sources ► Allows direct lending from U.S. Department of Treasury as an alternative to financing through Federal Financing Bank ► Authorizes appropriations of $5 million annually for FY 2009-12 ► Federal-cost share for any grant is limited to 50% of project cost

Feedstock Flexibility Program for Bioenergy Producers

► New in 2008 bill ► Purpose: Establishes purchase program 2008-2012 crop year for sugar (raw, refined, in-process eligible to be marketed in US for human consumption or for extraction of sugar for human consumption) ► Sell sugar (by bid) to bioenergy producers at no net cost Federal govt.

to ► CCC funds/facilities used to purchase sugar at loan levels ► Program only implemented in years Secretary determines it necessary to avoid Government costs

Biomass Crop Assistance Program

► New in 2008 bill ► Purpose: BCAP supports establishment/production of eligible crops for conversion to bioenergy ► Payments up to 75% of establishment costs for crop (seeds/stock, planting, site prep/tree planting) ► Payments to assist agricultural and forest landowners with w/collection, harvest, storage, transport to biomass conversion facility: match $1 for $1 per ton of biomass up to $45/ton for 2 yrs ► 5 yr contracts for annual/perenial crops, 15 yr contracts for woody biomass ► CCC funds used, Annual payments to support production ► Eligible crops/biomass  Doesn’t include crops eligible for  commodity payments , invasive or noxious plants, animal waste and byproducts, food and yard waste, or algae

US 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.

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Forest Biomass for Energy

► New in 2008 bill ► Purpose: USFS will conduct competitive R/D to encourage use of forest biomass for energy ► Eligible entities: FS, other Fed agencies, state/local govt, tribes, land grants, private ► Project selection criteria  Uses low-value biomass for energy    Integrate energy production into biorefineries and other mfg Develop new transportation fuels Improve growth/yield of trees for energy production ► $15 million each fy 09-12 authorized

Community Wood Energy Program

► New in 2008 bill ► Purpose: Development of community wood energy plans and acquisition/upgrading ► USFS will provide grants up to $50,000 to state/local govts. to develop community wood energy plans; competitive grants to state/local govts. to acquire/upgrade community wood energy systems ► $5 million each fy 09-12 authorized

Renewable Fuel Studies

► New in 2008 bill ► Biofuels infrasctructure studies  assess infrastructure needs for expanding domestic production, transport, and distribution of biofuels ► Renewable fertilizer studies  assess current state of knowledge regarding potential for production of fertilizer from renewable-energy sources in rural areas

Technology Transfer for Energy Crops and Conversion Facilities

► Makes permanent existing program  Modifications ► reduced input costs, conserving energy resources, diversifying through new energy crops and generation facilities, and expanding agricultural commodity markets for producers using practices that enhance environment, natural resource base, and quality of life ► Defines several specific characteristics of organization to provide assistance to farmers ► In Rural Development Title

Pilot Programs and New Product Development

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New in 2008 bill

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Purpose: Contract for studies of insurance policies for energy crops

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In Crop Insurance Title

Biofuel Tax Credit and Tariff Provisions

► Credit for production of cellulosic biofuel - $1.01/gallon ► Comprehensive study of biofuels by USDA, Treasury, DOE, EPA, NAS ► Modifies the subsidy paid to ethanol producers from $0.51/gallon thru 2008 to $0.45/gallon beginning 2009  Reduces tax credits to $0.45/gallon in calendar year after annual production or importation of ethanol reaches 7.5 billion gallons 26

Biofuel Tax Credit and Tariff Provisions

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Calculation of Volume of Alcohol for Fuel Credits

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

Ethanol Duty Extension

 Extends additional duty on ethanol imported for fuel use for 2 years through Dec 31, 2010

Biofuel Tax Credit and Tariff Provisions

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Limitations on Duty Drawback on Certain Imported Ethanol

 Phases out rebates available for imported ethanol after Oct 1, 2008 ► 2002 bill: U.S. businesses eligible for rebate of duties, fees, or taxes paid on imported goods when the business subsequently exported a "commercially interchangeable" good ► Rebate was available for exported jet fuel on basis of ethanol imports, even though imported ethanol was not blended with exported jet fuel

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

► Signed 18 Dec 07, in part amended Clean Air Act ► Increases fuel efficiency standard from current 25 mpg to 35 mpg in 2020 ► Increases renewable fuels standards    2007 - 7 billion gallons 2008 - 9 billion gallons 2022 - 36 billion gallons (15 billion gallons from corn grain ethanol, 21 billion gallons from cellulosic ethanol) ► Grants for production, R/D, infrastructure 29

Grain Ethanol Production Costs

Source: United States Environmental Protection Agency (2007)

Likely Consequences ► To shift emphasis from grain-based to cellulosic could cost billions (not yet commercially viable) ► Commitment to buy domestic sugar and sell to ethanol producers could be very expensive with low-cost imported sugar ► Reduction in ethanol tax credit at a time of high corn prices will contribute marginally to decisions to halt plant construction ► Debate continues over biofuel impact on food & feed prices ► Debate continues over “life cycle” issues (do renewable fuels really  have a smaller carbon footprint?) ► Commodity, conservation and disaster assistance provisions and their impact on renewable fuels remains for further analysis 31

Will renewable energy solve all the “problems”?

Problems

 Energy independence

Solution?

► Renewable energy likely to be a marginal part of supply  High fossil fuel prices ► Fossil fuel prices driven by many factors (China & India)  Environmental concerns (carbon footprint)  Fossil fuel shortage ► New research suggests ethanol not a solution to environmental concerns ► Fossil fuel demand likely to continue to be high 32

Economic Stimulus: American Recovery & Reinvestment Act 2009 ► 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 Activity

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No active biofuel plants in OK

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Many potential processing sites scrapped or put on hold because of economy & lower gas prices

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Existing biofuel activity:

  biodiesel facility in the Panhandle (which uses hog fat as a feedstock) Conoco Phillips synthetic biodiesel experiment  Hugoton, KS, Abengoa facility may contract w/OK producers