major federal policies promoting transportation biofuels
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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
2
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?
3
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)
4
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
5
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.
6
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
7
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
8
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.
9
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
10
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
11
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)
12
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
13
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
14
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
15
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
16
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
17
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
18
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
19
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
20
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
21
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
22
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
23
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
24
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
25
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
26
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
27
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
28
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
29
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
30
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.
31
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
32
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”
33
Overview of Major Federal Initiatives
• Introduction• Tax Incentives• Tariffs• Funding – Production• Funding – Other • R & D, Demonstration, and
Extension• Studies and Support• Regulations
34
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
35
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
36
Renewable Fuel Standard (RFS) Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
37
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
38
RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
39
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
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Year
Bil
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of
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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
42
Advanced Biofuels
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2022
Year
Bil
lio
ns
of
Gal
lon
s
Advanced Biofuels
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Total = Advanced + Conventional
orConventional = Total -
Advanced
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Year
Bill
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s o
f G
allo
ns
Conventional Advanced Biofuels
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Cellulosic
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Cellulosic
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Biomass-Based Diesel
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Biomass-Based Diesel
End of Statutory Schedule
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All Advanced Biofuels
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s o
f G
allo
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Cellulosic Biomass-Based Diesel Other Advanced Biofuels
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Total Renewable Fuels By Type
05
10152025303540
2006
2007
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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
49
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)
50
RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
51
Applicability
• RFS’ 4 annual volumes must be
contained in “transportation fuel”
◦ Sold or introduced into commerce
◦ In the continental US
◦ By refineries and importers
52
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
53
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
54
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
55
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”
56
RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
57
Waivers of the 4 annual standards
• General waivers
• Cellulosic biofuel waivers
• Biomass-based diesel waivers
58
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
59
RFS Briefing
• Components
• Post 2022• Application and enforcement• Waivers and permanent
modifications• Low carbon biofuel standard• Studies
60
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 %
61
Lifecycle Greenhouse Gas Emissions Reductions Beneath
Baseline
0
10
20
30
40
2006
2007
2008
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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%
62
“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
63
Direct Emissions
http://web2.uwindsor.ca/courses/physics/high_schools/2007/AlternateFuels/co2cycle.jpg
64
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
65
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
66
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
67
RFS Briefing
• Components
• Post 2022
• Application and enforcement
• Waivers and permanent modifications
• Low carbon biofuel standard
• Studies
68
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
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