Lost amid the crop-subsidy battle, a new biofuel regime
Amid all the thunder and lightening about subsidies in the new farm bill — which officially became law Thursday — Congress made a major policy shift with regard to the goodies lavished on ethanol makers.
Under previous policy, biofuel makers — whether conventional or cellulosic — benefit from a 51 cent a gallon tax credit conferred on gasoline blenders. No any more.
According to a recent Environmental Law & Policy Center memorandum [PDF] summing up the farm bill’s energy title, legislation creates "new cellulosic biofuels production tax credit for up to $1.01 per gallon, available through 2012." Meanwhile, it also shaves down the old blenders’ credit, known as the volumetric ethanol excise tax credit (“VEETC” or “blender’s credit”), from 51 cents to 45 cents per gallon.
Can cellulosic producers benefit from the production tax credit, and then sell their ethanol to blenders who get the VEETC? Unclear. I’m in the process of checking that out.
The new law also contains some goodies for investors who want to build cellulosic ethanol plants. It provides mandatory funding for a program that went unfunded in the 2002 farm bill for "grants to demonstration-scale plants up to 30 percent of costs, and loan guarantees for commercial-scale plants (up to $250 million per plant)." No estimate is given on how much this will cost taxpayers.
"The program is for advanced biofuel production such as cellulosic ethanol or butanol," the ELPC memo states. "Corn-starch [conventional] ethanol is not eligible for assistance under this program."
It should be noted that while straight corn-based ethanol is excluded here, cellulosic ethanol derived from corn waste (e.g., stalks and cobs) isn’t. In fact, if cellulosic ever does ramp up to commercial scale, it’s almost certain that corn waste will be the main feedstock.
Such a scenario would not only consolidate this ecologically destructive crop’s grip over the Midwest; it would also likely lead to soil erosion, since corn "waste" now provides important organic matter to the Midwest’s soils.
But wait; there’s more. Next we get the "Bioenergy Program for Advanced Biofuels," designed for "low-carbon biodiesel and cellulosic ethanol. This one lays out $300 million over four years; and "an additional $100 million in discretionary funding over four years is allowed."
Apparently, it just writes checks to certain biofuel producers. "It pays biofuels producers for production of biofuels based on several factors to be determined by the USDA." There is provision to prevent giant factories from grabbing all the goodies: "Not more than 5 percent of total payments can be paid to large facilities with a refining capacity of more than 150 million gallons per year."
This one is evidently designed to boost soy-based biodiesel: "We expect that most of this funding will be used for soy biodiesel in the first several years of the new Farm Bill," ELPC states. Oh, dear.
If you dig through the ELPC report, you’ll also find various inducements for farmers to grow "energy crops" like switchgrass.
Then we get this, my favorite bit: the Biofuels Infrastructure Study. This one directs the USDA to:
conduct a study to assess the infrastructure requirements for biofuels production and transport through 2025. The study is intended to be comprehensive and include water requirements, alternative transportation, adequacy of rural roads, impacts on safety of transportation systems, and resource conservation.
That’s awesome — so there’s all sorts of goodies for people who want to use land to produce fuel for cars, including a big study of biofuel’s infrastructure requirements.
Hopefully, the next farm bill will contain goodies to build infrastructure for local and regional food systems.
In future posts, I’ll be looking at what effect all of this federal largesse might have on biofuel markets and farmland.