U.S. Senate farm bill puts $2.3 billion into biofuels

The 2007 U.S. federal Farm Bill has made it to the full senate, after passing the house in July. It contains a very strong support package for the development of next generation biofuels in the U.S. Iowa Senator Tom Harkin chairs the Senate Agriculture Committee in charge of the bill and presented its scope. Debate is expected to last for up to two weeks on the text which sets out agricultural support policies for the next five years.

Some $2.3 billion in federal support would flow to biofuels under the bill, half of it to develop cellulose as a companion to corn as a feedstock for fuel ethanol. The bill proposed a 'very robust' program in biofuels. It puts the U.S. on a path to produce 60 billion gallons of biofuels by 2030, roughly 10 times current output.

The package includes $1.1 billion to encourage farmers to grow biomass crops, in financial aid to construct ethanol plants using cellulose, found in grasses and wood, as a feedstock, and to help refiners buy biofuel feedstocks.

An additional $1.1 billion would be expended in tax credits for biofuels, including credits for cellulosic ethanol. Those provisions came from a Finance Committee bill that was merged into the panoramic bill drafted by the Agriculture Committee.

Cellulosic ethanol would be eligible for up to $1.28 a gallon in credits. The bill has a credit to small producer of 67 cents for cellulosic ethanol, the current 10-cent credit available to all small producers and the long-standing 51-cent tax credit for blending ethanol into gasoline.

[...] we confront a classic chicken-and-egg dilemma: Entrepreneurs won’t build cellulosic biorefineries in the absence of a reliable supply of feedstocks. And producers won’t grow the cellulosic feedstocks unless and until there are biorefineries to purchase them.

Well, in this bill, we address this dilemma very aggressively. On the supply side, we allocate $130 million over five years to the Biomass Crop Transition Program. We know it takes a few years to get crops like switchgrass started and established. So farmers are going to need financial assistance during the transition. And that’s what we provide in the Senate bill.

On the demand side, we allocate $300 million to support grants for biorefinery pilot plants, loan guarantees for commercial biorefineries, and support for repowering existing corn-ethanol plants and other facilities so they can process cellulosic biomass.

In addition, we continue the CCC bioenergy program with $245 million to support feedstock purchases for advanced biofuels production. And, we’re including about $140 million for biomass research and for biomass crop experiments. - Tom Harkin, Chair Senate Agriculture Committee

A half-dozen senators want to add language to the farm bill to require the use of 36 billion gallons of biofuels by 2022, including 21 billion gallons of cellulosic ethanol, biodiesel and other alternative fuels. The mandate is now 7.5 billion gallons in 2012. Production is forecast for 6.5 billion gallons this year.

I’ll make this prediction: If we can preserve the Senate energy provisions in conference - and maybe get some additional funding for them, which we’ll certainly try to do – I predict that within five years we are going to see cellulosic biofuel refineries sprouting like mushrooms all across the country. - Tom Harkin

A more detailed overview of the provisions:
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• $227 million for incentive payments to farmers to grow, harvest, transport and store biomass crops.
• $422 million in grants and loan guarantees for construction of ethanol plants using biomass crops and to convert plants now using corn.
• $425 million to help refiners buy feedstocks for "advanced biofuel production."
• $270 million in grants and loans to expand production and use of renewable energy; 15 percent of money reserved for projects that convert animal waste to energy (biogas).
• $2 billion in loan guarantees for biomass refineries and biofuels plants; half of the money for projects of less than $100 million, the other half for projects up to $250 million. Cost to government estimated as $800 million.
• $500 million in loans, grants and loan guarantees to expand production and use of renewable fuels in rural areas.
• $1.4 billion to help biorefiners buy feedstock for their plants and expand fuel output.
• creation of a "biomass energy reserve" with five-year contracts that pay farmers an incentive to grow, harvest, store and transport biomass crops; must be within 50 miles of a bioenergy plant. Cost $75 million.
• $200 million a year through 2016 for biomass research
• purchase of surplus sugar to be sold to refiners to make ethanol

Producer and tax credits

• Create small producer credit for cellulosic ethanol of 67 cents per gallon. Cost $282 million through 2012.
• Extend small producer tax credit of 10 cents a gallon on up to 15 million gallons of ethanol from plants with capacity up to 60 million gallons a year for two years, to December 31, 2012. Estimated cost $57 million through 2012.
• Create small producer tax credit of 10 cents a gallon, from December 31, 2007, for plants that produce ethanol with processes that do not use a fossil-based resource. Cost $211 million through 2012.
• Extend production tax credits of $1 or 50 cents a gallon for biodiesel for two years, to December 31, 2010, and extend 10-cent a gallon small producer tax credit for 15 million gallons of fuel from plants with capacity of up to 60 million gallons a year for four years, to December 31, 2012. Cost $264 million through 2012.
• Extend $1 a gallon tax credit for biodiesel created by thermal depolymerization. Credit is capped at 60 million gallons per year of co-produced fuel. Cost $211 million through 2012.

The cost of the tax credits is offset by three steps:

• Reducing the 51-cent a gallon tax credit by 5 cent in the first calendar year after U.S. production tops 7.5 billion gallons. Raises $854 million through 2012.
• Extending for two years, until December 31, 2010, 57-cent a gallon tariff on imported ethanol. Raises $25 million through 2012.
• Excluding in calculations of alcohol eligible for fuel tax credit all but 2 percent of denaturant used to make the fuel undrinkable. Raises $284 million through 2012

References:
U.S. Senate Agriculture Committee: Harkin: Farm Bill Energy Title Makes Investments in Nation’s Energy Security - November 8, 2007.

Reuters: Senate farm bill puts $2.3 bln in biofuels - November 8, 2007.

Biopact: U.S. House proposes US$4.5 billion for biomass research, biorefineries -
May 22, 2007.