Major Federal Policies Promoting Transportation Biofuels

1. Special Committee on Domestic Biofuels Major Federal Policies Promoting Transportation Biofuels John Stolzenberg and Larry Konopacki Wisconsin Legislative Council September 16, 2008

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 Extension Cellulosic 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 Extension Biorefinery 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 Extension Agricultural 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 Extension Pilot 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 Extension Biomass 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”

40. Total Renewable Fuels

41. “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

43. Total = Advanced + ConventionalorConventional = Total - Advanced

44. Cellulosic

45. Biomass-Based Diesel End of Statutory Schedule

46. All Advanced Biofuels

47. Total Renewable Fuels By Type

48. 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