2005 Year in Review, U.S. Biomass Energy Policy

Until recently, biomass has been on the backburner for many renewable energy advocates, but the Environmental and Energy Study Institute (EESI), numerous agriculture organizations and several Members of Congress have been promoting this renewable energy source for years.

2005 was marked by considerable growth in the field of biomass and biofuels, spurred by a combination of high energy prices, concerns over the geopolitical ramifications of the country’s heavy reliance on foreign oil, and a crystallizing view that renewable energy technologies can offer new avenues for economic stimulus — all factors in addition to the positive environmental attributes. History and Introduction In 2001, at the request of Senate committee staff, EESI published its white paper, The 2002 Farm Bill: Revitalizing the Farm Economy Through Renewable Energy Development, because of EESI’s concern that the 2002 farm bill needed to address the opportunities of farm-produced renewable energy. The Farm Security and Rural Development Act of 2002 (P.L. 107-171) , signed into law May 2002, was the first farm bill to contain an energy title and include significant incentives for biomass production and use. The energy title encouraged federal procurement of bio-based products, provided grants and loans for renewable energy projects, and funded vital research and development in bioenergy. Subsequently, Congress had been working on a new comprehensive energy bill for several years, which finally passed this year — the Energy Policy Act of 2005 (P.L. 109-190) also has significant provisions to boost biomass use. This year, hurricanes, sky-rocketing oil and natural gas prices, and national security concerns have created a ripe atmosphere for biomass-related legislation to finally garner much broader attention and support. Funding and Appropriations Despite increasing interest in biomass, the beginning of the year started out once again with the Administration’s FY06 budget request slashing funding for Sec. 9006 (Renewable Energy & Energy Efficiency Systems Grants/Loans program) and Sec. 6401 (Value-Add program which also provides grants to farmers and rural businesses). Thankfully, Congress restored full funding for Sec. 9006 and $20.5 million for Sec. 6401, an increase from FY05. Unfortunately, both Sec. 9006 and Sec. 6401 have suffered cuts in this reconciliation process despite ongoing efforts on the part of EESI and other renewable energy organizations across the country. Funding for Sec. 9006 in FY07 was reduced to $3 million in discretionary funding, which is down from $23 million in mandatory funding; thereby reducing the baseline to such an insignificant number that it essentially eliminates the program. Sec. 6401 did not take such a severe cut; the baseline was spared for FY07, which stands at $40 million, but the bill called for all funds which are unobligated by October 1, 2006 to be reclaimed by the Federal government. Grants totaling $20.8 million were awarded to 150 applicants from 32 states under the Sec. 9006 program in 2005. Of these funds, over $7 million will be used for biomass-related energy projects, such as the production of biofuels or methane from anaerobic digesters. Similarly, the Value-Add program funded 169 projects, some of which help develop marketing and production of energy from biomass, with over $14.4 million this year. Additionally, in the Department of Energy’s (DOE) FY06 appropriations bill, the DOE biomass R&D program received a little over $91.6 million, however, this includes more than $52.3 million in earmarks, making more than 57 percent of the funds already pegged for ‘special’ projects as opposed to core program R&D. Energy Policy Act of 2005 (P.L. 109-190) After more than ten years, Congress has finally passed a new energy bill. Although there are many provisions in the Act that send policy in the wrong direction, there are a host of biomass-related provisions, most notably the Renewable Fuel Standard (RFS), which will more than double the current market for biofuels. The RFS requires that 7.5 billion gallons of biofuels (including ethanol and biodiesel) be utilized by 2012. Moreover, one gallon of cellulosic ethanol or waste-derived ethanol will be counted as 2.5 gallons. After 2012, the 2.5-to-one ratio no longer applies. But, the RFS will annually require a minimum of 250 million gallons of cellulosic biomass fuels. Other significant provisions enacted by the Energy Policy Act of 2005 include the Renewable Energy Production Tax Credit, which was extended for another two years, and the Clean Renewable Energy Bonds (for public power), which are vital to obtaining project financing for the renewable energy industry. Additionally, Senators Lugar (R-IN) and Harkin (D-IA), worked to include significant biofuels, bio-based products and biopower provisions in the Energy Policy Act of 2005, thereby providing legislation for grant-and-loan and loan guarantee programs which will now give biomass renewable energy projects a step-up in the growing renewable energy market. There are specific provisions authorizing funding to spur development of cellulosic biofuels facilities and integrated biorefineries. State and Private Biomass Initiatives As many industries are finding out, it has been easier to enact and implement biomass-related energy programs on a state level. Currently, five states including California, Ohio, Hawaii, Minnesota and Montana have either a RFS or have passed legislation to use biofuels on a state level. Furthermore, many states provide biomass incentives to create market demand or to help new biofuels producers get established. For instance, Oklahoma passed a tax credit, which will provide 20 cents/gallon of biodiesel, produced for the first five years, with a maximum annual payment of $5 million. North Dakota Governor John Hoeven signed a number of bills on Earth Day for support of renewable energy technologies including wind, hydrogen, biodiesel, and ethanol. Incentives for ethanol production include $3.25 million for new and existing ethanol plants in the state, $1.35 million for the expansion of existing plants, and a 20 cents per gallon tax credit for retail sales of E85 (HB 1478). North Dakota passed a complementary bill for biodiesel. On the biopower side (biomass for electricity production), 21 states have enacted a Renewable Portfolio Standard (RPS). An RPS is a requirement created by the government that mandates a certain percentage of a utility’s overall energy capacity or energy sales be derived from renewable resources, including biomass. Moreover, as with biofuels, many biopower incentives have been passed on a state level to encourage biopower production. The state of Washington, for example, passed a Production Tax Credit, which will provide a 15 cent per kilowatt-hour incentive for small scale renewable energy producers using either solar, wind or anaerobic digester technology. Similarly, Iowa enacted legislation creating two separate production tax credits for electricity generated by eligible renewable energy facilities, including solar thermal electric, photovoltaics, landfill gas, wind, biomass, hydrogen and anaerobic digestion. New Biomass-related Federal Bills Many new bills have been introduced this year, illustrating that biomass is becoming a more prominent interest for many policymakers. In particular, biofuels legislation has been introduced because of high petroleum prices and perceived national and energy security threats because of the Iraq war and our growing reliance upon imported oil. One of the most recent examples of biofuel legislation is the simultaneous introduction of the Fuel Choices for American Security Act of 2005 (H.R.4409, S. 2025), introduced by Rep. Kingston (R-GA) and co-sponsored by more than 25 other House members and introduced by Senator Bayh (D-IN) and co-sponsored by nine other Senators. These bills were introduced, “To promote the national security and stability of the United States’ economy by reducing the dependence of the United States on foreign oil through the use of alternative fuels and new vehicle technologies, and for other purposes.” However, this description fails to illustrate the positive impacts that the bill could have on flex-fuel vehicles, R&D for biofuels, alternative fuel fueling stations and a wide variety of other biomass-related technologies. Furthermore, the Health Care for Hybrids Act, introduced by Rep. Inslee (D-WA) on the House side (H.R. 4370, S.2045) and Senator Obama (D-IL) on the Senate side, would provide incentives to the auto industry to accelerate efforts to develop more energy-efficient vehicles to lessen dependence on oil. Many other biopower and biofuels bills were introduced in 2005 including Rep. Gutknecht’s ’10 by10 Act’ (H.R. 4357), Rep. Gordon’s Advanced Research Projects Agency-Energy Act (H.R. 4435), Senator Harkin’s Fuel Security and Consumer Choice Act (S. 1994), Senator Cantwell’s 20/20 Biofuels Challenge Act of 2005 (S.1609), Rep. Kaptur’s National Defense Authorization Act for Fiscal Year 2006 (H.R. 1815) and a number of other important bills. Biomass: 2006 and Beyond It is apparent that next year will see more biomass initiatives because of increasing concerns for national and energy security. New biomass legislation is already being developed and as more Members of Congress see how biomass-to-energy technologies will benefit their states, more actions will be taken on this legislation. As part of this trend, the country will see more biomass initiatives in the agriculture and transportation sectors, both of which will play a huge roll in reducing oil consumption in the United States. Biomass activities will be focused on the annual appropriations process and the reauthorization of the farm bill. There is sure to be another fight to protect funding for the energy title of the farm bill and the new biomass programs in the energy bill. However, this year will be exceptionally difficult because of a tighter budget and cuts made through budget reconciliation. Biomass used to displace petroleum, especially in the transportation sector, will take center stage next year. Transportation Flexible fuel plug-in hybrids offer the potential to decrease dependence on oil in the transportation sector while improving air quality. One new initiative that will kick off in 2006 is the Austin Energy National Plug-in Partner Campaign, which will help build a market for gas-optional plug-in hybrids. The national campaign will help demonstrate to automobile manufacturers that a market for flexible-fuel Plug-in Hybrid vehicles (PHEVs) exists today. As education about biomass increases in the coming year, renewable energy advocates will have another great energy resource to rally around.