Biomass: Year-in-Review

The biomass industry made tremendous gains in 2005, but even those knee-deep in biomass could not have foreseen such amazing strides made in 2006. Even with appropriation woes, large venture capital investments, new leadership, increased acceptance from the environmental community, national security threats and unstable energy markets sparked the country’s enthusiasm for biomass. The industry’s capacity to ramp up production and the ability of this renewable resource to provide a considerable quantity of power, not just liquid fuel, has made biomass a significant player in the U.S. energy future.

Funding Earlier this year the President shocked the country by saying, “America is addicted to oil,” in his State of the Union Address, and later saying he would fund, “ethanol, not just from corn, but from wood chips and stalks, or switch grass” — but his budget fell far short. The President’s FY07 budget for biomass only totaled $161.7 million, 11 percent of the authorized biomass programs in the Energy Policy Act of 2005. Furthermore, his budget cut popular energy programs enacted in the Farm Security and Rural Development Act of 2002. Congress did propose significant increases in many biomass programs, but funding levels are still not close to authorizations. The House-passed FY07 Agriculture Appropriations Act fully funded most farm bill renewable energy programs as did the senate, but with a $2 million increase for the Renewable Energy Systems and Energy Efficiency Improvement Program and funding of $48 million for Value-added Producer Grants. The Senate Energy and Water Appropriations bill funded DOE’s Bioenergy program, at its full authorization of $213 million for FY07 and directed DOE to study the “reverse auction” authorized in Sec. 942 of EPAct, and states support for the Loan Guarantee program. The House bill has funded DOE’s Bioenergy Program at the President’s request of almost $150 million. Several unmentioned programs received no funding. Alas, Congress has not yet finished FY07 appropriations. Grants and Solicitations DOE and USDA issued solicitations for two new programs, for which many companies are anxiously awaiting decisions: Integrated Biorefinery Demonstration Projects and the DOE Loan Guarantee Program, both authorized in EPAct. The former, developed to fund lignocellulosic feedstock biorefinery projects, is still pending appropriations. The latter, released a Solicitation Announcement as part of the President’s Advanced Energy Initiative (AEI), which includes biomass. This program for $2 billion in loan guarantees was issued to encourage early commercial projects that employ new or significantly improved technologies. Its deadline was postponed to December 31, 2006. Authorized in EPAct, this program sketched a clear path for venture capitalists to shift into biomass technologies, including cellulosic ethanol. But without implementation of the Loan Guarantee the industry may be slowed down. Equally important is the role of private industry in developing biomass technologies. BP announced its intention to invest $500 million over the next 10 years to establish a biosciences research laboratory attached to a major academic institution in the United States or United Kingdom. An early 2007 announcement is likely. The new BP Energy Biosciences Institute (EBI) will be dedicated to energy technologies, focusing on development of new biofuels and increasing efficiency and flexibility of current technologies. State Actions State governments have been more active on biomass than the Federal Government, with the passage of Renewable Fuel Standard bills in Washington, Iowa and Louisiana. Renewable fueling station legislation in Michigan, among other states, and New York’s toppling of the exclusivity clause in new contracts between retailers and oil distributors have also been big wins this year. Although the national RFS was passed last year in EPAct, state infrastructure legislation has focused attention on this important barrier. Had California’s Proposition 87 passed, taxes on California oil production of up to $380 million a year would have raised billions of dollars for investments in clean energy. Even with large investments by Steve Bing and Larry Page (a real estate developer, film producer, philanthropist and Google co-founder, respectively) into this biomass friendly referendum, the political power of the oil companies was too much. Although many have said the biomass industry and the oil industry will be working together, it is clear that ‘big oil’ will fight to keep biomass down. Facility Development Biofuels received the most attention of all the biomass industries this year. Corn ethanol illustrates the biomass industry’s ability to become a larger player in energy markets. Ethanol refineries increased from 95 to 108 with capacity of 4 billion gallons at the end of 2005 to 5.2 — and 9.5 billion gallons when all new refineries are on line. Similarly, biodiesel has increased from 75 million gallons at the end of 2005 to a total capacity of 582 million gallons from 85 companies. The announcement of Broin Companies $200 million expansion of Voyager Ethanol in Iowa to cellulosic ethanol was another high point for the industry in 2006. Moreover, biomass as a renewable resource for electricity and heat should not be overlooked, especially when paired with biofuel technology. Two facilities in Minnesota are doing just that. Chippewa Valley Ethanol Company (CVEC) and the Central Minnesota Ethanol Cooperative (CMEC) are installing biomass gasifiers to replace fossil fuel burned for heat and electricity. Portsmouth New Hampshire opened the Northern Wood Power Project at the Schiller Station power plant to retire one of three coal-burning boilers and replace it with a boiler that burns wood materials. This will generate $20 million in revenue for timber farmers, and provide enough power for approximately 50,000 homes in New Hampshire with 50 MW of electricity. Furthermore, the Western Governors’ Association’s Clean and Diversified Energy Initiative Report released in June, found that, “Biomass as an energy resource has the potential to supply 15,000 MW of electricity to the Western states by the year 2015,” which is half of the initiative’s target. Biobased products made real gains with USDA’s announcement of new rules for the Federal Procurement of Biobased Products program and new partnerships like the one between Metabolix and Archer Daniels Midland Company (ADM). This partnership will produce new PHA plastics adjacent to ADM’s wet corn mill in Clinton, utilizing the starch from the mill’s corn grind as a raw material for production of the plastics. Federal Biomass Actions With dozens of biomass conferences and events across the country, it is no wonder that in 2006 more than 50 biomass-related bills were introduced. Increases to the national RFS, incentives for alternative fueling stations and flex-fuel vehicles and extensions of biomass-related tax incentives were highlighted in these bills. The Democratic Rural Working Group’s bill, Bioenergy Innovation, Optional Fuel Utilization, and Energy Legacy (BIOFUEL Act of 2006), introduced by Rep. Herseth’s (D-SD) has good examples of these initiatives. The bill’s stated purpose is to “promote the increased utilization of domestically produced, renewable, biobased motor vehicle fuel supplies and the increased manufacture of flexible-fuel vehicles in the United States.” It increases the biofuels mandate (to 20 percent by 2015), expands the number of vehicles that can run on ethanol, increases the number of E-85 pumps, encourages research and development into new biofuel technologies, and provides financing incentives for cooperative and independent biofuel plants. Other bills were smaller, but no less important, such as Rep. Hulshof’s (R-MO) Renewable Fuels and Energy Independence Promotion Act of 2006, to make permanent the excise tax incentives for ethanol and biodiesel used as a fuel. An expanded national RFS was a popular addition to legislation, especially since the 7.5 billion gallon mandate will be reached before 2012. Rep. Upton’s (R-MI) 10 percent Renewable Fuel Requirement requires that, after the year 2012, all gasoline sold for motor vehicles contain at least 10 percent renewable fuel is an example. Sen. Grassley’s (R-IA) 10 by 10 Act would require all gasoline sold for use in motor vehicles to contain ten percent renewable fuel by 2010. Other biomass-related bills introduced in 2006 include Senators Obama (D-IL) and Lugar’s (R-IN) American Fuels Act of 2006, Sen. Conrad’s (D-ND) Breaking Our Long-Term Dependence (BOLD) Energy Act of 2006, Rep. Hoyer’s (D-MD) Program for Real Energy Security Act or ‘PROGRESS Act’, Sen. Cantwell’s (D-WA) Clean Energy Development for a Growing Economy (EDGE) Act of 2006 and Sen. Clinton’s (D-NY) Strategic Energy Fund Act of 2006. 2007: Biomass, Rural Development and Climate Change Although national security has increased this country’s interest in biomass over the last few years, climate protection and rural development may become the driving forces behind new biomass legislation and action. With the reauthorization of the farm bill and a new Congress in 2007, stakeholders are working hard to develop connections between these very big issues and the benefits of biomass-to-energy technologies. Many policymakers expect biomass legislation to play out in three key bills: farm, energy and tax. Jetta Wong is an Agriculture and Energy Policy Analyst working with EESI’s Agriculture and Renewable Energy program. Currently, she writes for the organization’s BCO: Bioenergy, Climate Protection, Oil Reduction newsletters; monitors the reauthorization of the Farm Bill and implementation of its existing energy provisions; and is the primary EESI researcher on three organization project studying effective marketing incentives for biopower, biofuels and biobased products; and monitoring and advocacy related to the Renewable Fuels Standard.