Biofuels
Potential Effects and Challenges of Required Increases in Production and Use Gao ID: GAO-09-446 August 25, 2009In December 2007, the Congress expanded the renewable fuel standard (RFS), which requires rising use of ethanol and other biofuels, from 9 billion gallons in 2008 to 36 billion gallons in 2022. To meet the RFS, the Departments of Agriculture (USDA) and Energy (DOE) are developing advanced biofuels that use cellulosic feedstocks, such as corn stover and switchgrass. The Environmental Protection Agency (EPA) administers the RFS. This report examines, among other things, (1) the effects of increased biofuels production on U.S. agriculture, environment, and greenhouse gas emissions; (2) federal support for domestic biofuels production; and (3) key challenges in meeting the RFS. GAO extensively reviewed scientific studies, interviewed experts and agency officials, and visited five DOE and USDA laboratories.
To meet the RFS, domestic biofuels production must increase significantly, with uncertain effects for agriculture and the environment. For agriculture, many experts said that biofuels production has contributed to crop price increases as well as increases in prices of livestock and poultry feed and, to a lesser extent, food. They believe that this trend may continue as the RFS expands. For the environment, many experts believe that increased biofuels production could impair water quality--by increasing fertilizer runoff and soil erosion--and also reduce water availability, degrade air and soil quality, and adversely affect wildlife habitat; however, the extent of these effects is uncertain and could be mitigated by such factors as improved crop yields, feedstock selection, use of conservation techniques, and improvements in biorefinery processing. Except for lifecycle greenhouse gas emissions, EPA is currently not required by statute to assess environmental effects to determine what biofuels are eligible for inclusion in the RFS. Many researchers told GAO there is general agreement on the approach for measuring the direct effects of biofuels production on lifecycle greenhouse gas emissions but disagreement about how to estimate the indirect effects on global land use change, which EPA is required to assess in determining RFS compliance. In particular, researchers disagree about what nonagricultural lands will be converted to sustain world food production to replace land used to grow biofuels crops. The Volumetric Ethanol Excise Tax Credit (VEETC), a 45-cent per gallon federal tax credit, was established to support the domestic ethanol industry. Unless crude oil prices rise significantly, the VEETC is not expected to stimulate ethanol consumption beyond the level the RFS specifies this year. The VEETC also may no longer be needed to stimulate conventional corn ethanol production because the domestic industry has matured, its processing is well understood, and its capacity is already near the effective RFS limit of 15 billion gallons per year for conventional ethanol. A separate $1.01 tax credit is available for producing advanced cellulosic biofuels. The nation faces several key challenges in expanding biofuels production to achieve the RFS's 36-billion-gallon requirement in 2022. For example, farmers face risks in transitioning to cellulosic biofuels production and are uncertain whether growing switchgrass will eventually be profitable. USDA's new Biomass Crop Assistance Program may help mitigate these risks by providing payments to farmers through multi-year contracts. In addition, U.S. ethanol use is approaching the so-called blend wall--the amount of ethanol that most U.S. vehicles can use, given EPA's 10 percent limit on the ethanol content in gasoline. Research has been initiated on the long-term effects of using 15 percent or 20 percent ethanol blends, but expanding the use of 85 percent ethanol blends will require substantial new investment because ethanol is too corrosive for the petroleum distribution infrastructure and most vehicles. Alternatively, further R&D on biorefinery processing technologies might lead to price-competitive biofuels that are compatible with the existing petroleum distribution and storage infrastructure and the current fleet of U.S. vehicles.
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Director: Team: Phone:GAO-09-446, Biofuels: Potential Effects and Challenges of Required Increases in Production and Use
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
August 2009:
Biofuels:
Potential Effects and Challenges of Required Increases in Production
and Use:
GAO-09-446:
GAO Highlights:
Highlights of GAO-09-446, a report to congressional requesters.
Why GAO Did This Study:
In December 2007, the Congress expanded the renewable fuel standard
(RFS), which requires rising use of ethanol and other biofuels, from 9
billion gallons in 2008 to 36 billion gallons in 2022. To meet the RFS,
the Departments of Agriculture (USDA) and Energy (DOE) are developing
advanced biofuels that use cellulosic feedstocks, such as corn stover
and switchgrass. The Environmental Protection Agency (EPA) administers
the RFS.
This report examines, among other things, (1) the effects of increased
biofuels production on U.S. agriculture, environment, and greenhouse
gas emissions; (2) federal support for domestic biofuels production;
and (3) key challenges in meeting the RFS. GAO extensively reviewed
scientific studies, interviewed experts and agency officials, and
visited five DOE and USDA laboratories.
What GAO Found:
To meet the RFS, domestic biofuels production must increase
significantly, with uncertain effects for agriculture and the
environment. For agriculture, many experts said that biofuels
production has contributed to crop price increases as well as increases
in prices of livestock and poultry feed and, to a lesser extent, food.
They believe that this trend may continue as the RFS expands. For the
environment, many experts believe that increased biofuels production
could impair water quality”by increasing fertilizer runoff and soil
erosion”and also reduce water availability, degrade air and soil
quality, and adversely affect wildlife habitat; however, the extent of
these effects is uncertain and could be mitigated by such factors as
improved crop yields, feedstock selection, use of conservation
techniques, and improvements in biorefinery processing. Except for
lifecycle greenhouse gas emissions, EPA is currently not required by
statute to assess environmental effects to determine what biofuels are
eligible for inclusion in the RFS. Many researchers told GAO there is
general agreement on the approach for measuring the direct effects of
biofuels production on lifecycle greenhouse gas emissions but
disagreement about how to estimate the indirect effects on global land
use change, which EPA is required to assess in determining RFS
compliance. In particular, researchers disagree about what
nonagricultural lands will be converted to sustain world food
production to replace land used to grow biofuels crops.
The Volumetric Ethanol Excise Tax Credit (VEETC), a 45-cent per gallon
federal tax credit, was established to support the domestic ethanol
industry. Unless crude oil prices rise significantly, the VEETC is not
expected to stimulate ethanol consumption beyond the level the RFS
specifies this year. The VEETC also may no longer be needed to
stimulate conventional corn ethanol production because the domestic
industry has matured, its processing is well understood, and its
capacity is already near the effective RFS limit of 15 billion gallons
per year for conventional ethanol. A separate $1.01 tax credit is
available for producing advanced cellulosic biofuels.
The nation faces several key challenges in expanding biofuels
production to achieve the RFS‘s 36-billion-gallon requirement in 2022.
For example, farmers face risks in transitioning to cellulosic biofuels
production and are uncertain whether growing switchgrass will
eventually be profitable. USDA‘s new Biomass Crop Assistance Program
may help mitigate these risks by providing payments to farmers through
multi-year contracts. In addition, U.S. ethanol use is approaching the
so-called blend wall”the amount of ethanol that most U.S. vehicles can
use, given EPA‘s 10 percent limit on the ethanol content in gasoline.
Research has been initiated on the long-term effects of using 15
percent or 20 percent ethanol blends, but expanding the use of 85
percent ethanol blends will require substantial new investment because
ethanol is too corrosive for the petroleum distribution infrastructure
and most vehicles. Alternatively, further R&D on biorefinery processing
technologies might lead to price-competitive biofuels that are
compatible with the existing petroleum distribution and storage
infrastructure and the current fleet of U.S. vehicles.
What GAO Recommends:
GAO suggests that the Congress consider requiring EPA to develop a
strategy to assess lifecycle environmental effects of increased
biofuels production and whether revisions are needed to the VEETC. GAO
also recommends that EPA, DOE, and USDA develop a coordinated approach
for addressing uncertainties in lifecycle greenhouse gas analysis and
give priority to R&D that addresses future blend wall issues. DOE,
USDA, and EPA generally agreed with the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-09-446] or key
components. For more information, contact Patricia Dalton at (202) 512-
3841 or daltonp@gao.gov.
[End of section]
Contents:
Letter:
Executive Summary:
Purpose:
Background:
Principal Findings:
Conclusions:
Matters for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and GAO's Evaluation:
Chapter 1: Introduction:
Corn Starch Ethanol Is the Primary U.S. Biofuel:
Soybean Oil Is the Major U.S. Biodiesel Feedstock:
The Federal Government Has Used Tax Expenditures, the RFS, and an
Ethanol Import Tariff to Stimulate Domestic Biofuels Production:
DOE and USDA Support Biofuels R&D and Commercialization:
Objectives, Scope, and Methodology:
Chapter 2: Biofuels Production Has Had Mixed Effects on U.S.
Agriculture, but the Effects of Expanded Production Are Less Certain:
Increasing Corn Ethanol Production Has Had Mixed Effects on Land Use,
Crop Selection, and Livestock Production:
Growth in Ethanol Production Has Generally Provided a Boost to Rural
Economies:
Higher Corn Prices--Driven in Part by Increased Ethanol Production--
Have Likely Been a Factor in Recent Food Price Increases:
The Effects of Expanded Biofuels Production on Agriculture Are
Uncertain but Could Be Significant:
Some USDA Programs Could Support the Transition to Cellulosic Energy
Crop Production for Biofuels:
Chapter 3: Increased Biofuels Production Could Have a Variety of
Environmental Effects, but the Magnitude of These Effects Is Largely
Unknown:
Cultivation of Corn for Biofuel Has a Variety of Environmental Effects,
but a Shift to Cellulosic Feedstocks Could Reduce These Effects:
The Process of Converting Feedstocks into Biofuels Has Environmental
Consequences, but the Effects Vary:
Storage and Use of Certain Ethanol Blends May Result in Further
Environmental Effects that Have Not Yet Been Measured:
Focus on Sustainability Will Be Important in Evaluating Environmental
Implications of Increased Biofuel Production:
Conclusions:
Matter for Congressional Consideration:
Agency Comments and Our Evaluation:
Chapter 4: Researchers Disagree on How to Account for Indirect Land-Use
Changes in Estimating the Lifecycle Greenhouse Gas Effects of Biofuels
Production:
Estimates of the Lifecycle Greenhouse Gas Emissions of Biofuels Have
Significantly Differed:
Assumptions about Agricultural and Energy Inputs, Co-Products, and Land-
Use Changes Determine Research Results:
Shortcomings in Forecasting Models and Data Make It Difficult to
Determine Lifecycle Greenhouse Gas Emissions:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Chapter 5: Federal Tax Expenditures, the RFS, and an Ethanol Tariff
Have Primarily Supported Conventional Corn Starch Ethanol:
The VEETC Provides a Tax Credit to Companies that Blend Ethanol with
Gasoline:
RFS Biofuels Volume Requirements Rise Annually:
The United States Imposes a Tariff on Ethanol Imports:
The RFS and the VEETC Can Be Duplicative for Total Ethanol Consumption:
The Relationship between Crude Oil and Corn Prices Will Primarily
Determine Whether the RFS Is Binding:
Some Recent Studies Have Proposed that the VEETC Be Revised:
Other Federal Biofuels Tax Expenditures Support Biodiesel and
Cellulosic Biofuels Producers:
Conclusions:
Matter for Congressional Consideration:
Chapter 6: Federal Biofuels R&D Primarily Supports Developing
Cellulosic Biofuels:
Federal Biofuels R&D Programs Are Growing and Focus on Cellulosic
Ethanol:
The Congress Has Authorized and Appropriated Additional Funding for
Biofuels R&D:
Experts Identified R&D Areas for Improving Cellulosic Biofuels
Production:
Chapter 7: Significant Challenges Must Be Overcome to Meet the RFS's
Increasing Volumes of Biofuels:
Farmers and Other Suppliers Face the Challenge of Identifying and
Developing Productive and Profitable Cellulosic Feedstocks:
Cellulosic Feedstocks Pose Unique Logistical Challenges for
Biorefineries:
High Costs and the Limitations of Current Conversion Technology Are Key
Challenges to Making Cellulosic Biofuels Competitive with Other Fuels:
Blending Limits and Transportation Pose Challenges to Expanded Ethanol
Consumption:
The Biodiesel Industry Faces Feedstock and Market Challenges:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Key Studies on the Agricultural and Related Effects of
Biofuels and on the Transition to Advanced Biofuel Feedstock
Production:
Appendix II: Economic Studies Examining the Impacts of Increased
Biofuel Production on U.S. Food and Agricultural Markets:
Appendix III: Scientific Studies on the Environmental Impacts of
Biofuels:
Appendix IV: Key Studies on the Lifecycle Greenhouse Gas Effects of
Biofuels:
Appendix V: Recent Studies on Federal Supports for Biofuels:
Appendix VI: Economic Linkages of the Corn Ethanol Industry to Food and
Agricultural Markets:
Appendix VII: Summary of Researchers' Assumptions and Conclusions about
Lifecycle Greenhouse Gas Emissions of Biofuels Production:
Appendix VIII: Comments from the Department of Agriculture:
Appendix IX: Comments from the Department of Energy:
Appendix X: Comments from the Environmental Protection Agency:
Appendix XI: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Average Water Consumed in Corn Ethanol Production in Primary
Producing Regions in the United States, in Gallons of Water/Gallon of
Denatured Ethanol Produced:
Table 2: Projected Growth in Corn Acreages Related to Increased Corn
Ethanol Production of 15 Billion Gallons per Year:
Table 3: Sample of Agricultural Conservation Practices Available to
Reduce the Environmental Effects of Feedstock Cultivation for Biofuels:
Table 4: Potential Air Pollutants Associated with Ethanol Refineries
and Their Related Health and Environmental Effects:
Table 5: Criteria Pollutants and Related Emissions from Stationary and
Mobile Sources, 1990 and 2007 (thousands of short tons):
Table 6: Federal Agencies' Obligations for Biofuels R&D, Fiscal Years
2005-2008:
Table 7: Integrated Biorefinery Projects Receiving DOE Funding:
Table 8: Major Economic Studies of Agricultural Market Impacts of
Biofuels Production:
Figures:
Figure 1: Greenhouse Gas Emissions Associated with the Biofuels
Production Process:
Figure 2: Corn Used for Ethanol by Market Year, 1980-2008:
Figure 3: U.S. Acres Planted to Corn, Soybeans, Wheat, and Cotton, Crop
Years 1999-2009:
Figure 4: Existing and Planned Ethanol Facilities (as of 2007) and
Their Estimated Total Water Use Mapped with the Principal Bedrock
Aquifers of the United States and Total Water Use in 2000:
Figure 5: Estimated Lifecycle Greenhouse Gas Emissions of Ethanol as
Compared with Gasoline:
Figure 6: Domestic Ethanol Production and Federal Tax Expenditures,
1980-2008:
Figure 7: Annual Biofuels Use under the RFS, 2009-2022:
Figure 8: Economic Linkages of Ethanol Production to Food and
Agricultural Markets:
Abbreviations:
AST: above-ground storage tanks:
BCAP: Biomass Crop Assistance Program:
CRP: Conservation Reserve Program:
DDG: dried distiller's grains:
DOE: Department of Energy:
EISA: Energy Independence and Security Act of 2007:
EPA: Environmental Protection Agency:
MTB: Emethyl tertiary butyl ether:
NPDES: National Pollutant Discharge Elimination System:
NREL: National Renewable Energy Laboratory:
R&D: research and development:
RFS: Renewable Fuel Standard:
RIN: renewable identification number:
UST: underground storage tanks:
USDA: U.S. Department of Agriculture:
USGS: U.S. Geological Survey:
VEETC: Volumetric Ethanol Excise Tax Credit:
2008 Farm Bill: Food, Conservation, and Energy Act of 2008:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
August 25, 2009:
The Honorable Barbara Boxer:
Chairman:
Committee on Environment and Public Works:
United States Senate:
The Honorable Susan M. Collins:
United States Senate:
As requested, this report discusses the challenges and potential
effects associated with the increased production and use of biofuels in
the United States. We are suggesting that the Congress consider actions
to address the potential environmental effects of increased biofuels
production and whether revisions are needed to federal financial
support for the production of conventional ethanol. We are also
recommending that the Secretaries of Agriculture and Energy and the
Administrator of the Environmental Protection Agency take actions to
minimize the potential effects of the nation's biofuels production
efforts.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to other appropriate congressional committees; the Secretaries of
Agriculture, Energy, the Interior, and the Treasury; and the
Administrator of the Environmental Protection Agency. The report also
will be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-3841 or daltonp@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs can be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix XI.
Signed by:
Patricia A. Dalton:
Managing Director:
Natural Resources and Environment:
[End of section]
Executive Summary:
Purpose:
For the past several decades, the United States has enjoyed relatively
inexpensive supplies of crude oil, which has accounted for almost all
of the energy consumed for transportation. However, this reliance on
petroleum for transportation makes the U.S. economy vulnerable to even
minor disruptions in the global crude oil supply, harms U.S. balance of
payments in trade, and contributes to greenhouse gas emissions--
primarily carbon dioxide, methane, and nitrous oxide--which has
resulted in global climate change with potentially damaging long-term
effects. The federal government has promoted biofuels as an alternative
to petroleum-based fuels since the 1970s, and production of the most
common U.S. biofuel--ethanol from corn starch--reached 9 billion
gallons in 2008. The Energy Policy Act of 2005 created a Renewable Fuel
Standard (RFS) that generally required gasoline and diesel in the
United States[Footnote 1] to contain 4 billion gallons of renewable
fuels, such as ethanol and biodiesel, in 2006 and 7.5 billion gallons
in 2012.[Footnote 2] The Energy Independence and Security Act (EISA) of
2007 expanded the RFS by requiring that U.S. transportation fuel
contain 9 billion gallons of renewable fuels in 2008 and increasing
annually to 36 billion gallons in 2022.[Footnote 3] The 36-billion-
gallon total must include at least 21 billion gallons of advanced
biofuels--defined as renewable fuels other than ethanol derived from
corn starch that meet certain criteria--and can include up to 15
billion gallons of conventional biofuels--defined as ethanol derived
from corn starch. EISA requires that most advanced biofuels (at least
16 billion of the 21-billion-gallon total) be produced from cellulosic
materials, or feedstocks, including perennial grasses, crop residue,
and the branches and leaves of trees. However, advanced biofuels are at
the earliest stages of being commercially produced in the United
States, and a number of logistical and technical challenges must still
be overcome before they are economically viable. In addition, some
research in recent years has questioned the extent to which corn starch
ethanol, as compared with gasoline, reduces lifecycle greenhouse gas
emissions that occur during the process of growing, harvesting, and
transporting the feedstock; producing the biofuel; and using the
biofuel in a vehicle. Some research has also identified other adverse
environmental effects from producing corn for ethanol.
The Chairman of the Senate Committee on Environment and Public Works
and Senator Susan M. Collins asked GAO to assess several issues related
to increased U.S. production of ethanol and other biofuels.
Specifically, this report examines (1) the known agricultural and
related effects of increased biofuels feedstock production in the
United States; (2) the known environmental effects of increased
feedstock cultivation and conversion and biofuels use in the United
States; (3) the results, assumptions, and limitations of key scientific
analyses of the lifecycle greenhouse gas effects of biofuels produced
from different feedstocks; (4) federal support for developing a
domestic biofuels industry; (5) federal funding for advanced biofuels
research and development (R&D); and (6) key challenges in meeting the
RFS's specified levels.
To assess the effects of increased biofuels production, GAO used a
snowball sampling technique that identified 62 studies on the
agricultural effects, 62 articles on the environmental effects, and 46
articles on the lifecycle greenhouse gas effects published in
scientific journals and government publications. Next, GAO identified
recognized experts in each field, in collaboration with the National
Academy of Sciences, and interviewed them using a semistructured
interview format. In addition, GAO interviewed program managers,
scientists, economists, researchers, and other staff from the
Departments of Agriculture (USDA), Energy (DOE), the Interior, and the
Treasury; the Environmental Protection Agency (EPA); the National
Science Foundation; and the Department of Commerce's National Oceanic
and Atmospheric Administration. To assess federal support for
developing a domestic biofuels industry, GAO obtained Treasury data on
federal tax expenditures, reviewed relevant economic literature, and
interviewed cognizant federal officials and academic and government
economists. GAO applied conventional economic reasoning in analyzing
the incidence of tax credits. To assess federal funding support for
advanced biofuels R&D, GAO obtained DOE, USDA, and EPA data on their
obligations for R&D and loan guarantees for fiscal years 2005 through
2008 and interviewed cognizant agency officials. To assess key
challenges in meeting the RFS's requirements, GAO reviewed relevant
documents, including federal and industry reports; interviewed federal
agency officials and scientists, and representatives of nongovernmental
organizations and industry associations. In doing this work, GAO
conducted site visits at DOE's National Renewable Energy Laboratory,
Argonne National Laboratory, and Oak Ridge National Laboratory and
USDA's National Center for Agricultural Utilization Research and
Eastern Regional Research Center. See chapter 1 for a more detailed
discussion of GAO's methodology.
Background:
Biofuels, such as ethanol and biodiesel, are an alternative to
petroleum-based transportation fuels and are produced from renewable
sources such as corn, sugar cane, and soybeans. In 2008, the United
States consumed about 138 billion gallons of gasoline and about 10
billion gallons of biofuels, primarily ethanol. Ethanol, the most
common U.S. biofuel, is mainly used as a gasoline additive in blends of
about 10 percent ethanol and 90 percent gasoline, known as E10, which
is available in most states. A relatively small volume is also blended
at a higher level called E85--a blend of 85 percent ethanol and 15
percent gasoline--which can only be used in specially designed
vehicles, known as flexible-fuel vehicles, that can use either gasoline
or E85 for fuel. About 98 percent of domestic ethanol is made from corn
grown in the Midwest. The corn starch can be converted relatively
easily into sugar and then fermented and distilled into ethanol.
The RFS requires that U.S. transportation fuels in 2022 contain 36
billion gallons of biofuels. To be eligible for consideration under the
RFS, renewable fuels produced by biorefineries that begin construction
after EISA's enactment on December 19, 2007, must generally achieve at
least a 20 percent reduction in lifecycle greenhouse gas emissions as
compared with petroleum fuels. However, advanced biofuels and biomass-
based diesel must generally achieve at least a 50 percent reduction in
lifecycle greenhouse gas emissions relative to baseline petroleum
fuels, while cellulosic biofuels must generally achieve at least a 60
percent reduction, regardless of when the biorefinery producing the
fuel was constructed.[Footnote 4] Currently, EPA determines a biofuel's
eligibility under the RFS based, in part, on its lifecycle greenhouse
gas emissions. However, after 2022, EISA requires that EPA, in
coordination with DOE and USDA, establish the RFS based, in part, on
the impact of the production and use of renewable fuels on the
environment, including on air quality, wildlife habitat, water quality,
and water supply. EPA is undertaking some of these analyses and
included a partial assessment of water and air impacts in the preamble
to the proposed RFS rulemaking, published on May 26, 2009, even though
this information is currently not used to determine which biofuels are
eligible for consideration under the RFS.
Also, at least 16 billion of the 36 billion gallons of biofuels
required in 2022 are to be made from such cellulosic feedstocks as
perennial grasses, crop residue, and wood waste. Cellulosic feedstocks
are diverse. Some feedstocks are abundant and relatively inexpensive,
and their use could greatly expand biofuel production. These feedstocks
might also raise farm income, reduce greenhouse gas emissions, and
improve water quality as compared with conventional corn starch
ethanol. However, at present, the technology to economically grow,
harvest, and transport cellulosic feedstocks is untested on a large
scale. In addition, most of the energy in plant and tree biomass is
locked away in complex cellulose and hemicellulose molecules, and
technologies to produce biofuels from this type of feedstock
economically are still being developed. Some cellulosic biorefineries
are piloting the use of biochemical processes in which microbes and
enzymes break down complex plant molecules to produce ethanol, while
others are piloting the use of thermochemical processes, which use heat
and chemical catalysts to turn plant material into a liquid that more
closely resembles petroleum.
Principal Findings:
Biofuels Production Has Had Mixed Effects on U.S. Agriculture, but the
Effects of Expanded Production Are Less Certain:
Biofuels production has had mixed effects on U.S. agriculture with
regard to land use, crop selection, livestock production, rural
economies, and food prices. For example, the increasing demand for corn
for ethanol production has contributed to higher corn prices, provided
economic incentives for some producers to devote additional acres to
corn production, and resulted in reduced production of other crops,
such as soybeans and cotton. While higher corn prices have created
additional income for corn producers, they have also increased feed
costs for livestock producers. At the same time, the number of
biorefineries producing ethanol or other biofuels has grown
considerably, offering new employment opportunities in rural
communities as well as a boost to local commerce and tax revenues,
although experts' views on the magnitude and permanence of these
benefits varies. In addition, according to USDA and other sources, the
increasing use of corn for ethanol production, among other factors such
as high energy costs and tight global grain supplies, likely
contributed to higher retail food prices by increasing the price of
corn used for food processing and animal feed. The potential future
effects of expanded biofuels production, including production of new
energy crops for advanced biofuels, are uncertain but could be
significant, particularly to the extent these new crops affect the
production of other crops and livestock. Some USDA farm, forest,
conservation, and extension programs could potentially support the
transition to cellulosic feedstock production, although changes may be
needed for these programs to "level the playing field" in light of the
support they already provide for the production of food and feed crops.
Increased Biofuels Production Could Have a Variety of Environmental
Effects, but the Magnitude Is Largely Unknown:
The increased cultivation of corn for ethanol, its conversion into
biofuels, and the storage and use of these fuels could affect water
supply, water quality, air quality, soil quality, and biodiversity, but
future movement toward cellulosic feedstocks could reduce some of these
effects. Corn is a relatively resource-intensive crop, requiring
significant amounts of fertilizer and pesticide applications and
additional water to supplement rainfall, depending on where the crop is
grown. As a result, some experts believe that increased corn starch
ethanol production may result in the cultivation of corn on arid lands
that require irrigation, contributing to additional ground and surface
water depletion in water-constrained regions. In addition, some experts
believe additional corn production will lead to an increase in
fertilizer and sediment runoff, impairing streams and other water
bodies. Furthermore, experts believe that as cultivation of some crops
such as corn for biofuels production increases, environmentally
sensitive lands currently enrolled in conservation programs may be
moved back into production, thereby increasing cultivation of land that
is susceptible to erosion and decreasing available habitat for
threatened species. However, some of these effects on water quality and
habitat may be mitigated by the use of certain agricultural
conservation practices. In the future, farmers may also adopt
cellulosic feedstocks, such as switchgrass and crop residues, which
could reduce water and land-use effects relative to corn. In addition,
the process of converting feedstock into biofuels may also adversely
affect water supply, water quality, and air quality as more
biorefineries move into production. For example, biorefineries require
water for processing biofuels and will need to draw from existing water
resources, which are limited in some potential production areas.
However, the effects will depend on the location and size of the
facility and the feedstock used. Finally, the storage and use of
certain ethanol blends may pose other environmental problems, such as
leaks in underground storage tanks that are not certified to store such
blends and increased emissions of certain air pollutants when ethanol
is used in most cars; however, less is known about the extent of these
effects. Although EPA included a partial assessment of water and air
effects in the preamble of its May 2009 RFS proposed rulemaking, EISA
does not require EPA to determine what fuels are eligible for
consideration under the RFS based on their lifecycle environmental
effects, apart from greenhouse gas emissions.
Researchers Disagree on How to Account for Indirect Land-Use Changes in
Estimating the Lifecycle Greenhouse Gas Effects of Biofuels Production:
Twelve key scientific studies that GAO reviewed provided a wide range
of estimates on the lifecycle greenhouse gas emissions of biofuels
relative to fossil fuels--from a 59 percent reduction to a 93 percent
increase in emissions for conventional corn starch ethanol, a 113
percent reduction to a 50 percent increase for cellulosic ethanol, and
a 41 percent to 95 percent reduction for biodiesel. Most of the studies
found that corn starch ethanol achieves some greenhouse gas reduction
benefits and that cellulosic ethanol is likely to be more beneficial.
Different assumptions about the agricultural and energy inputs used in
biofuel production and how to allocate the energy used in this
production to co-products, such as distiller's grains, primarily
explain why the greenhouse gas emission estimates among these studies
varied. However, most of these studies did not attempt to account for
the effect of increased biofuels production on indirect land-use
changes--converting nonagricultural lands elsewhere in the world to
replace agricultural land used to grow biofuels crops to maintain world
production of food, feed and fiber crops--even though it is widely
recognized that land-use changes could be the most significant source
of lifecycle greenhouse gas emissions associated with biofuels
production. Three studies that have addressed indirect land-use changes
in their methodologies each reported that biofuels had a net increase
in greenhouse gas emissions relative to fossil fuels and concluded that
indirect land-use changes, in fact, eliminate the greenhouse gas
reduction benefits associated with corn starch ethanol, biodiesel, and
even cellulosic biofuels when produced from certain feedstocks.
Many of the lifecycle analysis researchers GAO interviewed stated there
is general consensus on the approach for measuring the direct effects
of increased biofuels production, but disagreement about assumptions
and assessment methods for estimating the indirect effects of global
land-use change. EPA is required to assess significant greenhouse gas
emissions from land-use change because only biofuels that achieve
certain lifecycle emission reductions relative to petroleum fuels are
eligible for consideration under the RFS. In particular, researchers
disagree about what nonagricultural lands will be converted to maintain
world production of food, feed, and fiber crops. Although research for
measuring indirect land-use changes as part of the greenhouse gas
analysis is only in the early stages of development, EISA directed EPA
to promulgate a rule to determine the lifecycle greenhouse gas
emissions of biofuels included in the RFS, including significant
emissions from land-use changes. Several researchers told GAO that the
lack of agreement on standardized lifecycle assumptions and assessment
methods, combined with key information gaps in such areas as feedstock
yields and domestic and international land-use data, greatly complicate
EPA's ability to promulgate this rule.
Federal Tax Credits, the RFS, and the Ethanol Tariff Have Primarily
Supported Conventional Corn Starch Ethanol:
The federal government has supported the development of a domestic
biofuels industry primarily though tax credits, the RFS, and a tariff
on ethanol imports. The Energy Tax Act of 1978, among other things,
provided tax incentives designed to stimulate the production of ethanol
for blending with gasoline, which were restructured as the Volumetric
Ethanol Excise Tax Credit (VEETC) in 2005.[Footnote 5] Subsequently, in
December 2007, EISA expanded the RFS by substantially increasing its
annual biofuel volume requirements, including up to 9 billion gallons
of conventional corn starch ethanol in 2008 and up to 15 billion
gallons of conventional corn starch ethanol in 2015. As a result, the
VEETC's annual cost to the Treasury in forgone revenues could grow from
$4 billion in 2008 to $6.75 billion in 2015 for conventional corn
starch ethanol, even though the 2008 Farm Bill reduced the VEETC from
51 cents to 45 cents per gallon for ethanol starting in 2009. The
United States also controls ethanol imports, which qualify for the
VEETC, by imposing a tariff of 54 cents per gallon plus 2.5 percent of
the ethanol's value. However, two of these tools--the VEETC and the
RFS--can be duplicative with respect to their effects on ethanol
consumption. Because U.S. ethanol consumption is unlikely to exceed the
10.5 billion gallons allowed under the RFS in 2009, unless crude oil
prices rise significantly, GAO and others have found that under current
market conditions the VEETC does not stimulate additional ethanol
consumption. In addition, the processing technology for the
conventional corn starch ethanol industry is mature and its production
capacity is nearing the effective RFS limit of 15 billion gallons per
year for conventional ethanol beginning in 2015. In light of this
situation, some recent studies have suggested that the VEETC be
terminated or phased out or be revised by, for example, modifying it to
provide a stimulus when crude oil prices are low but reducing its size
when crude oil prices rise. The economists GAO interviewed noted that
removing the VEETC would affect motor fuel blenders, consumers, and
biofuels producers differently, depending upon market conditions. For
example, one economist stated that when the RFS causes biofuels
consumption to be higher than it otherwise would be, most of the
VEETC's benefits go to consumers with lower crude oil prices and go to
producers with higher crude oil prices. Another economist said that
motor fuel blenders would likely lose if the VEETC were removed, but
the exact impacts would depend on supply and demand elasticities.
In addition to the VEETC, which predominantly benefits conventional
corn starch ethanol, the Congress has provided tax credits of $1 per
gallon for producing or blending advanced biodiesel and $1.01 per
gallon for producing cellulosic biofuels. Both biodiesel and cellulosic
biofuels have high production costs that have limited their ability to
compete in fuel markets. To date, these tax credits have predominantly
supported biodiesel production because only small amounts of cellulosic
biofuels are currently being produced. The RFS requirement for
biodiesel rises from at least 500 million gallons in 2009 to at least 1
billion gallons in and beyond 2012 and for cellulosic biofuels rises
from at least 100 million gallons in 2010 to at least 16 billion
gallons in 2022.
Federal R&D Mainly Supports the Development of Advanced Cellulosic
Biofuels:
DOE and USDA, the principal federal sponsors of biofuels R&D, obligated
about $500 million to develop advanced cellulosic biofuels in fiscal
year 2008. In February 2009, the American Recovery and Reinvestment Act
of 2009 appropriated $800 million to DOE for biomass-related projects,
and in March 2009 the Omnibus Appropriation Act, 2009, appropriated
$217 million for DOE's biomass and biorefinery systems R&D program. A
substantial portion of DOE's funding supports its Integrated
Biorefineries Program, which seeks to demonstrate technologies for
using a wide variety of cellulosic feedstocks and operating profitably
once construction costs are covered, and R&D on next-generation
cellulosic feedstocks, such as algae. USDA's biofuels R&D seeks, among
other things, to develop practices and systems that maximize the
sustainable yield of high-quality bioenergy feedstocks by, for example,
maximizing the harvest of corn stover (the cobs, stalks, leaves, and
husks of corn plants) while maintaining soil organic matter.
Significant Challenges Must Be Overcome to Meet the RFS's Increasing
Volumes of Biofuels:
The domestic biofuels industry faces multiple challenges to meet the
RFS's increasing volume requirement of biofuels, particularly
cellulosic and other advanced biofuels. For example, cost-effective
methods and technologies need to be developed to address the logistical
difficulties in collecting, transporting, and storing the leaves,
stalks, tree trunks, and other feedstocks that cellulosic biorefineries
will process. Also, some DOE, EPA, and USDA officials expressed concern
about inconsistencies in how EISA and the 2008 Farm Bill define
renewable biomass because municipal waste and wood residues on
federally managed forest land are excluded under EISA but not under the
2008 Farm Bill. If not resolved, these inconsistencies could complicate
the promulgation of regulations and implementation of programs for
achieving the RFS. Another challenge lies in the cellulosic conversion
technology itself, which needs more commercial development and is
expensive relative to the cost of producing ethanol from corn starch.
Researchers are still developing pretreatment processes and biochemical
and thermochemical refining technologies. While the RFS requires only
modest amounts of biodiesel beginning in 2009, this industry faces its
own set of challenges, including the cost of feedstocks and a limited
U.S. market.
An immediate challenge facing the expansion of the domestic biofuels
industry under the RFS is infrastructure limitations for distributing,
storing, and using increasing volumes of ethanol because, for example,
pipelines do not exist to cost effectively transport biofuels from
biorefineries in the Midwest to East and West Coast markets. The U.S.
biofuels distribution infrastructure can deliver current volumes of
ethanol to consumers. However, the nation may reach the blend wall--the
point where all of the nation's gasoline supply is blended as E10 and
extra volumes of ethanol cannot be readily consumed--as early as 2011
because EPA, under the Clean Air Act, currently limits the ethanol
content in gasoline to 10 percent for most U.S. vehicles, the current
economic slowdown has reduced U.S. gasoline consumption, and the RFS
requires increasing amounts of biofuels. DOE has initiated R&D to
determine the long-term effects of using blends above 10 percent
ethanol on a car's emission control system and engine. If EPA and
vehicle manufacturers find that the current U.S. vehicle fleet cannot
use higher ethanol blends, additional ethanol consumption will be
limited to flexible-fuel vehicles that can use E85. However, expanding
E85 consumption would require substantial investment in an ethanol
distribution and storage infrastructure that is distinct from the
existing petroleum distribution and storage system and increased
consumer purchases of flexible-fuel vehicles. Advances in
thermochemical processing technology could yield nonethanol products
that the existing petroleum refining and distribution infrastructure
can use--and therefore reduce blend wall issues.
Conclusions:
The RFS requires that the nation's transportation fuel contain 36
billion gallons of biofuels in 2022, primarily advanced biofuels. To
date, the domestic biofuels industry has achieved about 30 percent of
this level, largely through the production of conventional corn starch
ethanol. Going forward, federal agencies face significant challenges to
ensure the domestic biofuels industry can meet the RFS's more demanding
advanced biofuel requirements, while minimizing any unintended adverse
effects. For example, one key challenge is identifying and mitigating
any adverse environmental effects. Given the potential for increased
biofuels production to further exacerbate existing environmental
problems, GAO believes that assessing the viability of a biofuel
feedstock will be incomplete without a consideration of the related
lifecycle environmental effects. Although EPA's May 2009 proposed
rulemaking included a partial analysis of water and air effects of
biofuel production, EISA does not require EPA to determine what
renewable fuels are eligible for consideration under the RFS based on
their lifecycle environmental effects, apart from greenhouse gas
emissions. A second key challenge is addressing the likelihood that
ethanol production will exceed the capability of the petroleum
infrastructure and today's fleet of vehicles to distribute and use the
ethanol, referred to as the blend wall. The nation will need to make a
substantial investment in a new ethanol distribution infrastructure to
reach the RFS requirements, unless cost-effective biofuel products are
developed that the existing petroleum refining, distribution, and
storage infrastructure can use. A third key challenge is
inconsistencies in how EISA and the 2008 Farm Bill define renewable
biomass that, if not resolved, could complicate federal agencies'
efforts to promulgate regulations and implement programs for achieving
the RFS.
EISA, the 2008 Farm Bill, and the American Recovery and Reinvestment
Act of 2009 have extended and expanded existing programs, authorized
new ones, and appropriated substantial funding for R&D to stimulate the
domestic biofuels industry. In particular, EISA significantly expanded
the RFS to require that U.S. transportation fuels contain 36 billion
gallons of biofuels in 2022, while the 2008 Farm Bill somewhat reduced
the VEETC and established a new tax credit for advanced cellulosic
biofuels. With these many efforts, federal agencies are challenged to
not only be efficient in minimizing duplicative incentives, but also to
ensure that existing and new federal programs are harmonized to promote
advanced biofuel production and more effectively achieve the RFS. How
federal agencies choose to address these challenges will shape the
effect that biofuels production will have on the nation's continuing
efforts to balance the need for new sources of energy, the increasing
demand for food, and the need to protect the environment.
GAO provides two matters for congressional consideration and three
recommendations for executive action to help address these challenges.
Matters for Congressional Consideration:
In addition to the currently required lifecycle greenhouse gas
emissions analysis, the Congress may wish to consider amending EISA to
require that the Administrator of the Environmental Protection Agency
develop a strategy to assess the effects of increased biofuels
production on the environment at all stages of the lifecycle--
cultivation, harvest, transport, conversion, storage, and use--and to
use this assessment in determining which biofuels are eligible for
consideration under the RFS. This would ensure that all relevant
environmental effects are considered concurrently with lifecycle
greenhouse gas emissions.
Because the RFS allows rapidly increasing annual amounts of
conventional biofuels through 2015 and the conventional corn starch
ethanol industry is mature, the Congress may wish to consider whether
revisions to the VEETC are needed. Options could include maintaining
the VEETC, reducing the amount of the tax credit or phasing it out, or
modifying the tax credit to counteract fluctuations in crude oil
prices.
Recommendations for Executive Action:
To improve EPA's ability to determine biofuels' greenhouse gas
emissions and define fuels eligible for consideration under the RFS,
GAO recommends that the Administrator of the Environmental Protection
Agency and the Secretaries of Agriculture and Energy develop a
coordinated approach for identifying and researching unknown variables
and major uncertainties in the lifecycle greenhouse gas analysis of
increased biofuels production. This approach should include a
coordinated effort to develop parameters for using models and a
standard set of assumptions and methods in assessing greenhouse gas
emissions for the full biofuel lifecycle, such as secondary effects
that would include indirect land-use changes associated with increased
biofuels production.
To minimize future blend wall issues and associated ethanol
distribution infrastructure costs, GAO recommends that the Secretaries
of Agriculture and Energy give priority to R&D on process technologies
that produce biofuels that can be used by the existing petroleum-based
distribution and storage infrastructure and the current fleet of U.S.
vehicles.
To address inconsistencies in existing statutory language, GAO
recommends that the Administrator of the Environmental Protection
Agency, in consultation with the Secretaries of Agriculture and Energy,
review and propose to the appropriate congressional committees any
legislative changes the Administrator determines may be needed to
clarify what biomass material--based on type of feedstock or type of
land--can be counted toward RFS.
Agency Comments and GAO's Evaluation:
GAO provided USDA, DOE, and EPA with a draft of this report for their
review and comment. In its written comments, USDA stated that the
report is comprehensive, well written, and accurate. Regarding the
recommendation for determining biofuels' lifecycle greenhouse gas
emissions, USDA agreed with the general premise implicit in the
recommendation, but cited the need to ensure that coordinated
scientific discussions do not lead to standard methods that become
codified in regulations that would inhibit the adoption and use of new
information and improved or more appropriate methods as they become
available. GAO agrees with USDA's concern that the RFS regulation
should not codify standard methods that might inhibit the development
of better information or methods for assessing lifecycle greenhouse gas
emissions. However, because only three scientific studies have examined
the effects of indirect land-use changes, GAO believes that a
coordinated approach for identifying and researching unknown variables
and major uncertainties will benefit EPA's lifecycle analysis.
Regarding the recommendation for giving priority to R&D for producing
biofuels that can be used by the existing petroleum-based
infrastructure, USDA agreed that this is an important goal, but cited
other similarly important biofuels R&D goals that its scientists are
pursuing. Regarding the recommendation for clarifying what biomass
material can be counted toward the RFS, USDA agreed that the executive
agencies should consult on a definition and then propose any
legislative changes to the appropriate congressional committees,
stating that the department supports the 2008 Farm Bill's definition.
USDA also provided four substantive comments on the report. First,
while the department does not dispute most findings and conclusions,
USDA noted that the report generally tends to emphasize negative
aspects of increased biofuels production. GAO notes that USDA, in its
comments, acknowledged the environmental challenges posed by increased
biofuel production, and GAO agrees that strategies to mitigate these
effects are currently being researched. While GAO believes its
reporting of the research on these effects has been balanced, GAO
reviewed this discussion and provided additional clarification where
appropriate. Second, USDA stated that the report is written as if EPA's
study on the RFS is still in progress and suggests that the report
discuss EPA's findings and conclusions. GAO notes that EPA recently
published peer reviewers' assessments of four key components of the
lifecycle greenhouse gas emissions analysis in its May 2009 proposed
rule. GAO believes that this peer review is an important first step for
scientists to understand and validate the assumptions and models that
EPA's lifecycle analysis used and that GAO's characterization of EPA's
rulemaking is accurate. Third, USDA suggested that the report discuss
legislative restrictions on eligibility for some competitive research
programs, which it believes are important obstacles to achieving the
best possible biofuels research. GAO notes that examining the funding
restrictions in the Energy Policy Act of 2005 and other legislation
that exclude federal government owned and operated research facilities
from receiving DOE grant funds was beyond the scope of work for this
review. Finally, USDA said the assessment in appendix VI of the impact
of linkages between the corn ethanol industry and the livestock
industry needed clarification and correction. GAO agrees and has
revised the appendix, as appropriate. See appendix VIII for USDA's
comments.
In its written comments, DOE also addressed each of the three
recommendations. Regarding the recommendation for determining biofuels'
lifecycle greenhouse gas emissions, DOE noted that EPA already consults
with DOE on these matters and added that DOE would welcome the
opportunity to become more engaged in this process if requested to do
so by the EPA Administrator. Regarding the recommendation for giving
priority to R&D for producing biofuels that can be used by the existing
petroleum-based infrastructure, DOE commented that it has already
expanded in this direction, noting recent and planned initiatives. For
example, DOE cited a new solicitation to fund consortia to accelerate
the development of advanced biofuels under the American Recovery and
Reinvestment Act also supports infrastructure-compatible fuels and
algae-based fuels, and DOE anticipates that hydrocarbon fuels will
become a higher priority in the future and contribute to RFS
requirements for advanced biofuels. Regarding the recommendation for
clarifying what biomass material can be counted toward the RFS, DOE
stated that the department would welcome the opportunity to participate
in deliberations about how to clarify the biomass definition if
requested to do so by the EPA Administrator, adding that DOE supports
an expansion of biomass eligibility to include materials that do not
come from federal lands classified as environmentally sensitive and
that can be grown and harvested in a sustainable manner. DOE also
provided four substantive comments on the report. First, DOE stated
that the blend wall is not necessarily insurmountable to achieving the
RFS's goals, citing Energy Information Administration projections that
E85 could account for 30 percent of the total ethanol volume in 2020.
While GAO does not disagree with this projection, GAO notes that
expanded use of E85 would require substantial investment in the ethanol
transportation and storage infrastructure--for example, EPA estimates
that installing E85 refueling equipment will average $122,000 per
facility. Second, DOE suggested that GAO revise its footnote in chapter
1 on Cello Energy's production plans, noting that the company had
recently lost a fraud lawsuit. GAO has revised the reference to the
Cello biorefinery. Third, in response to GAO's statement citing DOE and
ethanol industry expert concern about the limited capacity of the
freight rail system, DOE said that ethanol cargo represents a mere
fraction of total rail cargo and that the railway industry has plans
for major capital expansions over the coming decades. GAO revised its
discussion of the freight rail challenges to increased biofuels use in
chapter 7 to note, for example, that few blending terminals have the
off-loading capacity to handle large train shipments of ethanol.
Finally, DOE noted that Kinder-Morgan has performed extensive testing
on transporting ethanol in existing petroleum product pipelines in
Florida. See appendix IX for DOE's comments.
In its written comments, EPA stated that the report comprehensively
identifies the main issues that should be considered when assessing
expanded biofuels production. Regarding GAO's suggestion that the
Congress consider amending EISA to require that EPA assess the effects
of increased biofuels production on the environment at all stages of
the lifecycle and use this assessment in determining eligible biofuels
under the RFS, EPA said that (1) this issue might best be addressed by
the newly created Executive Biofuel Interagency Working Group, (2) EPA
has clear authorities and responsibilities under other statutes that
may regulate aspects of a biofuel's lifecycle, and (3) EISA requires
that EPA evaluate the environmental effects of biofuels and submit a
report to the Congress. GAO acknowledges that EPA has the authority
under other statutes to mitigate the environmental effects of biofuels
and believes that the evaluation currently required by section 204 of
EISA will provide a good foundation for the analysis GAO suggests.
However, GAO believes the matter for congressional consideration would
require EPA to not only assess the lifecycle effects of biofuels, but
to actually use these assessments to determine which biofuels are
eligible for consideration under the RFS. Regarding the recommendation
for determining biofuels' lifecycle greenhouse gas emissions, EPA
stated that the agency has worked closely with USDA and DOE in
developing the lifecycle assessment methodology for its proposed rule
and with the European Union, other international governmental
organizations, and scientists on modeling, including the impact of
indirect land-use change. GAO notes that while EPA has obtained
information from USDA and DOE, its lifecycle analysis methodology was
not transparent because EPA did not shared its methodology with outside
scientists before its Notice of Proposed Rulemaking for the RFS
regulation was published. GAO believes the recently completed peer
review of EPA's methodology, including key assumptions and its
analytical model, will improve the transparency of EPA's lifecycle
analysis. Furthermore, the indirect effects of land-use change on
lifecycle greenhouse gas emissions are not well understood, and
additional research is needed to address data limitations, unknown
variables, and major uncertainties. Regarding the recommendation for
clarifying what biomass material can be counted toward the RFS, EPA
stated that the agency is working with USDA to identify inconsistencies
and interpret how biomass is treated under EISA and the 2008 Farm Bill.
EPA also provided two substantive comments on the report. First, EPA
stated that the analyses for its May 2009 proposed rule on lifecycle
greenhouse gas emissions represent the most up-to-date and
comprehensive assessment of many of these issues but commented it was
not clear how GAO considered these analyses for this report. As
previously stated, GAO believes that EPA's recently completed peer
review of the key components of its lifecycle greenhouse gas emissions
analysis is an important first step for scientists to understand and
validate the data, assumptions, and models that EPA's lifecycle
analysis uses. Second, EPA believes that many of the inconsistencies in
biofuels assessments in the reported literature can in large part be
explained either by differences in what is being modeled or, in some
cases, by the use of more precise or up-to-date data and assumptions.
GAO agrees with EPA that important progress has been made in
quantifying the direct effects of biofuels production on lifecycle
greenhouse gas emissions. However, few studies have been performed that
assess the indirect effects of land-use change, and further research is
needed to improve scientific understanding about the data, assumptions,
and assessment models used to estimate these indirect effects. See
appendix X for EPA's comments.
In addition, USDA, DOE, and EPA provided comments to improve the
report's technical accuracy, which GAO incorporated as appropriate.
[End of section]
Chapter 1: Introduction:
The United States consumes more liquid fuels than any other nation--
roughly 19.4 million barrels per day, or about 23 percent of world
consumption in 2008--even though U.S. consumption fell in 2008 due to
high crude oil prices and a weakened economy. The U.S. transportation
sector is almost entirely dependent on crude oil and accounts for
almost two-thirds of total U.S. consumption. To meet the demand for oil
in the face of limited and declining domestic production, the nation
imported about two-thirds of its oil in 2008 and will likely continue
to do so absent dramatic reductions in consumption or significantly
increased use of alternative fuels. Oil is a global commodity with
relatively little spare production capacity even as world oil demand
has grown substantially in recent years. As demonstrated by the high
gasoline prices of 2008, even a minor disruption in global oil supply
can cause economic difficulties for tens of millions of Americans. Oil
use also adversely affects the environment through the emission of
greenhouse gases--primarily carbon dioxide, methane, and nitrous oxide--
which has resulted in a warmer global climate system with potentially
damaging long-term effects.[Footnote 6]
Biofuels are an alternative to petroleum-based transportation fuels and
are produced from renewable sources, primarily corn, sugar cane, and
soybeans.[Footnote 7] The United States is the world's largest producer
of biofuels. The Energy Policy Act of 2005 created a Renewable Fuel
Standard (RFS) that generally required U.S. transportation fuel
[Footnote 8] to contain 4 billion gallons of renewable fuels, such as
ethanol and biodiesel, in 2006 and 7.5 billion gallons of renewable
fuels in 2012, absent a waiver from the Administrator of the
Environmental Protection Agency (EPA).[Footnote 9] The Energy
Independence and Security Act (EISA) of 2007 expanded the RFS,
requiring that U.S. transportation fuels contain 9 billion gallons of
renewable fuels in 2008 and increasing annually to 36 billion gallons
in 2022.
In addition to improving the nation's energy security by decreasing oil
imports and developing rural economies by raising domestic demand for
U.S. farm products, increased biofuels consumption may reduce
greenhouse gas emissions as compared with fossil fuels. As shown in
figure 1, emissions of carbon dioxide and other greenhouse gases occur
in each of the stages of growing, harvesting, processing, and using
biofuels. For the past 20 years, researchers have used mathematical
models--particularly Argonne National Laboratory's GREET model--to
estimate fuel-cycle energy use and lifecycle greenhouse gas emissions
directly associated with biofuels production and to compare them with
the energy use and emissions of fossil fuels. However, researchers have
only recently begun to conduct research on the indirect effects of
increased biofuels production by examining the secondary effects of
using agricultural lands to grow energy crops. Specifically,
researchers are seeking to estimate the added greenhouse gas effects if
other lands, locally or elsewhere globally, are cleared and converted
into agricultural land to replace the displaced agricultural
production--referred to as land-use change.[Footnote 10] In addition,
expanding feedstock supplies and biofuels production may increase the
use of scarce water supplies; raise food prices; and reduce soil,
water, and air quality.
Figure 1: Greenhouse Gas Emissions Associated with the Biofuels
Production Process:
[Refer to PDF for image: illustration]
Solar Energy and Carbon Dioxide:
Biomass:
Harvesting:
Pre-processing:
Cellulose:
Enzymes break cellulose down into sugars:
Microbes ferment sugars into ethanol:
Biofuels emit carbon dioxide into the atmosphere.
Sources: DOE; Art Explosion (images).
[End of figure]
Corn Starch Ethanol Is the Primary U.S. Biofuel:
Ethanol is the most commonly produced biofuel in the United States, and
about 98 percent of it is made from corn that is grown primarily in the
Midwest.[Footnote 11] Corn contains starch, which can be converted
relatively easily into sugar and then fermented and distilled into fuel
ethanol (ethyl alcohol), the same compound found in alcoholic
beverages. Each 56-pound bushel of corn that is processed in a
biorefinery yields roughly 2.7 gallons of ethanol fuel. Currently, only
the starch from the corn kernel is used to make the fuel, and the
remaining substance of the kernel is available to create additional
economically valuable products. These are known as co-products and
include dried distiller's grains, an animal feed primarily used for
beef and dairy cows. About 3 billion bushels of corn, or about 23
percent of the nation's 13-billion bushel corn crop, were used to
produce ethanol during the 2007-2008 corn marketing year, according to
the U.S. Department of Agriculture's (USDA) February 2009 estimates.
[Footnote 12] USDA estimated that this will increase to 3.7 billion
bushels, or about 30 percent of the corn crop, for the 2008-2009
marketing year.[Footnote 13]
Corn is converted to ethanol through fermentation using one of two
standard processes, wet milling or dry milling. The main difference is
the initial treatment of the corn kernel. In the wet-mill process, the
corn kernel is steeped in a mixture of water and sulfurous acid that
helps separate the kernel into starch, germ, and fiber components. The
starch that remains after this separation can then be fermented and
distilled into fuel ethanol. In the dry-mill process, the kernel is
first ground into flour meal and processed without separating the
components of the corn kernel. The meal is then slurried with water to
form a mash and enzymes are added to convert the starch in the mash to
a fermentable sugar. The sugar is then fermented and distilled to
produce ethanol. Traditional dry-mill ethanol plants are cheaper to
construct and operate than wet-mill plants but yield fewer marketable
co-products. Dry-mill plants produce distiller's grains (used as cattle
feed) and carbon dioxide (used to carbonate soft drinks) as co-
products, while wet-mill plants produce many more co-products,
including corn oil, carbon dioxide, corn gluten meal, and corn gluten
feed.
The biggest use of fuel ethanol in the United States is as an additive
in gasoline. Ethanol is primarily blended with gasoline in mixtures of
about 10 percent, called E10, or less, which can be used in any
gasoline powered vehicle. A relatively small volume is also blended at
a higher level called E85--a blend of about 85 percent ethanol--which
can be used only in specially designed vehicles known as flexible-fuel
vehicles because they can use either gasoline or E85. Ethanol contains
only about two-thirds of the energy of a gallon of gasoline, so
consumers must purchase more fuel to travel the same distance. A
gasoline blend containing 10 percent ethanol results in a 2 percent to
3 percent decrease in fuel economy, while in a higher blend such as E85
drivers experience about a 25 percent reduction in fuel economy.
Because vehicle manufacturers have generally designed vehicles to
operate primarily on gasoline, most warranties for non-flexible-fuel
vehicles allow the company to void the warranty if the owner uses fuels
containing more than 10 percent ethanol.
Soybean Oil Is the Major U.S. Biodiesel Feedstock:
U.S. biodiesel fuel is made from soybeans and other plant oils (such as
cottonseed and canola), animal fats (such as beef tallow, pork lard,
and poultry fat), and recycled cooking oils.[Footnote 14] Soybean oil
has been the most commonly used biodiesel feedstock in the United
States.[Footnote 15] According to the National Biodiesel Board, soybean
oil made up about 65 percent of the feedstock used to produce domestic
biodiesel in 2008. The United States is the world's largest soybean
producer and exporter--farmers produced about 2.7 billion bushels of
soybeans in 2007-2008 and will produce about 3 billion bushels of
soybeans in 2008-2009, according to USDA.[Footnote 16] According to the
Energy Information Administration, most U.S. biodiesel production in
recent years has been exported to European Union countries.[Footnote
17] However, the European Commission imposed provisional antidumping
and antisubsidy duties on U.S. biodiesel imports in March 2009.
Biodiesel is most commonly used as a blend with petroleum diesel, and
B20 (20 percent biodiesel) is the most commonly used biodiesel blend in
the United States. The energy content of a gallon of biodiesel is about
8 percent lower than that of petroleum diesel, causing vehicles running
on B20, for example, to experience about a 2 percent decrease in fuel
economy. At concentrations of up to 5 percent, biodiesel can be used in
any application as if it were pure petroleum diesel. At concentrations
of 6 percent to 20 percent, biodiesel blends can be used in several
applications that use diesel fuel with minor or no modifications to the
equipment, although certain manufacturers do not extend warranty
coverage if equipment is damaged by these blends.
Ethanol and Other Biofuels Can Be Produced from a Variety of Biomass:
While ethanol is currently produced primarily from sugar-and starch-
rich food crops, the biomass in the stalks, stems, branches, and leaves
of various plants and trees can also be used to make biofuels. These
feedstocks are called cellulosic because much of their biomass is in
the form of cellulose, a complex molecule found in plants. Plant
biomass is made up primarily of cellulose, hemicellulose, and lignin.
Cellulose and hemicellulose are made up of potentially fermentable
sugars. Lignin provides the structural integrity of plants by enclosing
the tightly linked cellulose and hemicellulose molecules, which makes
these molecules harder to reach. Because cellulosic feedstocks are
diverse, abundant, and potentially inexpensive, their use could greatly
expand biofuel production. Cellulosic feedstocks include:
* Dedicated annual or perennial energy crops: includes switchgrass,
forage sorghum, miscanthus, hybrid poplar, and willow.
* Agricultural residues: includes corn stover (the cobs, stalks,
leaves, and husks of corn plants), corn fiber, wheat straw, rice straw,
and sugarcane bagasse.
* Forest residues and by-products: includes forest thinnings from stand
improvement or removal of excess understory trees, forest residues
(dead trees and branches), and hardwood sawdust and chips from lumber
mills.
* Municipal and other wastes: includes household garbage and paper
products.
* Cellulosic conversion technology currently focuses on two processes:
* A biochemical process uses acids and enzymes to break down cellulose
and hemicellulose into fermentable sugars. This also makes lignin
available to be burned to produce steam and electricity. In a
biochemical process, the percentage of the cellulosic feedstock that is
made of potentially fermentable sugars will determine its potential
ethanol yield.[Footnote 18]
* A thermochemical process uses gasification and pyrolysis technologies
to convert biomass and its residues to fuels, chemicals, and power.
Gasification--heating biomass with about one-third of the oxygen
necessary for complete combustion--produces a mixture of carbon
monoxide and hydrogen, known as syngas. Pyrolysis--heating biomass in
the absence of oxygen--produces liquid pyrolysis oil. Syngas and
pyrolysis oil can then potentially be refined into a number of biofuels
products, including ethanol, gasoline, jet fuel, and diesel fuel.
Because the thermochemical process can convert the whole plant,
including lignin, into fuel, it can potentially produce more biofuel
from a feedstock than biochemical conversion. Researchers at the
Department of Energy's (DOE) National Renewable Energy Laboratory have
reported liquid product yields of 75 percent (by feedstock weight) when
using fast pyrolysis, one method of thermochemical conversion.
Some small biorefineries have begun to process cellulosic feedstocks
using either biochemical or thermochemical conversion technologies.
[Footnote 19] However, no commercial-scale facilities are currently
operating in the United States. DOE is providing up to $272 million,
subject to annual appropriations, to support the cost of constructing
four small biorefineries that will process cellulosic feedstocks using
either a biochemical or thermochemical conversion technology.
The Federal Government Has Used Tax Expenditures, the RFS, and an
Ethanol Import Tariff to Stimulate Domestic Biofuels Production:
The Energy Tax Act of 1978, among other things, provided tax incentives
designed to stimulate the production of ethanol for blending with
gasoline.[Footnote 20] Specifically, the act authorized a motor fuel
excise tax exemption for ethanol blends, which effective January 2005
was replaced by the Volumetric Ethanol Excise Tax Credit (VEETC) to
provide ethanol blenders with an excise tax credit of 51-cents per
gallon of ethanol through 2008.[Footnote 21] The Food, Conservation,
and Energy Act of 2008 (the 2008 Farm Bill) effectively reduced the
VEETC to 45 cents per gallon beginning in 2009 and established a $1.01
per gallon tax credit through 2012 for cellulosic biofuels
producers.[Footnote 22] Additional tax credits that support biofuels
include a $1 per gallon tax credit for biodiesel production, tax
credits for small producers of ethanol or agri-biodiesel, an income tax
credit for alternative fueling infrastructure, and a depreciation
deduction for cellulosic ethanol facilities.[Footnote 23] These tax
credits are examples of tax expenditures, so named because they result
in revenue losses for the federal government because the government
forgoes a certain amount of tax revenue to encourage specific behaviors
by a particular group of taxpayers, making them in effect spending
programs channeled through the tax system. The largest of these tax
expenditures is the VEETC, which cost $4 billion in forgone tax revenue
in fiscal year 2008, according to the Department of the Treasury. The
2008 Farm Bill also extended through 2010 a 54-cent-per-gallon tariff
on imported ethanol, which offsets the advantage foreign ethanol
producers may gain from the VEETC.
The federal government also supports biofuels through the RFS. EISA
amended the RFS in 2007 to require that the amount of renewable fuels
in transportation fuel in the United States increase from 11.1 billion
gallons in 2009 to 36 billion gallons in 2022. However, EISA allows the
Administrator of EPA, after consulting with USDA and DOE and holding a
public notice and comment period, to reduce the amount of renewable
fuels required to be blended in gasoline in whole or in part if the
Administrator determines that (1) its implementation would severely
harm the economy or environment of a state, a region, or the United
States or (2) there is an inadequate domestic supply.
For 2009, the 11.1 billion gallons of biofuels must include at least
600 million gallons of advanced biofuels--defined as renewable fuel
other than ethanol derived from corn starch that meet certain criteria--
and up to 10.5 billion gallons of conventional biofuels--defined as
ethanol derived from corn starch and includes other biofuels that are
not considered to be advanced biofuels.[Footnote 24] The RFS further
specifies that of the 600 million gallon of advanced biofuels for 2009,
at least 500 million gallons must come from biomass-based diesel.
[Footnote 25]
Beginning in 2010, the general requirement for advanced biofuel
contains separate volume requirements for both biomass-based diesel and
cellulosic biofuels. Beginning in 2015 and continuing through 2022,
these advanced biofuel requirements essentially limit the annual amount
of conventional biofuels that can count toward the RFS to 15 billion
gallons. The 36-billion-gallon biofuel requirement for 2022 includes a
minimum of 21 billion gallons of advanced biofuels, of which (1) at
least 16 billion gallons must be cellulosic biofuels, (2) at least 1
billion gallons must be biomass-based diesel, and (3) the remaining 4
billion gallons can be other advanced biofuels, such as butanol or
ethanol derived from sugar or starch other than corn starch.
To be eligible for consideration under the RFS, renewable fuels
produced by biorefineries for which construction began after EISA's
enactment on December 19, 2007, must generally achieve at least a 20
percent reduction in lifecycle greenhouse gas emissions as compared
with baseline petroleum fuels.[Footnote 26] However, advanced biofuels
and biomass-based diesel under the RFS must generally achieve at least
a 50 percent reduction in lifecycle greenhouse gas emissions relative
to baseline petroleum fuels, while cellulosic biofuels must generally
achieve at least a 60 percent reduction, regardless of when the
biorefinery producing the fuel was constructed.[Footnote 27]
EISA requires that EPA promulgate a regulation that determines the
lifecycle greenhouse gas emissions of biofuels and delineates which are
eligible for consideration under the RFS based on the specified
reductions and other statutory requirements. On May 26, 2009, EPA
published a Notice of Proposed Rulemaking in the Federal Register that
proposes the regulatory structure to implement the RFS and methods for
calculating the lifecycle greenhouse gas effects of biofuels.
Subsequently, in late July 2009, four peer review analyses of key
components of EPA's lifecycle analysis were completed: (1) methods and
approaches to account for lifecycle greenhouse gas emissions from
biofuels production over time, (2) model linkages, (3) international
agricultural greenhouse gas emissions and factors, and (4) satellite
imagery. The proposed rule, if promulgated, would adjust the required
lifecycle greenhouse gas emissions reductions for advanced biofuels
from at least a 50 percent reduction to 44 percent or 40 percent in
comparison with petroleum fuels.
Although the proposed rule includes an analysis of environmental and
health impacts, EISA does not require EPA to determine a fuel's
lifecycle impact on the environment, apart from greenhouse gas
emissions, in order for a fuel to be eligible for consideration under
the RFS. After 2022, EISA requires EPA, in coordination with DOE and
USDA, to establish the RFS based, in part, on the impact of the
production and use of renewable fuels on the environment, including on
air quality, wildlife habitat, water quality, and water supply. On May
5, 2009, the President announced the formation of a Biofuels
Interagency Working Group, co-chaired by the Secretary of Agriculture,
the Secretary of Energy, and the Administrator of EPA. The working
group is tasked, in part, with identifying new policy options to
promote the environmental sustainability of biofuels feedstock
production, taking into consideration land use, habitat conservation,
crop management practices, water efficiency and water quality, as well
as lifecycle assessments of greenhouse gas emissions.
To ensure that the RFS is met, EPA sets a blending standard each year
that represents the amount of biofuel that each refiner, importer, and
certain blenders of gasoline must use.[Footnote 28] In November 2008,
EPA set the blending standard at 10.21 percent for 2009, which is
designed to satisfy EISA's general requirement that transportation
fuels contain 11.1 billion gallons of biofuels for the year. This means
that most refiners, importers, and blenders of gasoline will have to
displace 10.21 percent of their gasoline with biofuels.
Other statutory requirements EPA implements help maintain a market for
ethanol. For example, the Clean Air Act Amendments of 1990 require
areas with the worst air quality to use reformulated gasoline, which
includes oxygenate additives that increase the oxygen content of the
fuel and reduce emissions of carbon monoxide in some engines. Methyl
tertiary butyl ether (MTBE) was the most common oxygenate additive
until recent years, when it was found to contaminate groundwater. As of
2007, MTBE had been banned in 25 states. In its place, ethanol has been
increasingly used as the primary oxygenate in gasoline--increasing its
demand.
DOE and USDA Support Biofuels R&D and Demonstration:
DOE supports biofuels research and development (R&D) efforts through
its Biomass Program, within the Office of Energy Efficiency and
Renewable Energy, and through its Office of Science. DOE's Biomass
Program focuses on (1) developing more sustainable and competitive
feedstocks than corn, primarily by exploring technologies to use
cellulosic biomass; (2) reducing the cost of producing cellulosic
ethanol; (3) converting biomass to biofuels through both biochemical
and thermochemical processes; (4) helping to develop a national
biofuels infrastructure by, for example, funding the construction of
projects demonstrating integrated biorefinery technologies that use
multiple feedstocks; and (5) promoting market-oriented activities for
accelerating the deployment of biomass technologies.[Footnote 29] DOE's
Office of Science jointly funds projects focused on biomass genomics
with USDA and funds and operates three Bioenergy Research Centers,
designed to accelerate basic research to develop cellulosic ethanol and
other biofuels. DOE is also responsible for monitoring compliance with
the requirement that 75 percent of federal fleet vehicle acquisitions
be capable of using alternative fuels and the goal of increasing use of
these fuels.[Footnote 30]
USDA's Agricultural Research Service and Forest Service primarily
conduct in-house R&D on feedstock development, sustainable harvest and
production, and commercially viable conversion of agricultural
feedstocks into fuel ethanol, butanol, biodiesel, pyrolysis-derived
fuels, and value added co-products. In addition to these biofuels R&D
activities, the Natural Resources Conservation Service administers the
following two programs:
* Environmental Quality Incentives Program: a voluntary conservation
program for farmers and ranchers, to promote agricultural production,
forest management, and environmental quality as compatible national
goals. The program offers participants financial and technical
assistance through contracts ranging from 1-to 10-year terms to install
or implement structural and land management practices.
* Conservation Stewardship Program: provides payments to encourage
producers to address resource concerns in a comprehensive manner by
undertaking additional conservation activities and improving,
maintaining, and managing existing conservation activities.
The Farm Service Agency administers the Conservation Reserve Program, a
cost-share and rental payment program that assists producers in
improving soil, water, and wildlife resources. The program encourages
farmers to convert highly erodible cropland or other environmentally
sensitive acreage to vegetative cover, such as tame or native grasses,
wildlife plantings, trees, filter strips, or riparian buffers. In
addition, the Economic Research Service and Office of the Chief
Economist analyze and report on trends and effects associated with
biofuels production; the National Agricultural Statistics Service
gathers data and reports on several aspects of U.S. agriculture; the
Natural Resources Conservation Service gathers data on land use and
natural resource conditions and trends on nonfederal lands; and the
Forest Service's Forest Inventory and Analysis program is responsible
for data collection and publication of information on status and trends
of trees (growth, mortality, and removals), forest products and
utilization, and forest land ownership in the United States and the
territories.
The Biomass Research and Development Board Coordinates Federal R&D:
The Biomass Research and Development Act of 2000 directed the
Secretaries of Agriculture and Energy to coordinate policies and
procedures that promote R&D leading to the production of biofuels and
biobased products.[Footnote 31] The act created the Biomass Research
and Development Board, co-chaired by DOE and USDA with representation
from the Office of Science and Technology Policy; the Office of the
Federal Environmental Executive; the Departments of Commerce, Defense,
the Interior, Transportation, and the Treasury; EPA; and the National
Science Foundation. The act also created the Biomass Research and
Development Technical Advisory Committee, composed of about 30
representatives from industry, academia, and state government. In
addition, the act directed the Secretaries of Agriculture and Energy to
establish, in consultation with the Board, a Biomass Research and
Development Initiative to award grants, contracts, and financial
assistance to carry out research on and development of biofuels and
biobased products. The Biomass Research and Development Board issued a
multiagency National Biofuels Action Plan in October 2008 and a report
in December 2008 to inform research recommendations to address the
constraints surrounding availability of biomass feedstocks.[Footnote
32] The Board has also completed or drafted reports on such subjects as
biomass conversion, sustainability, feedstock production, and
logistics.
In addition to federal efforts to support biofuel development, several
states have established laws and policies to increase the availability
and use of biofuels. In 2007, the American Coalition for Ethanol
reported that 7 states have mandates that require the use of ethanol-
blended fuels, 23 states provide ethanol production incentives, and 13
states offer incentives to encourage retailers to provide biofuels at
their stations.
Objectives, Scope, and Methodology:
The Chairman of the Senate Committee on Environment and Public Works
and Senator Susan M. Collins asked us to assess several issues related
to the increased production of ethanol and other biofuels in the United
States. Specifically, we examined (1) the known agricultural and
related effects of increased biofuels feedstock production in the
United States; (2) the known environmental effects of increased
feedstock cultivation and conversion and biofuels use in the United
States; (3) the results, assumptions, and limitations of key scientific
analyses of the lifecycle greenhouse gas effects of biofuels produced
from different feedstocks; (4) federal support for developing a
domestic biofuels industry; (5) federal funding for advanced biofuels
R&D; and (6) key challenges in meeting the RFS's specified levels.
To examine known agricultural and related effects of increased biofuels
production in the United States, we reviewed recent economic and
scientific articles and recent reports of federal agencies. We also
reviewed studies, reports, and presentation materials from the Biomass
Research and Development Board and obtained relevant USDA data.
Specifically, we searched databases including SciSearch, Biosis
Previews, ProQuest, EconLit, and AgEcon Search and used a snowball
technique to identify relevant peer-reviewed articles. We reviewed
scientific articles in peer-reviewed journals that fit the following
criteria: (1) the research was of sufficient breadth and depth to
provide observations or conclusions directly related to our objectives;
(2) the research was targeted specifically toward projecting or
demonstrating effects of current biofuels production and advanced
biofuels production on U.S. agriculture, namely on food, feed, and
livestock markets as well as on overall biofuels feedstock yield and
productivity, land-use intensification or expansion, and rural
development; and (3) the studies were typically published between 2002
and 2008 by U.S.-based researchers. Based on these criteria, we
selected 62 studies (see appendix I). Of these, we selected 12 studies
for more detailed analysis (see appendix II). These studies contain
empirical economic analysis and were chosen because they present key
assumptions, methods, scenarios, and relevant findings of economic
models of biofuels' potential effects on agriculture. For the most
part, these studies were national in scope and generated quantitative
or empirical results. Some of the studies also modeled the effects of
increased biofuels production on relevant agricultural and energy
programs or policies.
To examine the known environmental effects of increased feedstock
cultivation and conversion and biofuels use in the United States, we
conducted a review of relevant scientific articles, U.S.
multidisciplinary studies, and key federal and state government
reports. In conducting this review, we searched databases such as
SciSearch, Biosis Previews, and ProQuest and used a snowball technique
to identify additional studies, asking experts to identify relevant
studies and reviewing studies from article bibliographies. We reviewed
studies that fit the following criteria for selection: (1) the research
was of sufficient breadth and depth to provide observations or
conclusions directly related to our objectives; (2) the research was
targeted specifically toward projecting or demonstrating effects of
increased biofuel feedstock cultivation, conversion, and use on U.S.
water supply, water quality, soil quality, air quality and
biodiversity; and (3) typically published from 2004 to 2008. In
reviewing 62 articles and studies (see appendix III), we examined key
assumptions, methods, and relevant findings of major scientific
articles, primarily on the water quality, water supply, soil quality,
and air quality effects.
To examine the findings, assumptions, and limitations of key scientific
analyses of the lifecycle greenhouse gas effects of biofuels produced
from different feedstocks, we reviewed recent scientific articles in
peer-reviewed journals that examined the energy effects of biofuels,
including net energy effects and greenhouse gas emissions of biofuels
compared with fossil fuels. Specifically, we used a snowball sampling
technique, asking experts and relevant stakeholders to identify key
studies and then checking in the citations of these articles for other
relevant work to identify studies that (1) provided specific estimates
of greenhouse gas emissions from ethanol and biodiesel produced from
biofuel feedstocks and (2) were published from 2004 to 2009 by U.S.-
based researchers. We then examined 12 studies that quantified a change
in lifecycle greenhouse gas emissions of biofuels compared with that of
fossil fuels as well as 18 studies that found a change in greenhouse
gas emissions but did not compare the effects with fossil fuels. We
also reviewed 16 additional studies that examined the effects of
different inputs, assumptions, and data gaps on lifecycle analysis
conclusions. (See appendix IV for the 46 scientific studies on the
lifecycle greenhouse gas effects of biofuels we reviewed.) In doing
this work, we made site visits to DOE's Argonne National Laboratory to
interview the scientists who developed the GREET model that is widely
used to calculate greenhouse gas emissions and DOE's Oak Ridge National
Laboratory to interview scientists about their efforts to develop
switchgrass as an energy crop and calculate the greenhouse gas
emissions of cellulosic feedstocks. We also reviewed the proposed
California Air Resources Board regulation to implement California's low
carbon fuel standard.
Based on our review of the methodologies of each of the scientific
studies included to assess agricultural and related effects,
environmental effects, and greenhouse gas emissions, we determined each
to be sufficiently sound to include in this report. We also
collaborated with the National Academy of Sciences to identify
recognized experts affiliated with U.S.-based institutions, including
academic institutions, the federal government, and research-oriented
entities for each of the following areas:
* The effects of increased biofuels production on agriculture. Experts
who published peer-reviewed research articles or texts or significantly
contributed to government studies that either (1) analyzed the effects
of one or more biofuel feedstocks on U.S. agriculture; (2) estimated
how expansion of U.S. biofuels production on agricultural or
nonagricultural lands has impacted, is impacting, or will potentially
impact food, feed, or fertilizer markets, major agricultural
conservation programs, or any associated price and income effects; or
(3) examined practices to maintain or increase crop or biofuels
feedstock productivity levels while mitigating any adverse effects on
environmental quality. We also asked the National Academy of Sciences
to identify recognized experts from the private sector.
* The effects of increased biofuels production on water quality, soil
quality, water supply, and air quality. Experts who have (1) published
research analyzing the water resource requirements of one or more
biofuel feedstocks and the implications of increased biofuels
production on lands with limited water resources, agricultural lands,
marginal lands, or highly erodible lands; (2) analyzed the possible
effects of increased biofuel production on water, soil, habitat, and
biodiversity; or (3) analyzed pollution resulting from biofuels
production and use.
* The lifecycle greenhouse gas effects of biofuels production.
Researchers who have recently published peer-reviewed research that
examined the lifecycle greenhouse gas effects of biofuels produced from
different feedstocks. Because we were asked to examine the results,
assumptions, and limitations of key scientific analyses of the
lifecycle greenhouse gas effects of biofuels produced from different
feedstocks, we limited our interviews to the researchers who published
these scientific studies and, as a result, are most knowledgeable about
the models and data used for analysis.
We believe we have included the key scientific studies and have
qualified our findings where appropriate. However, it is important to
note that, given our methodology, we may not have identified all of the
studies with findings relevant to these three objectives. Where
applicable, we assessed the reliability of the data we obtained and
found them to be sufficiently reliable for our purposes.
Together with the National Academy of Sciences' lists of experts, we
identified authors of key agricultural, environmental, and greenhouse
gas studies as a basis for conducting semistructured interviews to
assess what is known about the effects of the increasing production of
biofuels and important areas that need additional research. The experts
we interviewed included research scientists in such fields as
agricultural economics, environmental and natural resource economics,
agronomy, soil science, ecology, air quality, and engineering. We also
conducted interviews with cognizant federal agency officials and
industry association executives.
To assess federal support for developing a domestic biofuels industry,
we reviewed the economic literature on the impacts of various policy
tools used to provide federal support and their interactions, including
both conceptual and empirical analyses. (See appendix V for 10 recent
analyses by economists and nonprofit organizations.) We conducted
semistructured interviews of cognizant federal officials and academic
and government economists and reviewed Treasury data on federal tax
expenditures; the R&D tax credit and other tax expenditures generally
available to businesses were excluded. We applied conventional economic
reasoning in analyzing the incidence of tax credits.
To examine federal support for advanced biofuels R&D, we obtained DOE
and USDA data on (1) obligations for biofuels R&D for fiscal years 2005
through 2008 and (2) commitments for grants and loan guarantees for
biofuels projects. We also obtained R&D data from EPA but excluded
other federal agencies because they obligated only limited funds for
biofuel R&D. We did not attempt to determine the market value of
proposed federal loan guarantees. To determine what federal
agricultural research is underway to support a transition to advanced
biofuels feedstock production, we conducted interviews with USDA
officials in the Agricultural Research Service; Forest Service;
Cooperative State Research, Education, and Extension Service; Natural
Resources Conservation Service; Economic Research Service; Office of
the Chief Economist; Farm Service Agency; Rural Development mission
area; National Agricultural Statistical Service; Office of Budget and
Program Analysis; and Risk Management Agency.
To examine the key challenges in meeting the RFS's specified levels, we
reviewed relevant literature and federal and industry association
reports, and interviewed federal agency officials and executives from
industry associations. We also conducted site visits to DOE's National
Renewable Energy Laboratory, Argonne National Laboratory, and Oak Ridge
National Laboratory and USDA's National Center for Agricultural
Utilization Research and Eastern Regional Research Center.
In addition, we interviewed executives from cognizant industry
associations and nonprofit organizations for each of the objectives.
The industry associations include the American Meat Institute,
Biotechnology Industry Organization, National Biodiesel Board, National
Corn Growers Association, and Renewable Fuels Association, which
represent various agricultural, energy, and biofuels industries. The
nonprofit organizations include the Environmental Working Group,
Natural Resources Defense Council, The Nature Conservancy, and World
Resources Institute.
We conducted our work from July 2008 through July 2009 in accordance
with generally accepted government auditing standards. These standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
[End of section]
Chapter 2: Biofuels Production Has Had Mixed Effects on U.S.
Agriculture, but the Effects of Expanded Production Are Less Certain:
Biofuels production has had mixed effects on U.S. agriculture,
including effects on land use, crop selection, livestock production,
rural economies, and food prices. For example, the increasing demand
for corn for ethanol production has led to higher corn prices, provided
economic incentives for some producers to devote additional acres to
corn production, and resulted in reduced production of other crops.
While higher corn prices have created additional income for corn
producers, they have also been driving up feed costs for livestock
producers. At the same time, the number of biorefineries producing
ethanol or other biofuels has grown considerably, offering new
employment opportunities in rural communities as well as a boost to
local commerce and tax revenues, although experts' views on the
magnitude and permanence of these benefits varies. In addition, the
increasing use of corn for ethanol production, among other factors such
as high energy costs and tight global grain supplies, has likely
contributed to higher retail food prices by increasing the price of
corn used for food processing and animal feed. The potential future
effects of expanded biofuels production, including production of new
energy crops for advanced biofuels, are less certain but could be
significant, particularly to the extent that these new crops affect the
production of other crops and livestock on agricultural land. Finally,
some USDA farm, forest, conservation, and extension programs
potentially could reduce risk and provide incentives to encourage
farmers to produce cellulosic energy crops (feedstocks) and help reduce
the gap with existing supports for producing food and feed crops.
Increasing Corn Ethanol Production Has Had Mixed Effects on Land Use,
Crop Selection, and Livestock Production:
Increased ethanol production has raised demand for corn and contributed
to higher corn prices. This has had several effects on U.S.
agriculture, including an increase in acres planted to corn, a
reduction in acres planted to other crops, an increase in crop
production on lands that were formerly used for grazing or idled, and
an increase in feed costs for livestock producers.
In 2007, increased prices for corn led farmers to devote more acreage
to corn and less to soybeans and other crops. That year, U.S. farmers
planted an estimated 93.5 million acres to corn--a 19 percent increase
from 2006--while reducing the area planted to soybeans by 14 percent,
and to cotton by 29 percent. According to USDA, a sharp rise in the
price of corn, partially attributable to the increased use of corn for
ethanol, prompted farmers to make this shift from soybeans and cotton.
At the beginning of the 2007 planting season, the price of corn had
reached $3.39 a bushel--a 61 percent increase from just 12 months
earlier. Moreover, the quantity of U.S. corn used to produce ethanol
rose by more than 50 million metric tons from 2002 to 2007. Figure 2
shows the increase in corn used for ethanol by market year, 1980
through 2008.
Figure 2: Corn Used for Ethanol by Market Year, 1980-2008:
[Refer to PDF for image: vertical bar graph]
Year: 1980;
Bushels (millions): 35.
Year: 1981;
Bushels (millions): 86.
Year: 1982;
Bushels (millions): 140.
Year: 1983;
Bushels (millions): 160.
Year: 1984;
Bushels (millions): 232.
Year: 1985;
Bushels (millions): 271.
Year: 1986;
Bushels (millions): 290.
Year: 1987;
Bushels (millions): 279.
Year: 1988;
Bushels (millions): 287.
Year: 1989;
Bushels (millions): 321.
Year: 1990;
Bushels (millions): 349.
Year: 1991;
Bushels (millions): 398.
Year: 1992;
Bushels (millions): 426.
Year: 1993;
Bushels (millions): 458.
Year: 1994;
Bushels (millions): 533.
Year: 1995;
Bushels (millions): 396.
Year: 1996;
Bushels (millions): 429.
Year: 1997;
Bushels (millions): 481.
Year: 1998;
Bushels (millions): 526.
Year: 1999;
Bushels (millions): 566.
Year: 2000;
Bushels (millions): 628.
Year: 2001;
Bushels (millions): 706.
Year: 2002;
Bushels (millions): 996.
Year: 2003;
Bushels (millions): 1168.
Year: 2004;
Bushels (millions): 1323.
Year: 2005;
Bushels (millions): 1603.
Year: 2006;
Bushels (millions): 2119.
Year: 2007;
Bushels (millions): 3026.
Year: 2008;
Bushels (millions): 3700.
Source: USDA‘s Economic Research Service.
[End of figure]
In 2008, soybean plantings rebounded, as corn acreage declined. Soybean
prices rose significantly in 2007 because of the smaller crop--the
second smallest soybean crop in a decade--and this prompted some
producers to return acres planted in corn in 2007 back to soybeans in
2008. The estimated land area planted to soybeans increased by 17
percent, returning to 2006 levels. Land planted to corn dropped to an
estimated 86 million acres in 2008; nevertheless, this level was still
10 percent above 2006 levels and represented one of the largest areas
planted to corn since 1949. USDA expects a similar acreage to be
planted to corn in 2009 and projects corn acreage to remain above 90
million acres through 2017, with increasing yields per acre. Figure 3
shows the changes in U.S. production--based on planted acres--of corn,
soybeans, wheat, and cotton for crop years 1999 through 2009.
Figure 3: U.S. Acres Planted to Corn, Soybeans, Wheat, and Cotton, Crop
Years 1999-2009 (Millions of acres):
[Refer to PDF for image: multiple line graph]
Year: 1999;
Corn: 77.4 million acres;
Soy: 73.7 million acres;
Wheat: 62.7 million acres;
Cotton: 14.9 million acres.
Year: 2000;
Corn: 79.6 million acres;
Soy: 74.3 million acres;
Wheat: 62.5 million acres;
Cotton: 15.5 million acres.
Year: 2001;
Corn: 75.7 million acres;
Soy: 74.1 million acres;
Wheat: 59.4 million acres;
Cotton: 15.8 million acres.
Year: 2002;
Corn: 79.1 million acres;
Soy: 74 million acres;
Wheat: 60.3 million acres;
Cotton: 14 million acres.
Year: 2003;
Corn: 78.6 million acres;
Soy: 73.4 million acres;
Wheat: 62.1 million acres;
Cotton: 13.5 million acres.
Year: 2004;
Corn: 80.9 million acres;
Soy: 75.2 million acres;
Wheat: 59.6 million acres;
Cotton: 13.7 million acres.
Year: 2005;
Corn: 81.8 million acres;
Soy: 72 million acres;
Wheat: 57.2 million acres;
Cotton: 14.3 million acres.
Year: 2006;
Corn: 78.3 million acres;
Soy: 75.5 million acres;
Wheat: 57.3 million acres;
Cotton: 15.3 million acres.
Year: 2007;
Corn: 93.5 million acres;
Soy: 64.7 million acres;
Wheat: 60.5 million acres;
Cotton: 10.8 million acres.
Year: 2008;
Corn: 86 million acres;
Soy: 75.7 million acres;
Wheat: 63.1 million acres;
Cotton: 9.5 million acres.
Year: 2009;
Corn: 85 million acres;
Soy: 76 million acres;
Wheat: 58.6 million acres;
Cotton: 8.8 million acres.
Source: GAO analysis of USDA‘s National Agricultural Statistics Service
data.
[End of figure]
Increased demand and higher prices for corn in recent years also
resulted in the cultivation of some land that was formerly used for
grazing or idled. Cropland used only for pasture or grazing declined by
41 percent from 2002 to 2007 compared with a 6 percent decline in total
cropland, according to USDA's 2007 Census of Agriculture. In addition,
the cash rental rates for these pasture and grazing lands increased
substantially, in part due to land-use changes to crop production. For
example, the average cash rent paid per acre for pasture rose by 41
percent nationwide from 2002 to 2008. In addition, some experts said
that some land formerly enrolled in USDA's Conservation Reserve Program
(CRP) has recently gone back into crop production, especially corn. CRP
is a land retirement program that encourages landowners to take
cropland, particularly highly erodible land, out of production and, in
most circumstances, establish a natural vegetative cover--usually
grasses--on this land. The landowner receives a rental payment from
USDA for enrolling land in the program. Some experts expect even more
CRP land to go back into production in the near term as contracts
expire and if commodity prices remain high. Moreover, CRP, which as of
November 2008 had 34.7 million enrolled acres, is scheduled to reduce
its enrollment to no more than 32 million acres by October 1, 2009, as
required by the 2008 Farm Bill. USDA officials said they do not track
how former CRP land is used once it leaves the program, but USDA is
working on a survey to identify reasons why some landowners opt to
leave the program.
The conversion of land used for grazing or idled to crop production has
mixed effects. Cropland--which produces food, feed, fiber, and energy--
can yield relatively high financial returns to crop producers and
landowners. In addition, crop exports contribute to the U.S. balance of
trade; the United States is the world's leading exporter of several
major crops including corn, soybeans, and wheat. Furthermore, crop
production generally increases economic activity in rural communities,
affecting demand for farm inputs--seed, fertilizer, pesticides,
herbicides, farm machinery, and labor--and the services of grain
marketing and transportation companies. However, the grazing and idled
land, usually planted in grasses, that cropland displaces also has many
economic as well as environmental benefits. Grassland provides forage
for grazing livestock; provides recreational opportunities, such as for
hunting and fishing; reduces soil erosion; improves water quality;
provides wildlife habitat; and aids carbon sequestration, which reduces
carbon dioxide, a greenhouse gas, in the atmosphere.
Increased use of corn for ethanol has affected livestock producers by
increasing prices for feed. In addition, livestock producers face
reductions in land available for grazing. Historically, between 50
percent and 60 percent of U.S. corn is used as animal feed, and feed is
often the largest cost for livestock producers. According to USDA, from
2006 to 2008, livestock producers saw feed prices nearly double, in
part because of increasing use of corn for ethanol.[Footnote 33] For
example, according to USDA, almost one-third of the U.S. corn crop in
the 2008 marketing year was used for ethanol production, and the agency
estimates that a similar or larger percentage of the 2009 crop will
also be used for this purpose. In addition, the amount of land
available for grazing cattle has been declining, according to
researchers knowledgeable about the livestock sector.[Footnote 34]
While development and other uses account for part of these losses,
conversion of grasslands to cropland, including for the production of
crops for biofuels, is also a key factor. In addition, the 2008-09
global recession has hurt U.S. livestock producers by lowering demand
for meat and poultry in the United States and abroad. Faced with
multiple factors including rising feed costs, declining availability of
land for grazing, and decreased domestic and foreign demand for meat,
many U.S. livestock producers reduced the size of their herds and
flocks in 2008. For example, the national beef cow herd was about 31.7
million head at the end of 2008, the lowest inventory since 1963. USDA
projects that the value of U.S. livestock production will decline $11
billion, or 8 percent, in 2009 from the 2008 level. USDA also is
forecasting a decline in 2009 and 2010 across all major categories of
meat production. Furthermore, a meat industry official said that per-
capita meat supplies in the United States in 2009 will be at their
lowest level in several decades.
Higher animal feed costs due to increasing corn prices also led some
livestock producers to seek alternative feed rations that use less
corn. According to officials of livestock producer organizations, in
some cases the nutrient or caloric content of these alternative rations
is lower, resulting in slower maturation and weight gain in the animal.
Another alternative to corn is distiller's grains, a co-product of the
ethanol-from-corn process that is rich in protein and is gaining
increasing importance as a feed supplement for beef cattle and dairy
cows. However, it is less suitable as feed for poultry and hogs because
of its high fiber content except in smaller amounts. Also, according to
some experts, the increasing use of distiller's grains in the feed
ration could raise consumer issues because it could affect the quality
and appearance of the meat. Nevertheless, according to some
agricultural economists, the increased availability of distiller's
grains has reduced to some extent the adverse impact of corn price
increases on the livestock sector by increasing the supply of a corn
substitute. However, a few experts also acknowledged that the price of
distiller's grains, like other feed substitutes such as hay, has risen
and generally tracks with the price of corn. Poultry producers, who
cannot use hay as a substitute or large quantities of distiller's
grains, have seen a rapid escalation in feed costs. Increased costs
combined with lower demand have forced them to make sustained cutbacks
in production, according to livestock industry officials. These
officials also said that pork producers can feed soybean meal to their
hogs but their total feed costs have remained high, prompting them to
breed fewer animals. (See appendix VI for further information on
economic effects and linkages in food and agricultural markets
resulting from increased corn ethanol production.)
Growth in Ethanol Production Has Generally Provided a Boost to Rural
Economies:
The growth in ethanol production generally has provided a boost to
rural economies, particularly in the Corn Belt states.[Footnote 35] The
main benefits have come from increased crop prices and the construction
and operation of biorefineries to process corn into ethanol. However,
expert views on the magnitude of these benefits and their permanence
varies as the ethanol industry is prone to boom and bust cycles because
of commodity and energy price volatility. In addition, as discussed
above, the growth in ethanol production has generally hurt livestock
producers, primarily by driving up feed costs and thereby hurting some
sectors of rural economies.
The increases in crop prices, caused partly by ethanol production, have
brought benefits to farmers and landowners. For example, corn prices
rose from under $2 per bushel in 2005 to $5.47 per bushel in June 2008.
The corn futures price also reached a peak that month of $7.08 per
bushel. These increases represented historic highs. Furthermore,
according to USDA, long-term growth in global demand for agricultural
products, in combination with continued U.S. demand for corn for
ethanol and European Union demand for oilseeds for biodiesel, will hold
prices for corn, oilseeds, and many other crops well above their
historical levels through 2018. USDA expects domestic corn use to grow
throughout this period, largely reflecting increases in corn use for
ethanol production. The agency also expects corn exports to increase
due to global economic growth, including increasing demand for feed
grains to support growth in meat production.
Because of the increases in crop prices, U.S. farmers set records in
2007 and 2008 for the dollar value of their crop production, according
to USDA. Net farm income was $86.8 billion in 2007, more than $29
billion above the average of $57.5 billion (nominal dollars) for the
previous 10 years. In addition, USDA estimates that the value of farm
assets, including land, machinery, stored crops, and purchased inputs,
rose 28 percent from 2005 to 2008. According to USDA, increased crop
prices also reduced government outlays by $3.9 billion in 2007 for
federal farm programs that provide producers payments when commodity
prices fall below specified thresholds. Furthermore, because USDA
anticipates that crop prices will remain high for the long term, it
projects that government payments to farmers will fall from $12.4
billion in 2008 to an average of less than $10 billion annually from
2009 to 2018.
In addition, the construction and operation of biorefineries to process
corn into ethanol has provided additional employment opportunities in
local communities and benefited businesses which provide goods and
services to these plants. From 1991 through December 2008, the number
of U.S. ethanol biorefineries increased from 35 to 172. Construction of
a biorefinery generally requires the services of multiple businesses
and skilled and unskilled workers, as well as the local purchase of
materials, including concrete and plumbing and electricity supplies.
While a relatively few firms specialize in ethanol plant construction
and generally have their own equipment and skilled workers that travel
with them, local construction firms sometimes provide less specialized
services such as basic site preparation and plumbing and electrical
work.
Once operational, an ethanol biorefinery generally employs dozens of
people. For example, an average 100-million-gallon-per-year plant
employs about 52 full-time workers, who earn on average $52,000 a year.
According to the most recent U.S. Census Bureau data available, the
industry had about 4,300 employees in 2006. In addition, an operational
biorefinery purchases goods and services from local firms to support
its operations. This spending, along with employee salaries, also
results in a multiplier effect of additional spending that supports
jobs at local businesses, such as restaurants, stores, and gas
stations.[Footnote 36] A 2008 study for the Renewable Fuels
Association, a trade association, estimated that a 100-million-gallon-
per-year plant provides nearly 1,100 jobs indirectly. However, other
sources have estimated that the direct and indirect employment effects
of ethanol plants are positive, but substantially lower. For example, a
2009 study by the University of Illinois at Urbana-Champaign estimated
a 100-million-gallon-per-year plant creates 97 to 152 jobs indirectly.
In another case, a 2007 study done by Iowa State University projected,
in part, that by 2016 the U.S. ethanol industry will have created about
9,000 jobs directly and 11,600 indirectly. In addition, according to
estimates made by Iowa's Department of Revenue, the operation of an
ethanol plant in a town increases the average real household income of
its residents by $822. The creation of additional employment
opportunities is important for farm households and rural communities.
For example, according to USDA, about 90 percent of U.S. farm household
income is derived from sources other than the farming operation, such
as wages and salaries from off-farm jobs and nonfarm businesses. In
addition, according to a March 2009 report by the Rural Policy Research
Institute, the nation's rural economy is losing jobs at a rate faster
than the rest of the United States. New plants also increase the local
tax base, which may provide funding for schools, hospitals, fire
protection, and other public services. However, local governments may
offer tax abatements for a specified period of years to attract plants
to their area.
Expert views on the magnitude of these benefits to rural communities
and their permanence vary, and some biorefineries recently have
suspended operations or delayed planned construction or expansion
projects due to high corn prices, lower fuel demand, and tight credit
markets. Some experts noted that the biofuels industry generally has
been prone to periods of boom and bust driven by food and energy price
volatility. When crop prices are low and energy prices are high,
biofuel producers generally have profited and have sought to expand
production. However, when these market conditions are reversed, biofuel
producers generally have struggled. For example, one of the largest
U.S. ethanol producers, VeraSun Energy Corporation, declared bankruptcy
in October 2008 and announced the sale of all of its production
facilities in February 2009. Other ethanol producers, such as Pacific
Ethanol, Inc., have shut down plants or filed for bankruptcy because of
unfavorable market conditions.
Finally, according to livestock industry officials, herd and flock
reductions--although initially creating a surge in business for
slaughterhouses and meatpackers--have resulted, in the longer term, in
many slaughter and meatpacking processors reducing shifts or days of
operation, while others were forced to lay off employees, file for
bankruptcy, suspend operations, or close. According to these officials,
these actions potentially have led to the loss of jobs, economic
activity, and tax revenues in some local communities. For example,
according to a report by the National Chicken Council, National Turkey
Federation, and American Meat Institute, the chicken and turkey
industries closed facilities and laid off thousands of employees in
2008 due to historically high corn prices resulting, at least in part,
from the use of corn for ethanol. However, the general economic
recession affecting the United States is also likely a factor in these
plant closures. Furthermore, prices paid to livestock producers for
meat may increase in the future due to supply reductions associated
with herd and flock downsizing if consumer demand for meat remains
unchanged. However, if the current global recession continues or
worsens, consumer demand for meat may drop further.
Higher Corn Prices--Driven in Part by Increased Ethanol Production--
Have Likely Been a Factor in Recent Food Price Increases:
Higher corn prices, resulting in part from increased ethanol
production, have likely contributed to domestic and international food
price increases. Similar observations have been made in other countries
that also are diverting part of their food and feed crop production to
biofuels. However, estimates vary widely as to the relative
contribution of biofuels production to food price increases. Other
factors have also contributed to these price increases, including
increased energy costs, higher costs for agricultural inputs, tight
global grain supplies, export restrictions, poor grain crops in other
countries, and growing world demand for food.
Many experts agreed that the rapid growth in demand for grains to
produce biofuels has contributed to rising global and domestic food
prices, although opinions varied on the extent of this contribution.
Biofuels production has recently been growing by about 15 percent per
year worldwide, and more than doubled from 2000 to 2005, to nearly
650,000 barrels per day, or about 1 percent of global transportation
fuel use. Moreover, from the end of 2006 to early 2008, world food
commodity prices rose by 45 percent, according to the International
Monetary Fund, and many world food prices were at record highs in July
2008. In contrast, in the United States, retail food prices rose by 4
percent in 2007 and 5.5 percent in 2008, but these rates were still
greater than in prior years. According to USDA, one reason for this
smaller rate of increase is that Americans tend to consume highly
processed foods in which grain, such as corn or its derivative
products, represent a relatively small portion of the processed food
cost. This is less true in developing countries where direct
consumption of grain is more important.
Estimates vary widely as to the relative contribution of biofuels
production to retail and commodity food price increases. For example,
in April 2009, the Congressional Budget Office estimated that from
April 2007 to April 2008, the rise in the price of corn resulting from
expanded production of ethanol contributed from 0.5 to 0.8 percentage
points of the 5.1 percent increase in U.S. retail food prices measured
by the Consumer Price Index. In another analysis, the U.S. Council of
Economic Advisers estimated in May 2008 that U.S. production of corn-
based ethanol increased global retail food prices by about 3 percent
for a 12-month period from 2007 to 2008. In addition, regarding
commodity prices, a June 2008 study prepared for Kraft Foods Global,
Inc. by a former USDA Chief Economist estimated that about 60 percent
of the increase in the price of corn in marketing years 2006 through
2008 was due to the increased use of this grain for ethanol, although
other experts estimated that the impact was from 25 percent to 47
percent.
According to studies we reviewed, the following other factors also
contributed to food price increases experienced in 2007 and 2008:
* Input prices. Higher oil prices increased the production costs of all
goods and services, including prices for agricultural inputs such as
fertilizer, diesel, and propane. In general, higher input prices affect
food prices through reduced production of food, as suppliers cut back
their output.
* Grain supplies. Global consumption of grain exceeded production in 7
of the past 8 years, according to USDA. At the same time, by 2007 the
global stocks-to-use ratio declined to the lowest level on record since
1970,[Footnote 37] although government reductions to their reserve
stocks also played a role.
* Export restrictions. Rapidly rising food prices led some countries to
restrict exports of agricultural commodities. In general, these
countries wanted to maintain an adequate and reasonably priced domestic
food supply to avoid civil unrest. However, according to USDA, these
trade disruptions only exacerbated the price increases on world
markets.
* Rising incomes. In recent years, rising world incomes have led
consumers in developing countries, such as China and India, to increase
their per capita consumption of staple foods and include more meats,
dairy products, and vegetable oils.
* Exchange rates and speculation. Historically, commodity prices move
with changes in the dollar's exchange rate. For example, depreciation
of the U.S. dollar relative to the currency of importing countries
makes purchases of U.S. commodities by foreign consumers less
expensive, thus stimulating demand and increasing the prices of these
commodities, as was the case from 2006 to 2008. In addition, increased
purchases of financial instruments to hedge price swings may contribute
to greater volatility in commodity prices.
The Effects of Expanded Biofuels Production on Agriculture Are
Uncertain but Could Be Significant:
Many experts said increased biofuels production, including advanced
biofuels, could significantly affect U.S. agriculture by changing land-
use patterns. In addition, some experts said crop prices and other
aspects of agricultural markets, such as use of inputs, land values,
and farming profitability could also be affected. However, the effects
are uncertain and will hinge on what energy crop feedstocks are used
and whether these feedstocks are grown on existing farmland (crop-,
pasture-, and rangeland).[Footnote 38] Also uncertain is how the
continuing world economic recession and increased volatility of
agricultural commodity prices, particularly corn prices, will impact
the agricultural and biorefining sectors.
Experts' views varied on the effect that diverting an increasing
proportion of the U.S. corn crop to the production of ethanol will have
on land-use decisions. Some said it would bring even more land not
currently cultivated into production, including pasture-and rangeland.
Others said it would continue to increase the cropland acreage devoted
to corn production and reduce the acreage available for other crops.
Still others said that while such changes are possible, the overall
shift in agricultural land used to meet the future RFS-specified level
for corn ethanol will be relatively modest.
Some experts said that producing new energy crops, such as switchgrass,
[Footnote 39] could increase competition for the use of existing
farmland. However, several factors could mitigate this. For example,
global food production must double by 2050 in order to meet the needs
of the growing world population, according to the United Nations' Food
and Agriculture Organization and other sources. Any resulting increases
in the demand for highly productive farmland might limit shifts to
energy crop production. Also, some experts said that energy crops such
as perennial grasses are more suited to marginal land than are most
food and feed crops, although they emphasized that yields will be lower
on such land. In addition, crop residues could be produced along with
food and feed, although residue removal above recommended rates might
reduce soil fertility and increase soil erosion and thus affect food
production. Furthermore, a few experts noted that some feedstocks
chosen for production of advanced biofuels in the future would require
little or no agricultural land. These might include municipal waste,
forest thinnings, and algae.
A few experts also noted that the commercial production of energy crops
is still several years away. Significant challenges involving feedstock
production practices, transport infrastructure, ethanol conversion
technologies, and market formation must be addressed before new energy
crops become economically viable. (See ch. 7 for a further discussion
of these factors.) While there are a number of ongoing test or pilot
projects to produce advanced biofuels from a variety of crops or other
materials, it will be a considerable leap to commercial scale
production. Furthermore, there may be little incentive for investors to
embrace advanced biofuels at this time. As of early 2009, production in
the ethanol industry had stagnated because of relatively low gasoline
prices and excess ethanol production capacity. In addition, the U.S.
recession, with its tight credit markets, numerous bank failures, and
plummeting stock values, has made investors and lenders particularly
cautious regarding unproven technologies. Finally, future demand and
supply projections for crops currently used for biofuels production as
well as new energy crops are sensitive to assumptions regarding crude
oil prices and U.S. government policies. For example, according to a
study by two Purdue University researchers, ethanol production jumps
significantly when crude oil prices increase from $40 to $60 a barrel,
but the impact on ethanol production would be less pronounced if oil
prices were to increase from $140 to $160 per barrel. (See appendix II
for information on several studies presenting such projections.)
Moreover, while crude oil prices historically have had an impact on the
agricultural sector, the RFS created a tighter link between the prices
of crude oil and corn, according to some economists. Ethanol's share in
the U.S. transportation fuel mix has increased, making up about 5
percent of current U.S. gasoline consumption, while escalating RFS
levels guarantee that this share will increase at least in the short
term. Price volatility can have damaging effects for crop producers and
biorefineries, as well as consumers, all of whom may have difficulty
managing increased risk. For example, one large ethanol company filed
for bankruptcy protection because it erred in making expensive hedges
on the future price of corn. On the other hand, some oil refiners may
be benefiting by being able to purchase shuttered ethanol plants. For
example, Valero Energy, one of the largest independent U.S. oil
refiners, won a bid in March 2009 to purchase eight ethanol plants. If
this trend continues, more consolidation in the refining sector may
help this set of corn users to weather increased price volatility. Crop
and livestock producers, however, would still need to find their own
mechanism for managing this volatility.
Although potential growth in biofuel production is uncertain, various
estimates suggest that global biofuel production could grow to supply
over 5 percent of the world's transportation energy needs. This growth
will likely mean an even greater use of crops and agricultural land for
producing biofuel feedstocks, putting further pressure on commodity and
food prices. In addition, we previously reported on the potential
implications of expanded biofuels production on food security, hunger,
and international food aid.[Footnote 40] For example, the diversion of
grains to biofuel production contributes to increases in global grain
prices, exacerbating food insecurity in regions such as sub-Saharan
Africa by making food less affordable for the poor and the food aid
programs that assist them. However, we also reported that rural
development opportunities could exist for African communities that are
able to produce biofuels.
Some USDA Programs Could Support the Transition to Cellulosic Energy
Crop Production for Biofuels:
According to USDA officials and experts, some USDA farm, forest,
conservation, and extension programs could potentially reduce risk and
provide incentives to encourage farmers to produce cellulosic energy
crops (feedstocks) for biofuels. At current market prices and under
existing subsidy regimes for food and feed crops, returns to production
of cellulosic feedstocks are not comparable with those for corn and
other agricultural commodities. At present, it is not clear whether or
how USDA programs will be designed to reduce the gap or what role
increases in biofuels prices will play.
Several USDA officials and experts said a new program, the Biomass Crop
Assistance Program (BCAP), may provide a key means to reduce risk to
producers of cellulosic feedstocks. The 2008 Farm Bill authorized BCAP
to support the establishment and production of cellulosic feedstock and
assist landowners with collection, harvest, storage, and transport of
the feedstock to a biorefinery.[Footnote 41] Under this program,
producers would enter into multiyear contracts with USDA to obtain
payments of up to 75 percent of the cost for planting and establishing
a perennial energy crop. They also would be eligible for annual
payments for the life of the contract, similar to the payments
producers now receive for certain food and feed crops, including corn.
In addition, producers could receive separate payments for 2 years if
they collect, harvest, store, or transport the feedstock to a
biorefinery. Cognizant Farm Service Agency officials told us they will
need to carefully consider these three potentially overlapping program
payments as they develop the program rules and application process. A
few experts said that BCAP payments could help put dedicated energy
crops on a level playing field with traditional commodity crops. Farm
Service Agency officials expect to issue a notice of proposed
rulemaking, including a draft environmental impact statement, in fall
2009.
However, several provisions in the 2008 Farm Bill may affect the Farm
Service Agency's ability to effectively develop the BCAP regulations,
according to agency officials. For example, it is unclear whether the
Farm Service Agency can pay costs associated with conservation measures
under BCAP--such as dedicated wildlife corridors and riparian buffers--
in addition to costs specifically cited in the legislation, such as
seeds, planting, and site preparation. Also, the 2008 Farm Bill
excludes federal-or state-owned land from eligibility, which may have
implications for Indian tribe lands held in trust by the U.S.
Government and cropland owned by local government entities, such as a
school board.
In addition, the 2008 Farm Bill contains a research provision focused
on (1) providing grants for enhancing the production of biomass energy
crops and the energy efficiency of agricultural operations and (2)
developing a best practices database of publicly available information
on both the production potential of various biofuel feedstocks and on
the best practices for production, collection, harvest, storage, and
transportation of those feedstocks. This research is authorized for $50
million annually through 2012 and the Cooperative State Research,
Education, and Extension Service would likely carry out the grant
program component of this provision once these funds are appropriated.
Lastly, a 2008 Farm Bill provision authorized studies of insurance
policies for dedicated energy crops. USDA Risk Management Agency
officials said that current methods to design insurance policies for
covering pasture, range, and forage lands would be suitable to use for
certain dedicated energy crops if farmers were interested in an
insurance product. However, these officials also said that developing
such products would likely be more complicated for agricultural
residues or woody feedstocks.
Producers of biofuel feedstocks may already be considered for USDA
conservation programs that the Natural Resources Conservation Service
administers--such as the Environmental Quality Incentives Program and
the Conservation Stewardship Program--because eligibility is based on
land type rather than what is grown on the land. While it is likely
that some criteria for production of nonfood biofuel feedstocks would
need to be developed or enhanced, officials said that once they have
sufficient resources, they do not anticipate difficulty in doing so.
However, our past work has found that funding available to these
programs has lagged producers' interest in participating.[Footnote 42]
If the land on which producers might grow energy crops is indeed
eligible, demand for program participation may further increase.
Currently, energy crops other than corn and soybeans do not represent
viable commercial alternatives for farmers when deciding what to plant.
As demand for cellulosic-based biofuels develops and raises feedstock
prices, returns to energy crop production may approach those for food
and feed crops. In the meantime, government subsidies may improve
incentives to adopt production systems necessary to grow cellulosic
feedstocks. However, the returns for food and feed crops also include
the benefits of government subsidies, among them direct and
countercyclical payments.[Footnote 43] Experts said it may not be
desirable or necessary to extend similar benefits to dedicated energy
crops if biofuels market prices rise sufficiently. Moreover, a USDA
official said it is unclear how energy crop subsidies could be designed
in light of likely regional variation in prices that would develop.
[End of section]
Chapter 3: Increased Biofuels Production Could Have a Variety of
Environmental Effects, but the Magnitude of These Effects Is Largely
Unknown:
The increased cultivation of corn, its conversion into conventional
biofuels, and the storage and use of these fuels could have various
environmental effects, including on water supply, water quality, air
quality, soil quality, and biodiversity, but future movement toward
cellulosic feedstocks for advanced biofuels could reduce some of these
effects. Although input requirements have decreased over time, corn is
a relatively resource-intensive crop, requiring relatively higher rates
of fertilizer and pesticide applications and additional water to
supplement rainfall depending on where the crop is grown. As a result,
some experts believe that increased corn starch ethanol production may
result in the cultivation of corn on arid lands that require
irrigation, contributing to additional water depletion, and will lead
to an increase in fertilizer and sediment runoff, impairing streams and
other water bodies. Furthermore, experts believe that as cultivation of
some crops such as corn for biofuels production increases,
environmentally sensitive lands that are currently protected because
they are enrolled in conservation programs may be moved back into
production, thereby increasing cultivation of land that is susceptible
to erosion and decreasing available habitat for threatened species.
However, it is important to recognize that some of the effects on water
quality and habitat may be mitigated by the use of agricultural
conservation practices. In the future, farmers may also adopt
cellulosic feedstocks, such as switchgrass and woody biomass, which
could reduce water and land-use effects relative to corn. In addition,
the process of converting feedstocks into biofuels may also negatively
affect water supply, water quality, and air quality as more
biorefineries move into production. For example, biorefineries require
water for processing the fuel and will need to draw from existing water
resources, which are limited in some potential production areas.
However, the effects will depend on the location and size of the
facility and the feedstock used. Finally, the storage and use of
certain ethanol blends may pose other environmental problems, such as
leaks in underground storage tanks that are not certified to store such
blends and increased emissions of certain air pollutants when ethanol
is used in most cars; however, less is known about the extent of these
effects. According to some experts and officials, focusing on
sustainability will be important in evaluating the environmental
implications of increased biofuels production.
[End of section]
Cultivation of Corn for Biofuel Has a Variety of Environmental Effects,
but a Shift to Cellulosic Feedstocks Could Reduce These Effects:
The Biomass Research and Development Board projects that corn acreage
will increase in all regions of the United States if corn starch
ethanol production reaches the 15 billion gallons per year allowed by
EISA for 2015 through 2022, with the largest increases taking place in
the Corn Belt and Northern Plains. Although the water requirements of
corn production have decreased over time with new seed varieties and
agricultural management techniques, increased corn production in these
areas could strain the supply of groundwater in places that rely on
irrigation and are already facing water constraints. It could also
degrade water quality in local streams and waterways as far away as the
Gulf of Mexico. In addition, biodiversity and habitat could be
affected, as lands set aside for conservation are returned to crop
production. In contrast, the cultivation of cellulosic feedstocks has
the potential to reduce the environmental effects associated with corn-
based biofuel cultivation. However, there is still a significant amount
of uncertainty associated with the direction and scale of the potential
environmental implications of these feedstocks.
Increased Cultivation of Corn for Ethanol Could Further Stress Water
Supplies, but Cultivation of Certain Cellulosic Feedstocks May Require
Less Water:
Although advances have been made with regard to developing seed
varieties for corn that are more drought tolerant, the cultivation of
corn for ethanol production can require substantial quantities of water
depending on where it is grown and on how much irrigation water is used
to grow the corn.[Footnote 44] According to an Argonne National
Laboratory study, the amount of water needed to produce 1 gallon of
corn starch ethanol (considering both water used for irrigation and in
the conversion process) varies significantly, estimated at 10 to 324
gallons of water per gallon of ethanol for major corn production
regions in the United States (see table 1). The upper part of this
range generally represents regions that rely heavily on irrigation to
grow corn, whereas the lower end reflects water use in those regions
that rely primarily on rainfall. Another study examined water use as a
function of vehicle miles per gallon associated with a range of
transportation fuels. Corn starch ethanol derived from irrigated corn
consumes an estimated 1.3 to 62 gallons of water per mile traveled in a
vehicle using ethanol, while rain fed corn consumes significantly less
water estimated at 0.15 to 0.35 gallons of water per mile
traveled.[Footnote 45] In contrast, the production, transport, and use
of gasoline consumes between 3.4 and 6.6 gallons of water per gallon of
gasoline, and consumes between 0.07 and 0.14 gallons of water per mile
traveled.[Footnote 46],[Footnote 47]
Table 1: Average Water Consumed in Corn Ethanol Production in Primary
Producing Regions in the United States, in Gallons of Water/Gallon of
Denatured Ethanol Produced:
Region: Corn irrigation, groundwater (gallons of water/gallon of
ethanol);
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri): 6.7;
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 10.7;
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska,
Kansas): 281.2.
Region: Corn irrigation, surface water; (gallons of water/gallon of
ethanol);
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri): 0.4;
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 3.2;
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska,
Kansas): 39.4.
Region: Corn ethanol conversion process; (gallons of water/gallon of
ethanol);
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri): 3.0;
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 3.0;
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska,
Kansas): 3.0.
Region: Total water consumption (gallons of water/gallon of ethanol);
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri):
10.0;
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 16.8;
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska,
Kansas): 323.6.
Source: Center for Transportation Research, Energy Systems Division,
Argonne National Laboratory, "Consumptive Water Use in the Production
of Ethanol and Petroleum Gasoline," Center for Transportation Research,
Energy Systems Division, Argonne National Laboratory, January 2009:
Note: The primary corn production regions are in the upper and lower
Midwest and include 12 states classified as USDA farm production
regions 5, 6, and 7. Together these regions accounted for 89 percent of
corn production in 2007 and 2008, and 95 percent of ethanol production
in the United States in 2006. The Argonne National Laboratory study
estimated the water consumed in corn ethanol production in each of the
major ethanol producing regions considering water consumed in both corn
cultivation and conversion processing steps. Estimates were based on
average consumption of 3.0 gallons of water per gallon of corn ethanol
produced in a corn dry mill, average consumptive use of irrigation
water for corn in major corn producing regions, and dry-mill yield of
2.7 gallons of ethanol per bushel. In evaluating corn cultivation, the
water consumed is based on total amount of irrigation water used for
corn production and total corn production for each region. In addition,
based on U.S. Geological Survey research the calculation assumes that
30 percent of water recharges local surface and groundwater, and the
remaining 70 percent of the water is consumed by evapotranspiration
(water lost through evaporation from the soil and plants) and other
factors. Estimates of water consumed during the conversion process
assumes use of a dry-mill ethanol production facility and considers
water lost through evaporation and blowdown (periodic discharge of
water used to remove salts and other solids to minimize corrosion,
etc.) from the cooling tower and boiler, evaporation from the dryer, as
well as water contained in the ethanol and dried distiller's grain co-
products, among other factors.
[End of table]
The effects of corn production for ethanol on water supplies are likely
to be greatest in water constrained regions of the United States where
corn requires irrigation. For example, some of the largest increases in
corn acres (1.1 million acres) are projected for the Northern Plains
region, where, on average, 40 percent of the corn currently grown is
irrigated. (See table 2.) Parts of this region draw heavily on the High
Plains (Ogallala) aquifer. The Ogallala aquifer is already a stressed
aquifer with known water withdrawals that are greater than the natural
recharge that occurs through precipitation. A 1997 U.S. Geological
Survey (USGS) report found water levels in the Ogallala aquifer have
dropped more than 100 feet in places where agricultural crop irrigation
was most intense.[Footnote 48]
Table 2: Projected Growth in Corn Acreages Related to Increased Corn
Ethanol Production of 15 Billion Gallons per Year (In millions of
acres):
U.S. region: Appalachian;
2016 USDA baseline estimate[A]: Total cropland: 18.3;
2016 USDA baseline estimate[A]: Corn acres: 4.8;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 1.2;
2016 federal mandate: Total cropland: 18.6;
2016 federal mandate: Corn acres: 5.0;
2016 federal mandate: Continuous corn acres[B]: 1.3;
Increase in corn acres: 0.2.
U.S. region: Corn Belt;
2016 USDA baseline estimate[A]: Total cropland: 101.0;
2016 USDA baseline estimate[A]: Corn acres: 44.6; (In millions of
acres): 2016 USDA baseline estimate[A]: Continuous corn acres[B]: 8.8;
(In millions of acres): Total cropland: 102.6; (In millions of acres):
2016 federal mandate: Corn acres: 45.9; (In millions of acres): 2016
federal mandate: Continuous corn acres[B]: 9.4; (In millions of acres):
Increase in corn acres: 1.3.
(In millions of acres): U.S. region: Delta; (In millions of acres):
2016 USDA baseline estimate[A]: Total cropland: 15.9;
2016 USDA baseline estimate[A]: Corn acres: 0.7;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 0.3;
2016 federal mandate: Total cropland: 16.4;
2016 federal mandate: Corn acres: 0.8;
2016 federal mandate: Continuous corn acres[B]: 0.3;
Increase in corn acres: 0.1.
U.S. region: Lake States;
2016 USDA baseline estimate[A]: Total cropland: 40.0;
2016 USDA baseline estimate[A]: Corn acres: 14.5;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 4.3;
2016 federal mandate: Total cropland: 40.5;
2016 federal mandate: Corn acres: 15.1;
2016 federal mandate: Continuous corn acres[B]: 4.8;
Increase in corn acres: 0.6.
U.S. region: Mountain;
2016 USDA baseline estimate[A]: Total cropland: 20.8;
2016 USDA baseline estimate[A]: Corn acres: 1.2;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 1.2;
2016 federal mandate: Total cropland: 20.3;
2016 federal mandate: Corn acres: 1.3;
2016 federal mandate: Continuous corn acres[B]: 1.3;
Increase in corn acres: 0.1.
U.S. region: Northern Plains;
2016 USDA baseline estimate[A]: Total cropland: 63.1;
2016 USDA baseline estimate[A]: Corn acres: 16.5;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 8.2;
2016 federal mandate: Total cropland: 64.7;
2016 federal mandate: Corn acres: 17.6;
2016 federal mandate: Continuous corn acres[B]: 8.6;
Increase in corn acres: 1.1.
U.S. region: Northeast;
2016 USDA baseline estimate[A]: Total cropland: 15.1;
2016 USDA baseline estimate[A]: Corn acres: 3.9;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 2.0;
2016 federal mandate: Total cropland: 15.2;
2016 federal mandate: Corn acres: 4.1;
2016 federal mandate: Continuous corn acres[B]: 2.0;
Increase in corn acres: 0.2.
U.S. region: Pacific;
2016 USDA baseline estimate[A]: Total cropland: 7.7;
2016 USDA baseline estimate[A]: Corn acres: 0.3;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 0;
2016 federal mandate: Total cropland: 7.7;
2016 federal mandate: Corn acres: 0.4;
2016 federal mandate: Continuous corn acres[B]: 0;
Increase in corn acres: 0.1.
U.S. region: Southeast;
2016 USDA baseline estimate[A]: Total cropland: 7.5;
2016 USDA baseline estimate[A]: Corn acres: 2.3;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 1.1;
2016 federal mandate: Total cropland: 7.6;
2016 federal mandate: Corn acres: 2.4;
2016 federal mandate: Continuous corn acres[B]: 1.1;
Increase in corn acres: 0.1.
U.S. region: Southern Plains;
2016 USDA baseline estimate[A]: Total cropland: 27.6;
2016 USDA baseline estimate[A]: Corn acres: 1.1;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 0.5;
2016 federal mandate: Total cropland: 27.7;
2016 federal mandate: Corn acres: 1.2;
2016 federal mandate: Continuous corn acres[B]: 0.5;
Increase in corn acres: 0.1.
U.S. region: Total;
2016 USDA baseline estimate[A]: Total cropland: 317.0;
2016 USDA baseline estimate[A]: Corn acres: 90.0;
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 27.6;
2016 federal mandate: Total cropland: 321.4;
2016 federal mandate: Corn acres: 93.7;
2016 federal mandate: Continuous corn acres[B]: 29.3;
Increase in corn acres: 3.7.
Source: Economic Research Service, USDA.
[A] The 2007 USDA baseline projections for 2016 assumes ethanol
production will mature to 12 billion gallons of ethanol per year. The
2016 federal mandate scenario assumed 15 billion gallons of corn-based
ethanol per year under the RFS.
[B] Acres of cropland planted to corn on a continuous basis, rather
than rotating between corn and the planting of other crops, such as
soybeans.
[End of table]
The shift to cultivate certain cellulosic feedstocks--such as woody
biomass and switchgrass--may require less water. However, effects on
water supplies are largely uncertain and will depend on the type of
feedstock and where it is grown. For example, agricultural crop
residues, such as corn stover, do not require additional water, since
they are co-products of already cultivated crops.[Footnote 49] For
cellulosic feedstocks, as with corn or any other crop, the effects on
water supply may be minimal if they are planted where they can be grown
primarily with rainwater. However, if the crop is irrigated, the
implications on water supply could still be significant. While some
experts assume that perennial cellulosic feedstocks will be rainfed,
other experts and EPA officials pointed out that to achieve maximum
yields for cellulosic crops, farmers may need to irrigate. In addition,
woody biomass that is planted in such a way to allow for quick growth
and maximum production may be more water intensive than some perennial
grasses, although there may be opportunities to irrigate these crops
with wastewater or saline water sources that would be unsuitable for
food crops.[Footnote 50]
Increased Corn Cultivation for Biofuels Is Likely to Impair Water
Quality, but Cultivation of Certain Cellulosic Feedstocks May Have Less
of an Effect:
Several experts we spoke with identified water quality impairments from
the cultivation of corn as among the most significant potential
environmental effects of increased corn starch ethanol production. In
contrast, the cultivation of certain cellulosic feedstocks may have
less of an effect on water quality, although the extent of the effect
will depend on a number of factors, including the types of feedstocks
grown, where they are grown, and the practices employed to cultivate
and harvest them.
Water Quality Effects of Increased Corn Production:
Increased fertilizer use can compromise surface and ground water
quality. Fertilizer runoff from additional corn cultivation for
biofuels production is likely to impair streams and local water bodies,
although agricultural conservation practices could mitigate some of
these effects. For example, corn requires substantial inputs, including
higher applications of fertilizers as compared to soybeans and other
potential biofuel feedstocks.[Footnote 51] Fertilizer runoff containing
nitrogen and phosphorus can lead to overenrichment and excessive growth
of algae in surface waters. In some lakes, this has resulted in
potentially harmful algal blooms, decreased water clarity, and hypoxia,
a condition of reduced oxygen, which impairs aquatic life.[Footnote 52]
Similarly, in marine waters, excessive algae growth can create a
hypoxic or dead zone, a region that cannot support fish and other
organisms, which require oxygen for survival. The number of reported
dead zones around the world increased over the past decade to more than
400.[Footnote 53] Many of them are along the Gulf of Mexico and the
Atlantic Coast, areas that receive drainage from agricultural and urban
landscapes, including a large portion of the Corn Belt, where many of
the existing and planned ethanol production facilities are located. A
2007 USGS model estimated that 52 percent of the nitrogen and 25
percent of the phosphorus entering the Gulf system is from corn and
soybean cultivation in the Mississippi River basin.[Footnote 54]
Recent studies estimate that nitrogen runoff will increase by 2.5
percent per year in water bodies across the United States and by more
than 10 percent per year in the Mississippi River basin if additional
corn is grown to meet the up to 15 billion gallons per year of corn
starch ethanol allowed by EISA for 2015 through 2022.[Footnote 55] In
addition, an analysis in EPA's May 2009 notice of proposed rulemaking
for the RFS also projected an increase in nitrogen, phosphorus and
sediment in the Upper Mississippi River Basin as a result of increased
corn production for biofuels. Further, in the Upper Mississippi River
basin, surface or subsurface drainage--via ditches or subsurface pipes
that move water from wet soils to surface water quickly so crops can be
planted--is common and may increase nutrient runoff, further degrading
water quality, according to some experts and EPA officials we spoke
with. In addition, livestock feeding largely on dried distiller's
grains, a co-product of corn starch ethanol production, may produce
manure that is especially high in phosphorus, which could also increase
nutrient runoff, according to other experts and EPA's proposed
rulemaking. Although EPA projects that nutrient runoff as a result of
increased corn production may decrease over time with improved crop
yields per acre, the nutrient load will be higher than the baseline
measurement developed in 2005.
Similarly, increased corn production for ethanol also may increase the
contamination of groundwater by nitrates, which are also found in
fertilizers. The areas most vulnerable to nitrate contamination are
those with high fertilizer use that also depend on irrigation, have
permeable soils, and have shallow groundwater. A 2006 USGS study
predicted moderate to severe nitrate contamination of shallow
groundwater in the High Plains and Northern Midwest, where increased
corn cultivation for ethanol is anticipated.[Footnote 56] This study
also predicted elevated nitrate levels of deeper water supplies used
for drinking water in these same areas. EPA has determined that levels
of nitrate exceeding 10 milligrams per liter in drinking water have an
anticipated adverse effect on public health.[Footnote 57] Some
groundwater aquifers in the Corn Belt already have elevated levels of
nitrate in groundwater and increased corn production may add to the
problem. For example, one study noted that water quality advisories are
already common in Columbus, Ohio for elevated levels of nitrates in
local waters.
Increased pesticide use can compromise surface and ground water
quality. Increased use of pesticides--including insecticides and
herbicides--related to increased corn production will likely affect
surface and ground water quality. For example, a 10-year nationwide
study by USGS detected pesticides in 97 percent of streams in
agricultural and urban watersheds.[Footnote 58] As would be expected,
the highest concentrations of pesticides have been found in the areas
of highest use. For instance, application rates of atrazine, a commonly
used pesticide for corn production, are highest in the Corn Belt, and
atrazine was also the most widely detected pesticide in watersheds in
this region, according to a USGS nationwide study. This adversely
affected aquatic plants and invertebrates in some of the streams,
according to the study, since organisms are vulnerable to short-term
exposure to relatively small amounts of certain pesticides. Similarly,
increased pesticide use for the cultivation of corn for ethanol
production can impair groundwater supplies. For example, the USGS study
found pesticides in 61 percent of shallow wells sampled in agricultural
areas. Once groundwater is contaminated, it is difficult to clean up.
Increased cultivation of feedstocks for biofuels can increase soil
erosion. Increased demand for corn for ethanol could also create
incentives for farmers to abandon agricultural conservation practices
that would otherwise reduce soil erosion, according to many experts we
spoke to. Soil erosion reduces fertility by removing nutrient-rich
topsoil. It also contributes to sedimentation, which fills channels and
deep areas of lakes, streams, and rivers, affecting aquatic life and
recreation. Sediment can also carry contaminants, such as pesticides
and fertilizers, to these water bodies. A USDA Economic Research
Service study estimates a 2.1 percent increase in rainfall-driven
erosion related to increased corn production, with higher erosion
effects expected in the Northern Plains, Great Lake States, and Delta
regions.[Footnote 59] Furthermore, the discharge of sediment into
streams is a top water quality problem nationwide, as well as in the
Mississippi basin, where a large fraction of the increased corn
production is anticipated. Moreover, to take advantage of higher corn
prices, farmers may shift to planting corn on the same land every year
instead of rotating to other crops such as soybeans--a practice known
as continuous corn cultivation. Crop rotation is a common agricultural
conservation practice that reduces erosion, helps replenish nutrients
in the soil, and helps control pests, reducing the need for fertilizer
and pesticides. Based on Biomass Research and Development Board data,
an estimated 1.7 million additional acres of continuous corn production
is projected for 2016 to meet the up to 15 billion gallons of corn
starch ethanol allowed to be included in the Renewable Fuel Standard
(see table 2). USDA data indicate that conservation tillage practices,
such as no-till, can help reduce soil erosion and sediment runoff.
Expansion of corn and soybean production to marginal lands can further
affect water quality. Delivery of sediments, nutrients, and pesticides
to water bodies may increase further if production of corn and soybeans
expands to marginal lands and lands highly susceptible to erosion.
Increased demand for biofuel feedstocks creates incentives for farmers
to place such lands back into production. Marginal lands generally have
lower productivity soils and are vulnerable to wind and water erosion.
Moving these lands back into crop production may require more nutrient
and pesticide inputs and increased tillage as compared with more
productive lands, potentially leading to further water quality
impairments. Increased sediment runoff is also anticipated with
increased production of corn and soybeans, especially on marginal and
highly erodible lands. Millions of acres of such land are currently
enrolled in the Conservation Reserve Program (CRP), which provides
annual rental payments and cost-share assistance to producers who
contractually agree to retire highly erodible, environmentally
sensitive cropland from agricultural purposes. As discussed in chapter
2, farmers are generally required to plant or maintain vegetative
covers (such as native grasses) on CRP land, which provides a range of
environmental benefits, including improved water quality, reduced
erosion, and preserved soil productivity.
Agricultural conservation practices--such as no-till, reduced till,
crop rotation, rotation cover crops, and riparian buffer zones--can
reduce nutrient and pesticide runoff as well as erosion by retaining
additional moisture and nutrients in the soil and disturbing the land
less. Additional techniques are also available to reduce the effects of
fertilizers, including precision agriculture, controlled-release
fertilizers, and practices that match nitrogen fertilizer applications
to a crop's nitrogen demand. However, EPA officials noted that despite
implementation of these practices to varying degrees, nutrients from
agriculture are already a major source of water quality impairment
throughout the country, especially in the Corn Belt. Furthermore, a
number of irrigation techniques and technologies are available to
conserve water and thus reduce runoff. These include subsurface drip
irrigation systems, real-time soil moisture and weather monitoring,
rainfall harvesting, and use of reclaimed water. See table 3 for a
description of some of the agricultural conservation practices that can
reduce degradation of surface and ground waters from the increase in
cultivation of feedstock for biofuels production.
Table 3: Sample of Agricultural Conservation Practices Available to
Reduce the Environmental Effects of Feedstock Cultivation for Biofuels:
Agricultural conservation practice: Soil erosion prevention: Crop
residue management;
Description: Any tillage method that leaves a portion of the previous
crop residues (unharvested portions of the crop) on the soil surface;
Environmental benefits:
* Reduces soil erosion caused by tillage and exposure of bare soil to
wind and water;
* Reduces water lost to evaporation;
* Improves soil quality;
* Reduces sediment and fertilizer runoff.
Agricultural conservation practice: Soil erosion prevention: No-till;
Description: Method that leaves soil and crop residue undisturbed
except for the crop row where the seed is placed in the ground;
Environmental benefits:
* Reduces soil erosion caused by tillage and exposure of bare soil to
wind and water;
* Reduces water lost to evaporation;
* Improves soil quality by improving soil organic matter;
* Reduces sediment and fertilizer runoff.
Agricultural conservation practice: Soil erosion prevention: Cover
crops;
Description: A close-growing crop that temporarily protects the soil
during the interim period before the next crop is established;
Environmental benefits:
* Reduces erosion;
* Reduces nitrate leaching;
* Integrates crops that store nitrogen from the atmosphere (such as
soy), replaces the nitrogen that corn and other grains remove from the
soil;
* Reduces pesticide use by naturally breaking the cycle of weeds,
insects, and diseases;
* Improves soil quality by improving soil organic matter.
Agricultural conservation practice: Nutrient pollution reduction: Crop
rotation;
Description: Changing the crops grown in a field, usually in a planned
sequence. For example, crops grown in the following sequence corn-soy-
corn;
Environmental benefits:
* Integrates crops that obtain nitrogen from the atmosphere (such as
soy), replaces the nitrogen that corn and other grains remove from the
soil;
* Reduces pesticide use by naturally breaking the cycle of weeds,
insects, and diseases.
Agricultural conservation practice: Nutrient pollution reduction:
Nutrient management;
Description: Use of nutrients to match the rate, timing, form, and
application method of fertilizer to crop needs;
Environmental benefits:
* Reduces nutrient runoff and leaching.
Agricultural conservation practice: Nutrient pollution reduction:
Subsurface fertilizer application;
Description: Injection of fertilizer below the soil surface;
Environmental benefits:
* Reduces runoff and gaseous emission from nutrients.
Agricultural conservation practice: Nutrient pollution reduction:
Controlled-release fertilizers;
Description: Use of fertilizers with water-insoluble coatings that can
prevent water-soluble nitrogen from dissolving. Increases the
efficiency of the way nutrients are supplied to and are taken up by the
plant, regardless of the crop;
Environmental benefits:
* Reduces nutrient runoff and leaching.
Agricultural conservation practice: Nutrient pollution reduction:
Controlled drainage;
Description: Water control structures, such as a flashboard riser,
installed in the drainage outlet allow water level to be raised or
lower as needed;
Environmental benefits:
* Minimizes transport of nutrients to surface waters.
Agricultural conservation practice: Irrigation techniques: Subsurface
drip irrigation systems;
Description: Irrigation systems buried directly beneath the crop apply
water directly to the root zone;
Environmental benefits:
* Minimizes water lost to evaporation and runoff.
Agricultural conservation practice: Irrigation techniques: Reclaimed
water use;
Description: Water recovered from domestic, municipal, and industrial
wastewater treatment plants that has been treated to standards that
allow safe reuse for irrigation;
Environmental benefits:
* Reduces demand on surface and ground waters.
Agricultural conservation practice: Multiple benefits: Wetland
restoration;
Description: Restoring a previously drained wetland by filling ditches
or removing or breaking tile drains;
Environmental benefits:
* Reduces flooding downstream;
* Filters sediment, nutrients, and chemicals;
* Provides habitat for wetland plants, amphibians, and birds.
Agricultural conservation practice: Multiple benefits: Riparian buffer
zones;
Description: Planting of strips or small areas of land along waterways
in permanent vegetation that help control pollutants and promote other
environmental benefits;
Environmental benefits:
* Traps sediment;
* Filters nutrients;
* Provides habitat and corridors for fish and wildlife.
Agricultural conservation practice: Multiple benefits: Precision
agriculture;
Description: A system of management of site-specific inputs (i.e.,
fertilizer, pesticides) on a site-specific basis such as land
preparation for planting, seed, fertilizers and nutrients, and pest
control. Precision agriculture may be able to maximize farm production
efficiency while minimizing environmental effects. Key technological
tools used in this approach include global positioning systems,
geographic information systems, real-time soil testing, real-time
weather information, etc.;
Environmental benefits:
* Reduces nutrient runoff and leaching;
* Reduces erosion;
* Reduces pesticide use.
Source: GAO.
[End of table]
Water Quality Effects of a Shift to Cellulosic Biofuels:
Cultivation of some cellulosic feedstocks can provide certain benefits,
including stabilizing soils, reducing soil erosion and nutrient runoff,
and increasing nutrient filtration, according to some experts that we
spoke to. For example, research indicates that perennial cellulosic
feedstocks, such as switchgrass and other native prairie grasses, offer
a range of water quality benefits related to their ability to cycle
nitrogen more efficiently, sequester carbon, and protect soil from wind
and water erosion. The perennial nature of these feedstocks can also
reduce the need for most chemical inputs and tillage after crops are
established, which can lessen the need for fertilizer application and
reduce soil erosion and sedimentation. In addition, use of diverse
perennial species can minimize the need for pesticides by promoting
greater diversity and an abundance of natural enemies for agricultural
pests.[Footnote 60] Finally, the presence of cellulosic feedstocks
across an agricultural landscape can help reduce nutrient and chemical
runoff from adjacent farmlands, and provide riparian strips and
windbreaks that minimize erosion.
The type, location, and cultivation methods used to grow cellulosic
feedstocks will influence the extent to which they can improve water
quality. Since potential cellulosic feedstocks have not been grown
commercially to date, there is little data on the nutrient and
pesticide input needs of these crops. In addition, according to USDA
officials, nutrient inputs are likely to be greater on marginal lands
with poor soil quality. Furthermore, use of some cellulosic feedstocks,
specifically agricultural crop residues, could negatively affect water
quality, depending on the agricultural practices employed. Agricultural
crop residues--such as corn stover--offer a large and readily available
biomass resource for production of cellulosic ethanol. It is a common
agricultural conservation practice to leave residue--the portion of the
crop which is not harvested--on the field to help protect the soil from
wind and water erosion and replenish the soil with nutrients and
carbon, among other benefits. If not enough residue is retained on farm
fields, there could be increased sediment loadings to waterways. Excess
residue removal may also increase the need for fertilizer, potentially
leading to further water quality degradation, according to some
experts. Further, an analysis conducted for EPA's proposed rulemaking
identified the need for different conservation systems and conservation
practice standards to produce cellulosic feedstocks in a sustainable
manner.
Biofuels Production Can Affect Soil Quality and Productivity:
Promotion of biofuel production in a way that maintains soil quality
over the long term is a critical environmental consideration about
which several experts have expressed concern. Soil is a central,
fundamental resource for all crops, including biofuel feedstock
production, and ultimately determines crop productivity. Soil quality
is directly affected by soil organic matter (which includes decomposed
crop residue and living microorganisms), soil structure and compaction,
and soil microbial communities. In particular, soil carbon, a central
component of soil organic matter, supports nutrient cycling, improves
soil structure, enhances water exchange and aeration, and sustains
microbial life in the soil.
The effects of biofuel feedstocks cultivation on soil quality will
depend on which feedstock is planted and how it is cultivated. For
example, planting perennial feedstocks, such as switchgrass, can help
store soil carbon, stabilize soils, and reduce erosion, largely because
of the deep root systems of many perennial plants. In addition, some
cultivation methods can help maintain and potentially improve soil
quality. Specifically, use of conservation tillage practices, such as
no-till or planting cover crops, can protect soil from erosion and help
restore, maintain, or build soil organic matter.
Overuse of agricultural residues as feedstocks for biofuel production
would also likely have adverse effects on soil quality, according to
several experts we interviewed. Considerable uncertainty exists
regarding how much, if any, residue can be removed for biofuels
production while maintaining soil and water quality. In addition to
protecting the soil from wind and water erosion, crop residues left on
the field help maintain soil quality and replenish the soil with carbon
and nutrients. If too much residue is removed for use as a feedstock
for biofuels, soil productivity may be compromised, according to these
experts. USDA, DOE, and some academic researchers are attempting to
develop new projections on how much residue can be removed without
compromising soil quality, but sufficient data may not be available to
inform their efforts, and it may take several years to make such
projections. In the interim, USDA and DOE are developing some tools to
help estimate safe residue removal rates, but efforts are still under
way. When completed, these residue removal assessment tools will
consider the broad variance of local conditions such as soil type,
climate, and management practices.
Habitat and Biodiversity May Be Compromised with Increased Biofuel
Feedstocks Cultivation:
Table 30: The increased cultivation of corn and soy-based feedstocks to
meet increases in corn and soy-based biofuels production could have
significant effects on wildlife habitat and biodiversity, according to
experts we spoke with. As mentioned above, a portion of the land that
may be cultivated for additional crop production is expected to come
from environmentally sensitive lands currently enrolled in conservation
programs, such as the CRP. According to experts we spoke with, these
lands provide contiguous habitat available for native wildlife in many
parts of the country. Moving these lands back into production could
lead to effects on available habitat, and subsequently, biodiversity.
In addition, the effects of more intensively farmed monocultures--
production or growth of a single crop--over a wide area have been shown
to lead to a decline in biodiversity and biodiversity-based benefits,
such as pest suppression. For example, a recent study found that
increased corn plantings can result in lower landscape diversity,
altering the supply of natural predators to the soybean aphid, a major
food crop pest.[Footnote 61]
According to some experts that we spoke to, cellulosic biofuel
feedstocks that require few inputs and include a diverse mix of native
and perennial species could promote greater biodiversity than input-
intensive corn and soybean monocultures. Furthermore, some research
suggests that cellulosic feedstocks may be grown on marginal lands that
have been removed from agricultural production with fewer environmental
effects. For example, a 2006 study--in which diverse native prairie
grass species were grown on a site with degraded soils similar to lands
often set aside in conservation programs--demonstrated that such
perennial grasses could generate promising feedstock yields with low
nutrient and irrigation inputs.[Footnote 62] According to some experts
we spoke to, crop choice and cultivation methods will influence the
extent of biodiversity benefits of cultivating cellulosic biofuel
crops. For example, the cultivation of monocultures of cellulosic
biofuel feedstocks, such as switchgrass, may be economically favorable
to the cultivation of diverse native prairie grasses. However,
according to some experts, these kinds of monocultures may not provide
the same biodiversity benefits, and the characteristics that make the
plant good for crop production, such as being fast growing, also
increase its potential to invade natural environments. For instance, a
recent study found that some monocultures of cellulosic feedstocks may
be invasive in certain regions of the United States and have the
potential to affect plant biodiversity in these regions.[Footnote 63],
[Footnote 64] In addition, some USDA officials said that cultivation of
new feedstock across large areas within the landscape will likely
create new disease and insect problems for which there are limited
control strategies.
The Process of Converting Feedstocks into Biofuels Has Environmental
Consequences, but the Effects Vary:
The processing of feedstocks into biofuels at biorefineries may have
significant effects on water supplies in some parts of the United
States. However, according to officials, existing water quality
regulations over effluents discharged by these facilities are expected
to reduce the effects of pollutants. These facilities may also affect
air quality, but the effects will depend on location, feedstock, and
the pollution control technologies deployed.
Effects on Water Supply from Biorefineries Can Be Significant in Some
Locations:
Although research indicates that the amount of water consumed in the
corn ethanol conversion process has declined over time and is small
compared to the amount of water consumed to grow irrigated corn, it may
have significant effects on local water supplies. Specifically, from
1998 through 2007, water consumption at corn ethanol biorefineries
dropped 48 percent--from 5.8 to 3.0 gallons of water per gallon of
ethanol--with improved equipment and energy efficient design, according
to a 2009 Argonne National Laboratory study.[Footnote 65] Nevertheless,
at this rate, the current average water needs for a single 100-million-
gallon-per-year corn ethanol plant is almost the same as the annual
water needs for a city with approximately 8,200 people--approximately
300 million gallons, according to an EPA estimate.[Footnote 66] In
addition, a recent report by the National Research Council found that
siting of some ethanol plants is occurring where water resources are
already under duress.[Footnote 67] As figure 4 shows, many existing and
planned ethanol facilities that require 0.1 to 1.0 million gallons of
water per day are located on the High Plains aquifer, where current
water withdrawals are much greater than the aquifer's recharge rates
(about 0.02 to 0.05 foot per year in most areas of the northern parts
of the aquifer which include parts of Nebraska, Kansas, South Dakota,
Colorado and Wyoming).[Footnote 68] Furthermore, ethanol conversion
requires high-quality water, which can include groundwater, surface
water, or municipal water supply sources.[Footnote 69] Because rural
communities frequently rely on groundwater aquifers, which may take
lifetimes to recharge, for their drinking water supplies, if several
ethanol plants are built near one another or draw from the same
aquifer, they could reduce the drinking water available to the
surrounding communities. Finally, according to EPA, most estimates of
water consumption in ethanol production do not consider water
discharged as a result of pre-treating water prior to use in the
conversion process.
Figure 4: Existing and Planned Ethanol Facilities (as of 2007) and
Their Estimated Total Water Use Mapped with the Principal Bedrock
Aquifers of the United States and Total Water Use in 2000:
[Refer to PDF for image: illustrated U.S. map]
The map depicts the following:
Location of:
High Plains Aquifers;
Glacial Aquifers.
Principal Bedrock Aquifers 2000 Water Use: Irrigation/Public
Supply/Industrial; Million Gallons Per Day:
0-250;
250-500;
500-750;
750-1000;
1000-1250;
1250-1500;
More than 1500.
2007 Existing and Planned Ethanol Facilities: Estimated Total Water
Use; Millions Gallons Per Day:
0-0.05;
0.05-0.10;
0.10-0.50;
0.50-1.00;
More than 1.00.
Source: Created by USGS for use in the National Research Council 2008
report Water Implications of Biofuels Production in the U.S.
[End of figure]
For conversion of cellulosic feedstock, the amount of water consumed
will depend on the process and on technological advancements that
improve the efficiency with which water is used. For example, according
to a 2009 Argonne National Laboratory study, water consumed in the
biochemical conversion process for cellulosic feedstock using advanced
technology is estimated at 5.9 gallons of water per gallon of ethanol,
while thermochemical gasification processes for cellulosic feedstock
may only require 1.9 gallons of water per gallon of ethanol or other
fuel.[Footnote 70] According to the study, water required in the
conversion process for cellulosic feedstock may also be reduced as
technology improves, as has occurred in corn ethanol biorefineries.
Water Pollutants Discharged by Biorefineries Are Regulated under the
Existing Permitting Process:
While effluent from ethanol and biodiesel refineries may contain
pollutants that could negatively affect water quality, discharges of
these effluents are regulated under the requirements of the Clean Water
Act's National Pollutant Discharge Elimination System (NPDES) program.
Effluents from refineries can be applied to land, treated on site,
discharged to local wastewater treatment facilities, or discharged to
water bodies. Under the act, refineries that discharge pollutants into
federally regulated waters are required to obtain a federal NPDES
permit from EPA or a state agency authorized by EPA to implement the
NPDES program. These permits generally allow a point source, such as a
refinery, to discharge specified pollutants into federally regulated
waters under specific limits and conditions. According to EPA
officials, the greatest potential pollutants are discharges of
contaminated water from the reverse osmosis treatment used in ethanol
refineries and the glycerin that is used in biodiesel refineries.
[Footnote 71] According to EPA officials and state officials we spoke
with, the NPDES permitting process is generally being effectively
applied to discharges from refineries.[Footnote 72] For ethanol
refineries, these permits cover blowdown (water containing salts built
up in cooling towers and boilers), as well as discharges from the
reverse osmosis process. The concentrated salts in discharges to
streams and lakes from reverse osmosis are an area of concern due to
their potential aquatic toxicity and other water quality effects,
according to EPA officials. In addition, at small biodiesel refineries,
biological oxygen demand from glycerin can be a problem in effluent
released into local municipal wastewater facilities because it may
disrupt the microbial processes used in wastewater treatment, according
to EPA officials.[Footnote 73] However, according to EPA, in larger
biorefineries, glycerin is less of a concern because it often is
extracted from the effluent and refined for use in other products,
including cosmetics and animal feed. In the future, it is likely that
new technologies will make recovery of glycerin economically feasible
in smaller facilities, according to USDA.
Air Quality Effects of Biorefineries Will Depend on the Location and
Size of the Facility and the Feedstock Used:
Certain air pollutants--known as criteria pollutants under the Clean
Air Act--are released into the air during most industrial manufacturing
and refining processes, including the conversion of feedstocks into
ethanol. These pollutants, which pose risks to human health and
welfare, include particulate matter, nitrogen dioxide, carbon monoxide,
ozone, lead, and sulfur dioxide.[Footnote 74] In addition, ethanol
refineries can emit volatile organic compounds, which are a precursor
to ozone, a criteria pollutant. (See table 4 for details on the public
health and environmental effects of common pollutants that can be
released by ethanol refineries.) In addition to criteria pollutants,
ethanol refineries emit hazardous air pollutants, such as acetaldehyde,
which are known or suspected to cause serious health effects, including
cancer, or adverse environmental effects such as damaging crops or
trees.
Table 4: Potential Air Pollutants Associated with Ethanol Refineries
and Their Related Health and Environmental Effects:
Pollutant: Particulate matter;
Health effects: Aggravation of respiratory and cardiovascular disease,
decreased lung function and increased respiratory symptoms, and
premature death;
Environmental effects: Impairment of visibility, effects on climate,
and damage and/or discoloration of structures and property.
Pollutant: Sulfur dioxide;
Health effects: Aggravation of asthma and increased respiratory
symptoms. Contributes to particle formation with associated health
effects;
Environmental effects: Contributes to the acidification of soil and
surface water and mercury methylation in wetland areas. Contributes to
particle formation with associated environmental effects. Causes injury
to plants and suppresses crop yield.
Pollutant: Oxides of nitrogen (NOx);
Health effects: Aggravation of respiratory disease and increased
susceptibility to respiratory infections. Contributes to ozone with
associated health effects;
Environmental effects: Contributes to the acidification and nutrient
enrichment (eutrophication, nitrogen saturation) of soil and surface
water. Contributes to ozone with associated environmental effects. Can
adversely affect plants and crop yields.
Pollutant: Carbon monoxide (CO);
Health effects: Reduces the ability of blood to carry oxygen to body
tissues including vital organs. Aggravation of cardiovascular disease;
Environmental effects: None known.
Pollutant: Volatile organic compounds;
Health effects: Cancer (from some toxic air pollutants) and other
serious health problems. Contributes to ozone formation with associated
health effects;
Environmental effects: Contributes to ozone formation with associated
environmental effects.
Pollutant: Ozone (O3)[A];
Health effects: Aggravation of respiratory and cardiovascular disease,
decreased lung function and increased respiratory symptoms, increased
susceptibility to respiratory infection, and premature death;
Environmental effects: Damage to vegetation such as effects on tree
growth and reduced crop yields.
Source: EPA.
[A] Ozone is a secondary pollutant formed by a chemical reaction of
volatile organic compounds and NOx in the presence of sunlight.
[End of table]
Biorefineries that emit more than threshold quantities of criteria and
hazardous air pollutants are subject to Clear Air Act permitting
requirements. If a biorefinery's emissions meet or exceed specific
statutory or regulatory thresholds prior to its construction or any
subsequent major modifications, the proposed facility or modification
undergoes a New Source Review.[Footnote 75] Under New Source Review,
permitting authorities review a proposed facility or modification to
ensure that it will operate within emissions limits and utilize the
requisite pollution control technologies. In addition, these
biorefineries must obtain an operating permit and must comply with any
applicable national emission standards for hazardous air pollutants.
[Footnote 76] According to EPA regional officials, emissions from many
of the existing and planned facilities in their region do not meet or
exceed applicable thresholds, and are not subject to a New Source
Review.[Footnote 77],[Footnote 78] These EPA officials and some state
officials said they have experienced relatively few permit compliance
issues with biorefineries once they are operational; however, these
officials said the number of new permit applications has been small, in
part due to the recent economic downturn.
According to some experts we spoke with, as biofuels production
increases, the effects on air quality from conversion processes will
depend on the location of the biorefinery and the feedstock used. For
example, according to some experts, many facilities are currently
located in close proximity to where biofuel feedstocks are cultivated--
in rural areas that do not traditionally have problems with ambient air
quality. However, some state and EPA officials expressed concern that
with increased production and the availability of a more diverse group
of biofuel feedstocks in a variety of geographic locations, future
biorefineries may be located closer to urban areas that already have
impaired ambient air quality, thereby exacerbating existing problems.
In addition, according to some experts and state officials we spoke
with, when looking at the total air emissions from biofuels it is
important to also consider the additional emissions that may be
generated by the transport of feedstocks to the biorefinery as well as
the transport of fuel from the facility for blending with gasoline
prior to distribution.
In addition, EPA regional officials expressed concern regarding
elevated ambient levels of some hazardous air pollutants that may
result from increased ethanol production, especially in areas with high
concentrations of ethanol refineries. For example, acetaldehyde, a
hazardous air pollutant, forms during the ethanol conversion process
and is also emitted when ethanol is used as fuel.[Footnote 79] A 2008
study by the Nebraska Department of Environmental Quality showed that
some ethanol refineries may have difficulties meeting national emission
standards for some hazardous air pollutants, including acetaldehyde.
Further, EPA's May 2009 notice of proposed rulemaking regarding the RFS
included an analysis that found the production and distribution of
biofuels could increase acetaldehyde emissions by almost 14 percent by
2022 when compared to business as usual estimates. According to EPA
regional officials, EPA is planning a pilot study to monitor ambient
acetaldehyde in localities with high concentrations of ethanol
production in order to develop better estimates of acetaldehyde
emissions in the ethanol conversion process.
In contrast, at this time, according to some experts and EPA regional
officials we spoke with, little is known about the potential air
quality effects of converting cellulosic feedstocks to biofuels,
primarily because commercial-scale cellulosic biorefineries have not
been completed and put into use. While some studies projecting
potential emissions generated from the cultivation and conversion of
biofuels show promise,[Footnote 80] some experts we spoke with believe
that predictions of potential emissions reductions from the conversion
of cellulosic feedstock are speculative until facilities have been
demonstrated at the commercial scale.
Storage and Use of Certain Ethanol Blends May Result in Further
Environmental Effects that Have Not Yet Been Measured:
As the percentage of ethanol used in motor fuels increases, the risk of
leaks in the existing fuel storage and delivery infrastructure also
increases because some of these tanks are not currently certified for
storing such blends. These leaks could result in contamination of
groundwater and surface water. Furthermore, the potential effects of
increased biofuels use on air quality will depend on the ability of the
existing fleet of vehicles to adapt to fuel blends with an increased
percentage of ethanol.
Current Fuel Storage and Delivery Infrastructure May Be Inadequate to
Prevent Leaks and Potential Groundwater Contamination from Certain
Ethanol Blends:
Ethanol is highly corrosive and poses a risk of damage to pipelines,
rail or tanker trucks, underground storage tanks (UST), and above-
ground storage tanks (AST), which could in turn lead to releases to the
environment that may also contaminate groundwater, among other
issues.[Footnote 81] According to EPA officials, aside from UST systems
specifically designed to store fuel containing 85 percent ethanol, a
large number of the 617,000 federally regulated UST systems currently
in use at approximately 233,000 sites across the country are not
certified to handle fuel blends that contain more than 10 percent
ethanol.[Footnote 82] These officials stated that the expected life
span of USTs is typically 30 years. This, combined with the lack of
information on how many of these tank systems are ethanol compatible
and where they are installed, makes it difficult for EPA to gather data
on the level of leakage risk posed by a switch to different blends of
ethanol. Officials also commented that substantial turnover in
ownership further complicates the challenge of determining what type of
UST system is in the ground without removing it.
Moreover, according to EPA officials, most tank owners do not have
records of all the UST systems' components, such as the seals and
gaskets. Glues and adhesives used in UST piping systems were not
required to be tested for compatibility with ethanol until recently.
Thus there may be many compatible tanks with incompatible system
components, increasing the potential for equipment failure and fuel
leakage, according to EPA officials, and EPA continues to work with
government and industry partners to study the compatibility of UST
system components with various ethanol blends. In 2000, 39 states,
territories and tribes identified leaking USTs as one of the top 10
causes of groundwater contamination in state assessment reports. When
leakage occurs from USTs storing ethanol-blended fuels, the
contamination may pose greater risks than petroleum. Studies show that
ethanol causes benzene, a soluble and carcinogenic chemical in
gasoline, to travel longer distances and persist longer in soil and
groundwater than it would in the absence of ethanol, potentially
reaching a greater number of drinking water supplies.[Footnote 83],
[Footnote 84]
Use of Certain Ethanol Blends in Vehicles Is Expected to Increase
Emissions of Certain Air Pollutants, but Research Is Ongoing to Better
Establish the Magnitude of These Emissions:
In addition to emissions from biorefineries, research indicates that
there is some concern regarding tailpipe emissions from vehicles and
small nonroad engines using certain blends of ethanol.[Footnote 85],
[Footnote 86] In modeling done as part of its proposed rulemaking, EPA
estimated that nitrogen oxide emissions are projected to increase due
to the use of fuel blends with 10 percent ethanol, and the use of fuel
blends with 85 percent ethanol will lead to more significant increases
in ethanol, acetaldehyde, and formaldehyde emissions. Furthermore,
while some vehicles are designed to handle fuel blends of up to 85
percent ethanol, some conventional vehicles may not be equipped to
handle blends containing greater than 10 percent ethanol, according to
an Oak Ridge National Laboratory study.[Footnote 87] Specifically, the
study reported that the use of these intermediate ethanol blends by
vehicles may have an effect on the pollution control systems and
emissions of some vehicles, particularly older vehicles.[Footnote 88]
While EPA has conducted some research to quantify the emissions effects
of ethanol blends of 10 percent and 85 percent, research on
intermediate blends has been limited and efforts are under way to
determine the magnitude of their potential effect.[Footnote 89] For
example, DOE's National Renewable Energy Laboratory and Oak Ridge
National Laboratory and EPA are conducting long-term studies on the
effects of intermediate ethanol blends on emissions from vehicles in
the existing fleet and small nonroad engines. Preliminary results have
shown that, in vehicles, fuel blends greater than 10 percent ethanol
generally reduce emissions of some criteria pollutants and some
hazardous air pollutants, although acetaldehyde emissions increased.
[Footnote 90] The National Renewable Energy Laboratory, the Oak Ridge
National Laboratory, and EPA are expected to report on the effects of
intermediate ethanol blends on the full useful life of the existing
fleet of vehicles in 2010, including effects on pollution control
systems and emissions.[Footnote 91] While the potential effects of
intermediate ethanol blends on tailpipe emissions and catalytic systems
are important, EPA emissions data indicate that tailpipe emissions of
certain pollutants have decreased substantially over time (see table
5). As a result, while there may be some adverse effects, particularly
in areas with existing air pollution problems, the effects of increased
pollution from motor vehicles as a result of ethanol use may be
relatively small. EPA plans to further analyze the potential air
quality effects of increased renewable fuel use as a part of the final
rulemaking for the RFS.
Table 5: Criteria Pollutants and Related Emissions from Stationary and
Mobile Sources, 1990 and 2007 (thousands of short tons):
Highway vehicles:
Year: 1990;
Carbon monoxide (CO): 110,255;
Nitrogen oxides (NOx): 9,592;
Sulfur dioxide (SO2): 503;
Volatile organic compounds: 9,388;
Particulate matter (PM2.5)[A]: 323.
Highway vehicles:
Year: 2007;
Carbon monoxide (CO): 41,610;
Nitrogen oxides (NOx): 5,563;
Sulfur dioxide (SO2): 91;
Volatile organic compounds: 3,602;
Particulate matter (PM2.5)[A]: 114.
Nonroad equipment:
Year: 1990;
Carbon monoxide (CO): 21,447;
Nitrogen oxides (NOx): 3,781;
Sulfur dioxide (SO2): 371;
Volatile organic compounds: 2,662;
Particulate matter (PM2.5)[A]: 300.
Nonroad equipment:
Year: 2007;
Carbon monoxide (CO): 18,762;
Nitrogen oxides (NOx): 4,164;
Sulfur dioxide (SO2): 396;
Volatile organic compounds: 2,650;
Particulate matter (PM2.5)[A]: 276.
Total U.S. emissions:
Year: 1990;
Carbon monoxide (CO): 154,188;
Nitrogen oxides (NOx): 25,527;
Sulfur dioxide (SO2): 23,077;
Volatile organic compounds: 24,108;
Particulate matter (PM2.5)[A]: 7,560.
Total U.S. emissions:
Year: 2007;
Carbon monoxide (CO): 88,254;
Nitrogen oxides (NOx): 17,025;
Sulfur dioxide (SO2): 12,925;
Volatile organic compounds: 18,423;
Particulate matter (PM2.5)[A]: 5,450.
Source: GAO analysis of EPA data.
[A] PM2.5 includes particulate matter at most 2.5 micrometers in
diameter.
[End of table]
Focus on Sustainability Will Be Important in Evaluating Environmental
Implications of Increased Biofuel Production:
Experts from government, academia, and the private sector have stated
that to better understand the environmental implications of different
fuel choices, an increased focus on sustainability is needed. While
there are no standard criteria, nor a single working definition for
sustainability, the Biomass Research and Development Board described
sustainable renewable energy production as systems that are not only
productive, but also environmentally, economically, and socially viable
now and for future generations. Some experts and agency officials said
that sustainability is a useful concept for understanding these effects
and evaluating policy options because it takes into account a wide
variety of potential effects. Several efforts are under way to evaluate
biofuels using this broad concept. For example, the Biomass Research
and Development Board has drafted a proposed set of scientific
sustainability criteria that cover the critical elements of a
sustainable biofuels system.[Footnote 92] Each criterion has a
corresponding set of measurable indicators. For example, one of the
environmental criteria is "soil quality and land productivity," and its
corresponding indicators are feedstock yield, soil loss, and soil
organic matter content. Although some data are available, reliable
science-based methods to predict likely outcomes from measurable
indicators must still be developed, according to USDA.
Furthermore, some experts and officials we spoke with highlighted the
importance and need for lifecycle analysis of the environmental effects
of biofuels--throughout feedstock cultivation, harvest, transport, fuel
production, storage, and use. EPA is undertaking some of these analyses
and included a partial assessment of water and air effects in the
preamble of the May 2009 RFS proposed rulemaking. In addition, EPA has
stated that it has clear authority and responsibility under other
statutes, such as the Clean Water Act and the Federal Insecticide,
Fungicide and Rodenticide Act, to evaluate the environmental impacts of
a biofuel's lifecycle. However, EISA does not require EPA to determine
what fuels are eligible for consideration under the RFS based on their
lifecycle environmental effects even though a fuel's lifecycle
greenhouse gas emissions determine eligibility (see ch. 4). Moreover,
beginning in 2022, EPA must establish the renewable fuel standard based
in part on the impact of the production and use of renewable fuels on
the environment. According to the experts we spoke with, any
comprehensive analysis of the costs and benefits of gasoline compared
with the various types of biofuels will require a complete analysis of
environmental effects as well.
Conclusions:
Ethanol, biodiesel, and advanced cellulosic biofuels are being promoted
for their potential contributions to reducing net greenhouse gas
emissions, achieving greater national energy security by decreasing the
transportation sector's use of imported petroleum, and developing rural
economies by raising domestic demand for U.S. farm products. Although
EPA's May 2009 proposed rulemaking included a partial analysis of water
and air effects of biofuels production, EISA does not require EPA to
determine what renewable fuels are eligible for consideration under the
RFS based on their lifecycle environmental effects, apart from
lifecycle greenhouse gas emissions. Given the significant environmental
effects that could occur at every step of the biofuels production
process--feedstock cultivation, harvest, transport, conversion to
biofuel, storage, and end use--and the potential for biofuels
production to further exacerbate existing environmental problems, we
believe that any assessment of biofuel feedstock will be incomplete
without a full consideration of all the related potential environmental
implications associated with each type of feedstock. Furthermore, for
policymakers to be fully informed about the effects of their decisions,
these implications must be compared to the environmental effects of
gasoline and other transportation fuel options. While we recognize the
challenge EPA faces in assessing the variety of environmental effects
that increased biofuels production can cause and given that, at a
minimum, the agency will be required to undertake such an assessment in
2022, we believe developing a strategy to assess these effects now is
an important first step in ensuring that future fuel choices will not
lead to additional environmental degradation.
Matter for Congressional Consideration:
In addition to the currently required lifecycle greenhouse gas
emissions analysis, the Congress may wish to consider amending EISA to
require that the Administrator of the Environmental Protection Agency
develop a strategy to assess the effects of increased biofuels
production on the environment at all stages of the lifecycle--
cultivation, harvest, transport, conversion, storage, and use--and to
use this assessment in determining which biofuels are eligible for
consideration under the renewable fuel standard. This would ensure that
all relevant environmental effects are considered concurrently with
lifecycle greenhouse gas emissions.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, EPA addressed the Matter for
Congressional Consideration to consider amending EISA to require EPA to
develop a strategy to assess the effects of increased biofuels
production on the environment at all stages of the lifecycle and to use
this assessment in determining which biofuels are eligible for
consideration under the RFS. EPA commented that this matter might be
best addressed by the recently created Executive Biofuel Interagency
Working Group co-chaired by EPA, USDA, and DOE, which has been tasked
to promote the environmental sustainability of biofuel feedstock
production, among other things. EPA also commented that it has clear
authorities and responsibilities under other environmental statutes
that may regulate aspects of a biofuel's lifecycle and is required by
Section 204 of EISA to evaluate the environmental effects of biofuels
and submit a report to the Congress.
We acknowledge that EPA has the authority under other statutes to
mitigate the environmental effects of biofuels and believe that the
evaluation currently required by section 204 of EISA will provide a
good foundation for the analysis we are suggesting. However, we believe
that our matter for congressional consideration would require EPA to
not only assess the lifecycle effects of biofuels, but to actually use
these assessments to determine which biofuels are eligible for
consideration under the renewable fuel standard.
[End of section]
Chapter 4: Researchers Disagree on How to Account for Indirect Land-Use
Changes in Estimating the Lifecycle Greenhouse Gas Effects of Biofuels
Production:
Twelve recent scientific studies have used greenhouse gas or economic
forecasting models to estimate the total emissions of carbon dioxide
and associated gas during a biofuel's lifecycle--growing, harvesting,
and transporting the feedstock; producing the biofuel; and using it in
a vehicle--and comparing these results with greenhouse gas emissions of
fossil fuels.[Footnote 93] Overall, the estimated lifecycle greenhouse
gas emissions of biofuels compared with fossil fuels in these studies
ranged from a 59 percent reduction to a 93 percent increase in
greenhouse gas emissions for corn starch ethanol, a 113 percent
reduction to a 50 percent increase for cellulosic ethanol, and a 41
percent to 95 percent reduction for biodiesel. More specifically,
studies that did not include indirect land-use changes in their
lifecycle analysis generally reported that conventional corn starch
ethanol can achieve some net greenhouse gas reduction benefits and
cellulosic ethanol can likely achieve more reduction benefits as
compared with fossil fuels. However, the three studies that addressed
indirect land-use changes in their methodologies each reported that
biofuels had a net increase in greenhouse gas emissions relative to
fossil fuels. In addition, 9 other scientific studies assessed the
greenhouse gas emissions of various biofuels feedstocks using various
other metrics, such as the carbon payback period--the amount of time
needed to compensate for the carbon debt generated from clearing new
lands to grow biofuel feedstocks.
Many of the lifecycle analysis researchers we interviewed stated there
is general consensus on the approach for measuring the direct effects
of increased biofuels production, but disagreement among researchers
about assumptions and assessment methods for estimating the indirect
effects of global land-use change. EPA is required to assess
significant greenhouse gas emissions from land-use change because only
biofuels that achieve certain lifecycle emission reductions relative to
petroleum fuels are eligible for consideration under the RFS. In
particular, researchers disagree about what nonagricultural lands will
be converted to replace land used to grow biofuels crops so that world
production of food, feed, and fiber crops is maintained, and about
future productivity trends in both existing and new farmland. Although
research for measuring indirect land-use changes as part of the
greenhouse gas analysis is only in the early stages of development,
EISA directed EPA to promulgate a rule to determine the lifecycle
greenhouse gas emissions of biofuels included in the RFS, including
significant emissions from land-use changes for each feedstock. Many
researchers told us that the lack of agreement on standardized
lifecycle assessment methods, combined with key information gaps in
several areas--such as feedstock yields, domestic and international
land-use data, and data on above-ground biomass and soil carbon for a
variety of land cover crops worldwide--greatly complicate EPA's ability
to promulgate this rule. On May 26, 2009, EPA published a proposed rule
in the Federal Register.
Estimates of the Lifecycle Greenhouse Gas Emissions of Biofuels Have
Significantly Differed:
Twelve recent scientific studies that compared the estimated lifecycle
greenhouse gas emissions of using ethanol with using gasoline generally
showed a modest greenhouse gas reduction benefit for conventional corn
starch ethanol and greater benefits for cellulosic ethanol (see figure
5). For example, a 2006 Argonne National Laboratory study estimated
that, for the entire fuel cycle, corn starch ethanol generated 21
percent to 24 percent less greenhouse gas emissions than gasoline,
while cellulosic ethanol produced from corn stover generated 86 to 89
percent less greenhouse gas emissions than gasoline.[Footnote 94]
Updated data presented in 2008 showed that such feedstocks as forest
residues, corn stover, switchgrass, and fast-growing trees reduced
greenhouse gas emissions relative to gasoline from 75 percent to 112
percent.[Footnote 95] In comparison with gasoline, the estimated
greenhouse gas emissions ranged from a 59 percent decrease to a 93
percent increase for corn starch ethanol and from a 113 percent
decrease to a 50 percent increase for ethanol emissions from
cellulosics, including switchgrass, corn stover, and forest residues.
Figure 5: Estimated Lifecycle Greenhouse Gas Emissions of Ethanol as
Compared with Gasoline:
[Refer to PDF for image: illustration]
This illustration indicates four types of ethanol feedstock as well as
the estimated lifecycle greenhouse gas emissions for each type as
compared with gasoline.
In most cases, lifecycle analysis did not include indirect land use
change. In a few cases, lifecycle analysis included indirect land use
change.
The illustration indicates the following:
Ethanol feedstock: Corn starch;
Reduces greenhouse gases: generally between 0 and 50%, but in a few
cases increased greenhouse gases more than 50%.
Ethanol feedstock: Switchgrass;
Reduces greenhouse gases: generally between 50 and 100%.
Ethanol feedstock: Corn stover;
Reduces greenhouse gases: generally between 75 and 100%.
Ethanol feedstock: Forest residues;
Reduces greenhouse gases: generally between 75 and 90%.
Source: Figure based on data from 12 key studies conducted by DOE,
USDA, and academic researchers.
[End of figure]
In addition, we examined 9 other scientific studies that estimated the
greenhouse gas impacts of biofuels using different metrics to report
their results than the studies shown in figure 5. For example, 3 of
these 9 studies estimated the greenhouse gas emissions of biofuels
based on a carbon payback period--defined as the amount of time needed
to overcome greenhouse gas releases incurred when new lands are cleared
to grow biofuel feedstocks--while 2 studies in this group used a net
energy metric, such as net energy input per unit output. Other studies
in this group reported the greenhouse gas impacts from biofuels in
terms of overall greenhouse gas emissions reductions or increases
without quantifying these reductions relative to fossil fuels. These 9
scientific studies reported both positive and negative greenhouse gas
impacts for biofuels.
Assumptions about Agricultural and Energy Inputs, Co-Products, and Land-
Use Changes Determine Research Results:
The results of the 21 scientific studies we reviewed vary primarily
because researchers made different assumptions about the agricultural
management practices and biorefinery energy inputs required to produce
biofuels, allocated these energy inputs to co-products in a number of
ways, and considered direct and indirect land-use impacts to different
extents. (See appendix IV for a list of key studies on the lifecycle
greenhouse gas effects of biofuels and appendix VII for a summary of
the assumptions and conclusions of 17 researchers about lifecycle
greenhouse gas emissions of biofuels production.)
Assumptions about Agricultural and Biorefinery Energy Inputs Can
Strongly Affect the Results of Biofuel Lifecycle Assessment Models:
Several researchers told us that different assumptions about
agricultural inputs and practices related to biofuel production can
strongly affect lifecycle analysis results. For example, assumptions
about fertilizer production and its rate of application are important
because corn farming requires intensive application of nitrogen-based
fertilizer. One study estimated that 70 percent of greenhouse gas
emissions in corn production are related to nitrogen fertilizer, which
requires fossil energy to produce and results in emissions of nitrous
oxide, a greenhouse-gas, from the farmed soil.[Footnote 96] Also, most
researchers told us that certain agricultural and production
efficiencies could reduce greenhouse gas emissions from corn starch
ethanol. For example, such farming practices as planting cover crops
that bind the fertilizer's nitrogen in the soil might mitigate nitrogen
leaching and greenhouse gas emissions and improve soil organic levels.
[Footnote 97] Similarly, the no-till land management practice might
improve soil organic levels and increase carbon sequestration rates in
comparison with conventional tillage. In addition, the lifecycle
analysis is affected by decisions on what type of land to bring into
feedstock production, the energy requirements of harvesting machinery,
and the energy associated with transporting feedstocks to
biorefineries.
Researchers have also made varying assumptions on the amounts and types
of energy used to power biorefineries. For example, estimates of the
lifecycle greenhouse gas emissions of corn ethanol as compared with
gasoline have varied from a 3 percent increase when coal was used as
the process fuel to a 52 percent decrease when wood chips were
used.[Footnote 98] For cellulosic ethanol biorefineries, some studies
that assume coal will be used for power showed increased greenhouse gas
emissions compared with other studies that assume lignin (the
noncellulose portion of the feedstock) will be used as a source of
power.[Footnote 99] Furthermore, the models vary based on whether they
measure biorefinery energy use with regional data or measure it at a
specific biorefinery, and some studies vary based on whether they use
energy data for dry mill processing or more energy-intensive wet mill
processing.
Assumptions about Allocating Energy to Co-Products Can Substantially
Affect the Results of Biofuel Lifecycle Analyses:
The same energy that a biorefinery uses to make ethanol or biodiesel
also creates economically valuable co-products, including distiller's
grains produced with corn ethanol using dry mill processing, soy meal
produced by soybean crushing facilities, glycerin produced with
biodiesel by biorefineries, and electricity produced by ethanol
biorefineries that use cellulosic and sugarcane feedstocks. To analyze
the energy use and greenhouse gas emissions, the energy used by a
biorefinery to produce co-products needs to be subtracted out. Because
future cellulosic biorefineries could be designed to co-produce
electricity along with ethanol by burning the lignin in cellulosic
feedstocks to generate heat or steam, this potential energy offset for
producing cellulosic ethanol also needs to be taken into account.
Researchers have used different approaches for addressing biofuels co-
products. Some researchers did not include co-products as a factor in
their analysis while other researchers have allocated the energy use
attributable to these products through (1) a displacement method that
assumes that co-products from ethanol production substitute for other
products that require energy for their production, (2) a mass-based
method that distributes energy among all products according to their
mass output shares, and (3) an economic revenue shares method that
distributes energy based on the revenue shares of each product. Several
researchers told us that the methods used to allocate energy to these
co-products is one of the largest variables in energy studies, and the
variation can lead to widely different results.[Footnote 100] A recent
Argonne National Laboratory study examining the implications of
selecting one method over others found that co-product method selection
has significant effects on the biofuel greenhouse gas results,
particularly for corn ethanol and biodiesel--for corn starch ethanol
from 19 percent to 46 percent of the greenhouse gas emissions could be
allocated to the distiller's grain co-product depending on the method
used, and for cellulosic ethanol from 2 percent to 31 percent could be
allocated to co-generated electricity depending on the method used.
[Footnote 101]
Land-Use Changes May Be the Most Important and Difficult Variable to
Account for when Assessing the Lifecycle Greenhouse Gas Emissions of
Biofuels:
Some researchers believe that land-use changes are the most significant
factor in determining the greenhouse gas effects of certain types of
biofuels. The land-use changes resulting from biofuel production are
either direct or indirect. Direct land-use change examines the
immediate effects of displacing the existing use of land to grow
feedstocks for biofuel production. For example, as corn ethanol
production increases, farmers could grow more corn on land previously
used for another type of crop, such as soybeans. Indirect land-use
change is significantly more difficult to measure because it examines
what nonagricultural lands may be converted to replace agricultural
land used to grow biofuels crops to maintain world production of food,
feed, and fiber crops. For example, assessments of indirect land-use
change attempt to measure the impact of increased biofuel production in
the U.S. on agriculture patterns in other countries, such as those in
tropical regions where land not currently used for agriculture might be
cleared to produce corn and other agricultural commodities. Such land-
use changes may result in more greenhouse gases being released than
were saved through the replacement of gasoline with ethanol.
To date, only a few studies have attempted to account for the effects
of indirect land-use change. One study estimated that (1) corn starch
ethanol resulted in a 93 percent increase in greenhouse gas emissions
relative to gasoline when indirect land-use changes were included and
(2) converting corn fields to grow switchgrass would trigger land-use
changes that would result in a 50 percent increase in greenhouse gas
emissions as compared with gasoline.[Footnote 102] In addition, two
other studies stated that biofuels production could increase greenhouse
gas emissions if corn starch ethanol production required expanding
agricultural production on other native habitats or if cellulosic
feedstocks accelerated land clearing by adding to the agricultural land
base needed for biofuels.[Footnote 103] These studies quantified the
carbon debt, which determines the greenhouse gas releases that biofuels
must overcome to provide greenhouse gas benefits. The time needed to
overcome this carbon debt is referred to as the payback period. One of
these studies estimated this payback period to be about 86 to 840 years
for biodiesel, depending on the tropical ecosystem being converted, and
about 93 years for corn ethanol produced on newly converted U.S.
central grasslands. The studies also reported that the expansion of
biofuels into production in tropical ecosystems would always lead to
net carbon emissions for decades to centuries, but expanding into
degraded or already cultivated land could reduce greenhouse gas
emissions and provide carbon savings. However, while all three studies
incorporated land-use change effects, other researchers have criticized
these studies for either (1) not recognizing cultural and political
interactions as well as other factors that also lead to land-use
change, (2) using economic models that do not include all land-use
factors in the modeling, (3) making certain assumptions about the type
of land being converted and agricultural practices used to plant the
biofuel feedstocks, or (4) making assumptions regarding crop
productivity of existing and new crop land that may not reflect
technology potentials. [Footnote 104] Other researchers told us that
indirect land-use changes could be significant but said that their
effects cannot be estimated because current models, methods, and data
are inadequate.
Two of these studies also estimated that biodiesel achieved a 41
percent to 95 percent decrease in greenhouse gas emissions relative to
diesel fuel.[Footnote 105] However, these studies did not consider the
possible effects of biofuel production on land-use decisions and any
new greenhouse gas emissions that may be released. Other researchers
told us that converting rainforests, peatlands, savannas, or grasslands
to biodiesel crops would likely lead to increased greenhouse gas
emissions. For example, in a 2006 study, researchers did not consider
land-use changes and reported greenhouse gas emission decreases for
soybeans compared with diesel fuel, but in a 2008 study, some of these
researchers found greenhouse gas increases when land-use changes were
considered.[Footnote 106] While these researchers did not quantify the
results as a percent change compared with fossil fuels, they found that
clearing certain land for crop-based biofuels would release more carbon
dioxide than the greenhouse gas reductions from displacing fossil fuels
would provide.
Despite the differences regarding how to quantify land-use change, the
researchers we interviewed generally believe that certain cellulosic
feedstocks, such as corn stover, wood waste, or municipal waste, would
not cause significant indirect land-use changes and could decrease
greenhouse gas emissions compared with fossil fuels, even though some
researchers said over-harvesting agricultural residues could increase
soil erosion and adversely affect water quality, requiring mitigation.
Shortcomings in Forecasting Models and Data Make It Difficult to
Determine Lifecycle Greenhouse Gas Emissions:
Researchers told us there is a lack of consensus within the scientific
community about whether biofuels reduce greenhouse gas emissions,
citing in particular uncertainties about how to link biofuels
production with indirect land-use change. Underlying this lack of
consensus are limitations to current forecasting models, a lack of
standardized assumptions and metrics, and a lack of current data on the
type of land that would be brought into production to replace acreage
used to grow biofuel feedstocks.[Footnote 107] Many researchers told us
that limitations to current lifecycle models and key information gaps
challenge EPA's ability to promulgate a rule defining fuels eligible
for consideration under the RFS.
Models for Assessing Lifecycle Impacts Are Currently Limited:
Several researchers have cited a need for better and more sophisticated
models and analyses of lifecycle impacts. Many researchers we
interviewed said a primary limitation in conducting lifecycle analyses
is how to link biofuels production with indirect land-use change. The
complexity of commodity markets, national policies and other factors
influencing land use makes modeling the indirect effects of rising
demand for biofuel feedstocks highly uncertain. For example, some
researchers said the current models do not consistently (1) identify
where the biofuel feedstocks are grown, (2) include marginal or unused
land in the modeling, and (3) characterize the carbon content of the
soil before and after the biofuel feedstocks are planted. Moreover,
researchers said that none of the models alone can accurately quantify
international aspects of land-use change, since they essentially have
to perform economic modeling of the whole world as well as conclusively
prove cause and effect--that land in Brazil, for example, is being
converted because of U.S. biofuel production. In addition, some models
use profit maximization as the decision rule to predict how people will
respond to changes in prices, but these models do not necessarily
predict how people make decisions or how economic and social policy in
the various nations affect land-use decisions in those countries.
Some researchers cited the need for more research to address
information gaps, such as limited data on land use, feedstock yield and
agricultural inputs data, and conversion data at cellulosic
biorefineries. Specifically, researchers said there are gaps in the
research for direct land-use change, such as variations in the
different ecosystems being studied.[Footnote 108] In addition,
researchers identified data gaps in the amount of carbon in the biomass
that is lost when, for example, a forest is converted into farmland.
Researchers also cited a lack of real data for different feedstock
yields because, for example, some feedstocks have not been widely grown
for harvest on a large scale under typical farm conditions, and actual
yields and fertilizer application rates may differ with large scales
and on-farm conditions. Researchers also said limited information
exists on the costs and efficiencies of cellulosic materials in a
biorefinery, since the first biorefineries are just beginning to be
built and have not yet produced substantial real-world data.
Some Efforts Are Being Made to Address Lifecycle Modeling and Data
Concerns:
International efforts are ongoing to address the need to standardize
lifecycle models and metrics. For example, the International
Organization of Standardization has published lifecycle analysis
protocols. However, some researchers have noted that these standards
still do not contain guidelines for some important assumptions, such as
indirect land-use impacts. The Global Bioenergy Partnership is also
working to formulate a methodological framework to measure greenhouse
gas emission reductions from biofuels.
In addition, in April 2009, the California Air Resources Board adopted
a regulation that will implement California Executive Order S-01-07,
the Low Carbon Fuel Standard, which calls for the reduction of
greenhouse gas emissions from California's transportation fuels by 10
percent by 2020. As with the federal RFS, the California Low Carbon
Fuel Standard is also attempting to measure the greenhouse emissions
for the full lifecycle, including both the direct emissions associated
with producing, transporting, and using fuels, as well as the indirect
emissions that may be caused by land-use change when certain biofuel
feedstocks are grown. The California Air Resources Board's regulation
identifies carbon intensity values for gasoline and some biofuels
produced under different process and input pathways, including 11
different pathways to produce ethanol from corn, and values for
cellulosic ethanol from farmed trees, agricultural waste, and forest
waste are under development. In the draft regulation, the carbon
intensity values for corn ethanol vary based on location, type of
processing facility, and wet or dry co-product, but each corn pathway
includes the same carbon intensity value for land-use change. The
preliminary results show that certain transportation fuels that
substitute for gasoline could meet the Low Carbon Fuel Standard,
including some conventional corn starch ethanol using the dry mill
conversion process and some corn starch ethanol produced in California,
as well as ethanol from sugarcane produced in Brazil. Others would not,
including corn ethanol produced in the Midwest or using the wet mill
conversion process. However, some associations have criticized the
California rule for the lack of precision in measuring the indirect
effects of biofuels. For example, the Truman National Security Project,
a group of retired military and intelligence officers, criticized the
global trade analysis model used to develop the draft rule for its
variability depending on the assumptions used by the individuals
conducting the research.
Although research for measuring indirect land-use changes as part of
the greenhouse gas analysis is only in the early stages of development,
EISA requires that EPA develop a regulation for determining the
lifecycle greenhouse gas emissions of biofuels included in the RFS,
including those emissions caused by land-use changes. To be eligible
for consideration under the RFS, conventional corn starch ethanol from
biorefineries built after December 19, 2007, must generally reduce
lifecycle greenhouse gas emissions by at least 20 percent relative to
petroleum fuels. Advanced biofuels and biomass-based diesel must
generally reduce lifecycle greenhouse gas emissions by at least 50
percent, and advanced biofuels made from cellulosic biomass must
generally reduce emissions by at least 60 percent relative to baseline
petroleum fuels.
On May 26, 2009, EPA published a Notice of Proposed Rulemaking in the
Federal Register that proposes a regulatory structure to implement the
RFS and methods for calculating the greenhouse gas impact of biofuels
and announced that key components of its lifecycle greenhouse gas
emissions analysis would be peer reviewed. The four peer review
analyses, which EPA has posted on its Web site, were completed in late
July 2009: (1) methods and approaches to account for lifecycle
greenhouse gas emissions from biofuels production over time, (2) model
linkages, (3) international agricultural greenhouse gas emissions and
factors, and (4) satellite imagery.
Several DOE and USDA researchers we interviewed have expressed concern
that the lifecycle models and data are not sufficiently mature for EPA
to account for indirect land-use change in estimating biofuels
greenhouse gas emissions. Some of these researchers also said that EPA
has not made its approach to address indirect land-use change by
combining elements of the GREET, FAPRI, FASOM, and GTAP models
sufficiently transparent so that others can closely examine key
assumptions in EPA's analyses and possibly replicate EPA's simulations.
One DOE researcher noted that if secondary effects are to be included,
they should be addressed on a consistent basis for all fuel pathways
and uncertainties in understanding causal effects should be recognized.
In addition, the National Biodiesel Board has expressed concern that
the production from many biodiesel refineries, particularly ones using
soybean and other vegetable oil feedstocks, may not qualify as biomass-
based diesel under EPA's proposed RFS regulation because of the
indirect land-use changes that result when soybeans are grown as an
energy crop.
On May 5, 2009, the President announced the formation of an Executive
Biofuel Interagency Working Group, co-chaired by the Secretaries of
Agriculture and Energy and the Administrator of EPA. The working group
is tasked with, among other things, identifying new policy options to
promote the environmental sustainability of biofuels feedstock
production, taking into consideration land use, habitat conservation,
crop management practices, water efficiency, and water quality, as well
as lifecycle assessments of greenhouse gas emissions.
Conclusions:
EISA requires EPA to determine lifecycle greenhouse gas emissions from
different biofuels and to define those fuels that would count toward
the annual volume in the RFS because they sufficiently reduce emissions
compared with gasoline. However, researchers have used markedly
different assumptions and models to analyze the lifecycle greenhouse
gas emissions of corn starch and cellulosic biofuel feedstocks. Also,
no commonly recognized standards exist to assess, in particular,
indirect land-use changes associated with increased biofuels
production, and researchers are limited by uncertain data in key areas.
As a result, researchers have reported widely varying results on the
aggregate quantity of greenhouse gas emissions for corn starch ethanol,
cellulosic ethanol, and biodiesel as compared with gasoline and diesel.
Such current scientific uncertainty makes it difficult for EPA to
precisely determine whether a biofuel generated from corn starch or
from cellulosic feedstocks would meet the greenhouse gas reduction
requirements under the RFS. Without this information, EPA may be
hampered in its ability to accurately define some feedstocks as
acceptable or unacceptable fuels under the RFS.
Recommendation for Executive Action:
To improve EPA's ability to determine biofuels greenhouse gas emissions
and define fuels eligible for consideration under the RFS, we recommend
that the Administrator of EPA and the Secretaries of Agriculture and
Energy develop a coordinated approach for identifying and researching
unknown variables and major uncertainties in the lifecycle greenhouse
gas analysis of increased biofuels production. This approach should
include a coordinated effort to develop parameters for using models and
a standard set of assumptions and methods in assessing greenhouse gas
emissions for the full biofuel lifecycle, such as secondary effects
that would include indirect land-use changes associated with increased
biofuels production.
Agency Comments and Our Evaluation:
USDA, DOE, and EPA each commented on our recommendation for determining
biofuels' lifecycle greenhouse gas emissions. Specifically, USDA agreed
with the general premise implicit in the recommendation, but cited the
need to ensure that coordinated scientific discussions do not lead to
standard methods that become codified in regulations that would inhibit
the adoption and use of new information and improved or more
appropriate methods as they become available. We agree with USDA's
concern that the RFS regulation should not codify standard methods that
might inhibit the development of better information or methods for
assessing lifecycle greenhouse gas emissions. However, we believe that
a coordinated approach for identifying and researching unknown
variables and major uncertainties will benefit EPA's lifecycle analysis
because only three scientific studies have examined the effects of
indirect land-use changes and USDA and DOE provide substantially
greater funding in support of biofuels R&D. DOE noted that EPA already
consults with DOE on these matters and added that DOE would welcome the
opportunity to become more engaged in this process if requested to do
so by the EPA Administrator. EPA stated that the agency has worked
closely with USDA and DOE in developing the lifecycle assessment
methodology for its proposed rule, and with the European Union and
other international governmental organizations and scientists on
modeling, including the impact of indirect land-use change. We note
that while EPA has obtained information from USDA and DOE, its
lifecycle analysis methodology was not transparent because EPA did not
share its methodology with outside scientific groups before its Notice
of Proposed Rulemaking for the RFS regulation was published. We believe
the recently completed peer review of EPA's methodology, including key
assumptions and its analytical model, will improve the transparency of
EPA's lifecycle analysis. Furthermore, the indirect effects of land-use
change on lifecycle greenhouse gas emissions are not well understood,
and additional research is needed to address unknown variables and
major uncertainties.
[End of section]
Chapter 5: Federal Tax Expenditures, the RFS, and an Ethanol Tariff
Have Primarily Supported Conventional Corn Starch Ethanol:
The federal government supports the development of a domestic biofuels
industry primarily through tax credits, the RFS, and a tariff on
ethanol imports. Since 1978, the Volumetric Ethanol Excise Tax Credit
(VEETC) and its predecessor have provided a tax incentive for blending
ethanol with gasoline. In December 2007, the Energy Independence and
Security Act (EISA) expanded the RFS by substantially increasing the
required annual volumes of renewable fuels, including up to 9 billion
gallons of conventional corn starch ethanol in 2008 and up to 15
billion gallons of conventional corn starch ethanol in 2015. As a
result, the VEETC's annual cost to the Treasury in forgone revenues
could grow from $4 billion in 2008 to $6.75 billion in 2015 for
conventional corn starch ethanol, even though the 2008 Farm Bill
reduced the VEETC from 51 cents to 45 cents per gallon of ethanol
starting in 2009. The United States also imposes a tariff on ethanol
imports, which qualify for the VEETC, by imposing a tariff of 54 cents
per gallon plus 2.5 percent of the ethanol's value.
Two of these tools--the VEETC and the RFS--can be duplicative with
respect to their effects on ethanol consumption. We and others have
found that the VEETC does not stimulate the use of additional ethanol
under current market conditions because conventional ethanol use in
transportation fuel in 2009 is unlikely to exceed 10.5 billion gallons-
-the portion of the required 11.1 billion gallons of biofuels that the
RFS allows to come from conventional corn starch ethanol. In light of
this situation, some recent studies have suggested that the VEETC be
terminated or phased out or be revised by, for example, modifying it to
provide a stimulus when crude oil prices are low but reducing its size
when crude oil prices rise.
Advanced biodiesel and cellulosic biofuels have high production costs
that have limited their ability to compete in fuel markets. To
stimulate domestic production of these biofuels, the Congress has
provided larger federal tax credits--$1.00 per gallon to biodiesel
producers or blenders and $1.01 per gallon to cellulosic biofuels
producers--which, to date, have predominantly supported biodiesel
production. In addition, the RFS requires the use of at least 1 billion
gallons of biomass-based diesel in and beyond 2012 and at least 16
billion gallons of cellulosic biofuels in 2022.
The VEETC Provides a Tax Credit to Companies that Blend Ethanol with
Gasoline:
The VEETC and its predecessor excise tax exemption for ethanol have
historically been important federal tools to establish and expand the
domestic ethanol industry, which has predominantly used conventional
corn starch because of lower production costs. To stimulate the
production of ethanol for blending with gasoline, the Energy Tax Act of
1978, among other things, established an excise tax exemption at the
equivalent of 40 cents per gallon of ethanol. The American Jobs
Creation Act of 2004 changed this original excise tax exemption to an
excise tax credit called the VEETC and extended it through December 31,
2010.[Footnote 109] The 2008 Farm Bill subsequently reduced the VEETC
from 51 cents to 45 cents per gallon for ethanol, starting the year
after at least 7.5 billion gallons of ethanol were produced or
imported.
As shown in figure 6, both domestic ethanol production and federal tax
expenditures through the VEETC have risen sharply in recent years. A
key reason for this growth is that 25 states have banned the use of
methyl tertiary butyl ether (MTBE) as an oxygenate blended into
gasoline to meet Clean Air Act standards because of concerns about
ground water contamination, leading to ethanol's substitution. About
9.2 billion gallons of ethanol were produced domestically in 2008,
resulting in an estimated $4 billion in tax credits for ethanol
blenders, according to Treasury. If reauthorized and left unchanged,
the VEETC's annual cost to the Treasury in forgone revenues could be as
much as $6.75 billion for conventional corn starch ethanol in 2015 and
each year thereafter. Typically, petroleum refineries or gasoline
wholesalers blend the biofuels with gasoline (motor fuel blenders) and
receive the 45-cent-per-gallon tax credit. Economists have found that
some of the benefit of this tax credit gets passed forward to motor
fuel purchasers in the form of lower prices at the pump and some gets
passed backward to biorefineries that produces the ethanol (ethanol
producers) in the form of higher prices paid for ethanol.
Figure 6: Domestic Ethanol Production and Federal Tax Expenditures,
1980-2008:
[Refer to PDF for image: multiple line graph]
Year: 1980;
Ethanol production (millions of gallons): 175;
VEETC tax expenditures (millions of dollars): $118.
Year: 1981;
Ethanol production (millions of gallons): 215;
VEETC tax expenditures (millions of dollars): $118.
Year: 1982;
Ethanol production (millions of gallons): 350;
VEETC tax expenditures (millions of dollars): $110.
Year: 1983;
Ethanol production (millions of gallons): 308;
VEETC tax expenditures (millions of dollars): $375.
Year: 1984;
Ethanol production (millions of gallons): 430;
VEETC tax expenditures (millions of dollars): $399.
Year: 1985;
Ethanol production (millions of gallons): 610;
VEETC tax expenditures (millions of dollars): $674.
Year: 1986;
Ethanol production (millions of gallons): 710;
VEETC tax expenditures (millions of dollars): $703.
Year: 1987;
Ethanol production (millions of gallons): 830;
VEETC tax expenditures (millions of dollars): $813.
Year: 1988;
Ethanol production (millions of gallons): 845;
VEETC tax expenditures (millions of dollars): $796.
Year: 1989;
Ethanol production (millions of gallons): 870;
VEETC tax expenditures (millions of dollars): $775.
Year: 1990;
Ethanol production (millions of gallons): 900;
VEETC tax expenditures (millions of dollars): $685.
Year: 1991;
Ethanol production (millions of gallons): 950;
VEETC tax expenditures (millions of dollars): $690.
Year: 1992;
Ethanol production (millions of gallons): 1,100;
VEETC tax expenditures (millions of dollars): $789.
Year: 1993;
Ethanol production (millions of gallons): 1,200;
VEETC tax expenditures (millions of dollars): $800.
Year: 1994;
Ethanol production (millions of gallons): 1,350;
VEETC tax expenditures (millions of dollars): $797.
Year: 1995;
Ethanol production (millions of gallons): 1,400;
VEETC tax expenditures (millions of dollars): $835.
Year: 1996;
Ethanol production (millions of gallons): 1,100;
VEETC tax expenditures (millions of dollars): $892.
Year: 1997;
Ethanol production (millions of gallons): 1,300;
VEETC tax expenditures (millions of dollars): $884.
Year: 1998;
Ethanol production (millions of gallons): 1,400;
VEETC tax expenditures (millions of dollars): $879.
Year: 1999;
Ethanol production (millions of gallons): 1,470;
VEETC tax expenditures (millions of dollars): $970.
Year: 2000;
Ethanol production (millions of gallons): 1,630;
VEETC tax expenditures (millions of dollars): $1,051.
Year: 2001;
Ethanol production (millions of gallons): 1,770;
VEETC tax expenditures (millions of dollars): $1,210.
Year: 2002;
Ethanol production (millions of gallons): 2,130;
VEETC tax expenditures (millions of dollars): $1,284.
Year: 2003;
Ethanol production (millions of gallons): 2,800;
VEETC tax expenditures (millions of dollars): $1,293.
Year: 2004;
Ethanol production (millions of gallons): 3,400;
VEETC tax expenditures (millions of dollars): $1,662.
Year: 2005;
Ethanol production (millions of gallons): 3,904;
VEETC tax expenditures (millions of dollars): $1,666.
Year: 2006;
Ethanol production (millions of gallons): 4,855;
VEETC tax expenditures (millions of dollars): $2,760.
Year: 2007;
Ethanol production (millions of gallons): 6,500;
VEETC tax expenditures (millions of dollars): $3,470.
Year: 2008;
Ethanol production (millions of gallons): 9,200;
VEETC tax expenditures (millions of dollars): $4,104.
Source: Renewable Fuels Association and the Department of the Treasury.
Note: The VEETC replaced the federal ethanol excise tax exemption in
2004. Domestic ethanol production is reported by calendar year and tax
expenditures are reported by fiscal year.
[End of figure]
The VEETC was important in helping to create a profitable corn starch
ethanol industry when the industry had to fund investment in new
facilities. It is less important now for sustaining the industry
because most of the capital investment has already been made--ethanol
production can now be profitable as long as the revenue that producers
receive is sufficient to cover operating costs and depreciation. Corn
starch ethanol refining is a mature industry because the process
technology for making it is well understood--the process for making
corn starch ethanol is similar to making alcoholic beverages, and the
industry has developed the appropriate yeasts and enzymes. Furthermore,
domestic biorefinery capacity is approaching the 15-billion-gallons-
per-year maximum allowed for corn starch ethanol under the RFS in 2015.
[Footnote 110] Corn starch ethanol consumption received a boost as a
substitute for MTBE, providing a consistent demand for ethanol. As a
result, ethanol consumption (primarily from corn starch) grew from
about 2 billion gallons in 2002 to about 9.5 billion gallons in 2008.
As of January 2009, the domestic corn starch ethanol industry has 11.5
billion gallons of refining capacity with an additional 1.8 billion
gallons of capacity under construction, according to the Renewable
Fuels Association.
RFS Biofuels Volume Requirements Rise Annually:
The Energy Policy Act of 2005 established the RFS, which required that
4 billion gallons of renewable fuels be blended with gasoline in 2006,
rising to 7.5 billion gallons in 2012. In December 2007, EISA
substantially expanded the RFS by requiring that U.S. transportation
fuels contain 9 billion gallons of renewable fuels in 2008 rising to 36
billion gallons in 2022 (see figure 7). The RFS allows conventional
corn starch ethanol--the predominant U.S. biofuel because of its
relatively low production cost--to account for at most 10.5 billion
gallons of the RFS's annual requirement in 2009 rising to at most 15
billion gallons in 2015 and remaining at this level through 2022. The
RFS requires that, in 2022, at least 21 billion gallons of advanced
biofuels must be blended, including at least 16 billion gallons of
cellulosic biofuel and at least 1 billion gallons of biomass-based
diesel.
Figure 7: Annual Biofuels Use under the RFS, 2009-2022 (billions of
gallons):
[Refer to PDF for image: stacked line graph]
Year: 2009;
Maximum amount of corn starch ethanol: 10.5;
Advanced biofuel mandate - cellulosic biofuels: 0;
Advanced biofuel mandate - non-corn starch ethanol: 0.1;
Advanced biofuel mandate - biomass-based diesel: 0.5.
Year: 2010;
Maximum amount of corn starch ethanol: 12;
Advanced biofuel mandate - cellulosic biofuels: 0.1;
Advanced biofuel mandate - non-corn starch ethanol: 0.2;
Advanced biofuel mandate - biomass-based diesel: 0.65.
Year: 2011;
Maximum amount of corn starch ethanol: 12.6;
Advanced biofuel mandate - cellulosic biofuels: 0.25;
Advanced biofuel mandate - non-corn starch ethanol: 0.3;
Advanced biofuel mandate - biomass-based diesel: 0.8.
Year: 2012;
Maximum amount of corn starch ethanol: 13.2;
Advanced biofuel mandate - cellulosic biofuels: 0.5;
Advanced biofuel mandate - non-corn starch ethanol: 0.5;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2013;
Maximum amount of corn starch ethanol: 13.8;
Advanced biofuel mandate - cellulosic biofuels: 1;
Advanced biofuel mandate - non-corn starch ethanol: 0.75;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2014;
Maximum amount of corn starch ethanol: 14.4;
Advanced biofuel mandate - cellulosic biofuels: 1.75;
Advanced biofuel mandate - non-corn starch ethanol: 1;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2015;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 3;
Advanced biofuel mandate - non-corn starch ethanol: 1.5;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2016;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 4.25;
Advanced biofuel mandate - non-corn starch ethanol: 2;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2017;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 5.5;
Advanced biofuel mandate - non-corn starch ethanol: 2.5;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2018;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 7;
Advanced biofuel mandate - non-corn starch ethanol: 3;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2019;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 8.5;
Advanced biofuel mandate - non-corn starch ethanol: 3.5;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2020;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 10.5;
Advanced biofuel mandate - non-corn starch ethanol: 3.5;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2021;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 13.5;
Advanced biofuel mandate - non-corn starch ethanol: 3.5;
Advanced biofuel mandate - biomass-based diesel: 1.
Year: 2022;
Maximum amount of corn starch ethanol: 15;
Advanced biofuel mandate - cellulosic biofuels: 16;
Advanced biofuel mandate - non-corn starch ethanol: 4;
Advanced biofuel mandate - biomass-based diesel: 1.
Source: EISA.
[End of figure]
To ensure compliance with the RFS, EPA annually sets a blending
standard--10.21 percent for 2009--that represents the amount of
biofuels that each obligated party (gasoline refiners, importers, or
blenders, with certain exceptions) must meet.[Footnote 111] To
demonstrate compliance with EPA's blending standard, each obligated
party acquires a sufficient amount of renewable identification numbers
(RIN)--a unique identification number that a producer or importer
assigns to each gallon of biofuel.[Footnote 112] RINs are valid for
both the calendar year in which they were generated and the following
calendar year. Obligated parties with more RINs than needed to meet
that year's blending standard can either hold the extra RINs for use in
the following year or sell them to another party that needs additional
RINs to comply with the blending standard.
EISA allows the Administrator of EPA, after consulting with USDA and
DOE and holding a public notice and comment period, to reduce the
amount of biofuels required to be blended in gasoline in whole or in
part if the Administrator determines that (1) its implementation would
severely harm the economy or environment of a state, a region, or the
United States or (2) that there is an inadequate domestic supply. In
April 2008, Texas requested that EPA waive 50 percent of ethanol
produced from grain under the RFS because the RFS was unnecessarily
having a negative impact on Texas's economy and, specifically,
increased ethanol production was contributing to higher corn prices
that were adversely affecting its livestock industry and food prices.
EPA denied the waiver because it determined that the evidence did not
support a finding that the RFS would harm the economy of a state,
region, or the country and the RFS would have no impact on ethanol
production volumes or on corn, food, or fuel prices.[Footnote 113]
The United States Imposes a Tariff on Ethanol Imports:
In addition to the VEETC and the RFS, the federal government levies a
tariff on imported ethanol to support the domestic corn starch ethanol
industry. Since 1980, the United States has placed a duty of 54 cents
per gallon plus a tariff that is 2.5 percent of ethanol's value. The
tariff on imported fuel ethanol gives the domestic ethanol industry a
price advantage relative to ethanol imports. Prior to 2006, U.S.
ethanol imports were less than 200 million gallons a year. In 2008,
even though crude oil prices peaked above $130 per barrel, making
ethanol price competitive with gasoline, ethanol imports only grew to
500 million gallons.
The United States has provided an exception to the tariff for Caribbean
Basin Initiative countries which can export ethanol duty free to the
United States if at least 50 percent of the feedstock is grown in
member countries. Alternatively, Caribbean Basin Initiative countries
can export volumes of up to 7 percent of U.S. ethanol consumption duty
free if more than 50 percent of the feedstock comes from nonmember
countries--Brazilian and European ethanol imports often come through
Caribbean Basin Initiative countries. Imports of ethanol have recently
been well below the 7 percent cap, however.
The RFS and the VEETC Can Be Duplicative for Total Ethanol Consumption:
The RFS establishes an annual floor for the amount of renewable fuels
to be blended into U.S. transportation fuels. Economists consider the
RFS to be "binding" when the RFS mandate causes biofuels consumption to
be higher than it would otherwise be. In these circumstances, the VEETC
does not affect the level of ethanol consumption and is a duplicative
policy tool for increasing ethanol consumption. Because the RFS would
ensure that the same amount of ethanol was used by blenders with or
without the VEETC, we and others have found that removing the VEETC
would not adversely affect the demand for corn for ethanol and the
income of corn producers, which depend on the total level of ethanol
consumption. Alternatively, the RFS is considered nonbinding if
consumption exceeds the blend volumes in the RFS, which could occur if
crude oil prices rise significantly. From 2006 through 2008, the RFS
was not binding because U.S. corn starch ethanol consumption outpaced
the annual RFS levels that the Energy Policy Act of 2005 had
established. Specifically, in 2007, ethanol consumption rose to about
6.8 billion gallons, as compared with the 4.7 billion gallons of
biofuels specified in the RFS. In 2008, ethanol consumption reached 9.5
billion gallons, exceeding the RFS level of 9 billion gallons of
biofuels.[Footnote 114] However, because EISA substantially increased
biofuels requirements through 2022, the RFS is now more likely to be
binding in the future.
When the RFS is binding, removal of the VEETC would not affect ethanol
consumption but would eliminate the tax credit benefit to motor fuel
blenders, motor fuel purchasers, and ethanol producers. Because the
VEETC lowers the effective price (actual price minus the tax credit)
that blenders pay for ethanol, blenders may be able to retain some of
this lower effective price, but some or all of it may be passed forward
to motor fuel purchasers in the form of lower (blended) motor fuel
prices--as much as 4.5 cents for a gallon of E10 gasoline.
Alternatively, some of this lower effective price may be passed
backward to ethanol producers in the form of higher ethanol prices.
[Footnote 115] However, economists do not expect corn growers to
benefit from the VEETC when the RFS is binding because the total amount
of ethanol consumption is limited to the RFS's specified level. If the
VEETC were eliminated, then motor fuel blenders would lose their tax
credits, motor fuel purchasers may pay higher prices at the pump, and
ethanol producers may receive less for ethanol.[Footnote 116]
The RFS is not binding when ethanol consumption exceeds the RFS level.
While consumption up to the RFS level would otherwise occur, some of
this additional consumption above the RFS level is likely to result
from the VEETC's ethanol price-lowering effects. In these
circumstances, the VEETC directly benefits blenders by lowering their
effective price for ethanol and could lead to lower prices at the pump
for purchasers and higher prices received by ethanol producers. This in
turn can lead to higher corn prices, which benefit corn growers and
nongrower owners of corn-producing land, while hurting other corn
purchasers, including cattle, dairy, hog, and poultry ranchers and
farmers and consumers. If the VEETC were removed in these
circumstances, blenders' demand for ethanol could fall. In turn, this
would cause the price of ethanol received by ethanol producers to fall,
lowering their demand for corn, and subsequently leading to lower corn
prices. Throughout the marketing chain, those who had benefited from
the VEETC would lose their benefits.
The Relationship between Crude Oil and Corn Prices Will Primarily
Determine Whether the RFS Is Binding:
Whether the RFS is binding or not primarily depends on the relationship
between crude oil prices and corn prices, because those prices
determine whether it is cheaper to produce gasoline or ethanol.
Relatively high oil prices and relatively low corn prices (as might
result from a bumper corn crop that exceeded forecasts) tend to favor
ethanol consumption by increasing the cost of producing gasoline and
lowering the cost of producing ethanol, respectively. Specifically, the
RFS is less likely to be binding when oil prices are high relative to
corn prices and more likely to be binding when oil prices are low
relative to corn prices. Similarly, other factors that influence
gasoline and ethanol production costs could affect the extent to which
each is consumed and whether or not the RFS is binding.
Many analysts believe that under current market conditions, with crude
oil prices well below the peaks they reached last year, the RFS for
2009 is binding. As evidence, some point to the prices that blenders
are paying for RINs. When a blender uses more renewable fuel than is
required by EPA's blending standard for that year, the extra RINs
associated with that fuel can be sold to other blenders, who can use
them to comply with the RFS. The sale prices for these RINs have been
relatively high, implying that they are scarce, and, therefore, that
the RFS is likely binding because few blenders are using more ethanol
than the 2009 blending standard requires.
Economists have disagreed about the circumstances necessary to make the
RFS nonbinding in 2009--one economist told us that crude oil prices
would have to reach $80 per barrel while another said $120 per barrel.
[Footnote 117] A third economist stated that relative gasoline and
ethanol prices in June 2009 approached the point that blenders would
choose to blend more ethanol than the RFS requires because crude oil
reached $70 on the spot market. Whether or not the RFS will remain
binding in the next few years depends heavily on future oil and corn
prices, which are hard to forecast. In addition, as corn starch ethanol
consumption increases in future years under the RFS, higher oil prices
will be needed to make the RFS nonbinding for a given level of corn
prices. If oil prices continue to show the volatility that they have in
the past 2 years, then periods in which the RFS is binding and
nonbinding may alternate, leading the VEETC to have different effects.
[Footnote 118]
Some Recent Studies Have Proposed that the VEETC Be Revised:
Since December 2007, when EISA substantially expanded the RFS for
biofuels, several studies have examined the interaction of the RFS, the
VEETC, and the import tariff (see appendix V). Three economists who
have studied this interaction stated that because the RFS is currently
binding, the VEETC does not increase ethanol consumption and the
benefits of the 45-cent-per-gallon tax credit mainly go to ethanol
consumers in the form of lower fuel prices. They noted that some
benefits likely accrue to ethanol blenders but no benefits accrue to
corn growers or ethanol producers. A fourth economist stated that with
a binding RFS, most of the VEETC's benefits go to consumers when oil
prices are low and go to ethanol producers when oil prices are high.
Some of these recent studies have proposed that the VEETC be revised by
(1) eliminating it, (2) phasing it out as the corn starch ethanol
industry further matures, or (3) increasing the amount of the tax
credit when oil prices are low and decreasing it when they are high.
Three of the economists told us that when the RFS is binding it is as
effective in stimulating ethanol consumption as the combination of the
RFS and the VEETC, making taxpayer funds unnecessary. They also prefer
the RFS over the VEETC as a way to stimulate ethanol consumption. One
of the economists noted that the RFS is preferable because it is more
transparent about how much the government wants to stimulate ethanol
consumption than the combination of the RFS and the VEETC. The
economist added that motor fuel blenders would likely lose if the VEETC
was removed, but the exact impacts would depend on supply and demand
elasticities. Others noted that the RFS alone costs taxpayers less than
the VEETC, although one economist stated that eliminating the VEETC
would increase the cost of E10 gasoline by at most 4-1/2 cents per
gallon. The economists noted that ethanol blenders continued to receive
the VEETC in June 2008--when gasoline prices exceeded $4 per gallon and
ethanol prices reached $3 per gallon. Alternatively, two of the recent
studies that examined federal biofuels supports did not reach
conclusions or make recommendations about future federal supports.
Other Federal Biofuels Tax Expenditures Support Biodiesel and
Cellulosic Biofuels Producers:
High costs for producing advanced biodiesel and cellulosic ethanol have
limited their ability to compete in fuel markets. The federal
government has provided tax credits through the following tax
incentives to stimulate production of these biofuels and assist small
producers:
The Biodiesel Tax Credit and the Small Agri-Biodiesel Producer Credit:
The Biodiesel Tax Credit provides a $1 per gallon tax credit for
producing or blending biodiesel or agri-biodiesel.[Footnote 119] The
Small Agri-Biodiesel Producer Credit provides a 10-cent-per-gallon
credit for the first 15 million gallons of agri-biodiesel produced for
businesses. This credit is limited to agri-biodiesel producers with a
production capacity of less than 60 million gallons per year. Together,
these tax credits for biodiesel production--including biodiesel
exports--increased from $30 million in fiscal year 2005 to $200 million
in fiscal year 2008 according to Department of the Treasury estimates.
Both are scheduled to expire on December 31, 2009. In 2008, U.S.
biodiesel production totaled 690 million gallons, according to the
National Biodiesel Board.
Biodiesel producers and blenders are eligible for these tax credits
regardless of whether the biodiesel is consumed in the United States or
is exported. In October 2008, the Congress closed the so-called "splash
and dash" loophole for biodiesel that allowed biodiesel to be imported
into the United States, blended with small amounts of diesel to claim
the Biodiesel Tax Credit, and then exported for final use to a third
country--often the European Union, which provides tax credits for
biodiesel consumption. However, biodiesel produced in the United States
for export is eligible to claim both tax credits. While no accurate
data exist on the import and export of biodiesel, two economists
estimated that between January and August 2008 at least 285 million
gallons--or about 65 percent of domestic biodiesel production during
this period--were exported. In June 2008, the European Commission
initiated an antidumping investigation and, in March 2009, the European
Commission imposed provisional antidumping and antisubsidy duties on
U.S. biodiesel imports. The duty rates vary by producer.
Annual RFS levels for biomass-based diesel begin with 500 million
gallons in 2009 and rise to at least 1 billion gallons in 2012 and each
year thereafter.[Footnote 120] To qualify as biomass-based diesel under
the RFS, a biorefinery's production must generally achieve at least 50
percent less lifecycle greenhouse gas emissions than baseline petroleum
fuels. Production that does not qualify as biomass-based diesel might
be able to qualify for the RFS's allocation of advanced biofuels that
is not designated for biomass-based diesel or cellulosic biofuels. If
not, it would then compete with conventional corn starch ethanol.
* Cellulosic Biofuel Producer Tax Credit and Special Depreciation
Allowance for Cellulosic Biofuel Plant Property: The Cellulosic Biofuel
Producer Tax Credit provides a $1.01 per gallon tax credit for
cellulosic biofuel produced after December 31, 2008. The value of this
credit is reduced by the value of other tax credits, including the
VEETC and the Small Ethanol Producer Tax Credit, so that the maximum
combined credit a cellulosic biofuel producer may claim is $1.01 per
gallon.
* The Special Depreciation Allowance for Cellulosic Biofuel Plant
Property allows qualified cellulosic biofuel plant owners to take a
depreciation deduction of 50 percent of the adjusted basis of the plant
in the year it is put in service. There have been no expenditures
associated with either of these tax incentives. Both incentives are
scheduled to expire on December 31, 2012.
* The Small Ethanol Producer Tax Credit: The Small Ethanol Producer
Credit provides a 10 cent per gallon credit for the first 15 million
gallons of ethanol produced each year by businesses with a production
capacity of less than 60 million gallons annually. According to
Department of the Treasury estimates, expenditures for income tax
credits for ethanol have remained flat at around $40 million for fiscal
years 2005 through 2008 with one exception in fiscal year 2006 when the
expenditure was $50 million.[Footnote 121] To date, the small ethanol
producer credit has primarily gone toward corn starch ethanol because
no cellulosic ethanol has been commercially produced, but small
producers of cellulosic ethanol are also eligible for this tax credit.
This tax credit is scheduled to expire on December 31, 2010.
Conclusions:
The RFS requires rapidly increasing levels of biofuels to be blended
into U.S. transportation fuels through 2022 and allows the use of up to
15 billion gallons of conventional corn starch ethanol in 2015 and
annually thereafter. Under current market conditions, the VEETC does
not stimulate additional ethanol consumption above the required level,
making it duplicative to the RFS with respect to ethanol use. As long
as the RFS is binding, the VEETC benefits motor fuel blenders, ethanol
consumers, and ethanol producers, but does not affect corn growers'
income. At the same time, by increasing ethanol use through 2015, the
RFS has increased the VEETC's cost to the Treasury in forgone revenues
because blenders are given a tax credit of 45 cents for each gallon of
ethanol they blend with gasoline. The cost of this tax credit could
reach $6.75 billion in 2015 and each year thereafter for corn starch
ethanol. Furthermore, the conventional corn starch industry is mature
because the technology is well-understood and biorefineries have the
capacity to produce 11.5 billion gallons of ethanol each year. The
VEETC was more important in helping to create a profitable industry
when the industry had to fund facilities investment than it is now for
sustaining the industry when most of the capital investment has already
been made. The 2008 Farm Bill reduced the VEETC from 51 cents to 45
cents per gallon while establishing a $1.01 per gallon tax credit for
advanced cellulosic biofuels. While proposals have been made to reduce,
phase out, or modify the VEETC, the direct and indirect effects on
motor fuel blenders and other market participants are uncertain.
Moreover, fluctuations in crude oil prices, such as that experienced in
the past 2 years, create additional uncertainties as to whether the RFS
will be binding in future years, with possible implications for the
VEETC. The Congress is expected to review the VEETC next year because
it will be terminated on January 1, 2011, unless renewed.
Matter for Congressional Consideration:
Because the RFS allows rapidly increasing annual amounts of
conventional biofuels through 2015 and the conventional corn starch
ethanol industry is mature, the Congress may wish to consider whether
revisions to the VEETC are needed. Options could include maintaining
the VEETC, either reducing the amount of the tax credit or phasing it
out, or modifying the tax credit to counteract fluctuations in crude
oil prices.
[End of section]
Chapter 6: Federal Biofuels R&D Primarily Supports Developing
Cellulosic Biofuels:
[End of section]
Cellulosic ethanol is a primary focus of federal biofuels R&D. DOE and
USDA, the largest sponsors of biofuels R&D, obligated about $500
million in this area in fiscal year 2008. The Energy Independence and
Security Act (EISA) of 2007 and the 2008 Farm Bill authorized
significant new biofuels spending for 2009 and beyond, and the American
Recovery and Reinvestment Act of 2009 provided DOE with $800 million
for biofuels R&D. Many experts identified important R&D areas for
stimulating cellulosic biofuels production.
[End of section]
Federal Biofuels R&D Programs Are Growing and Focus on Cellulosic
Ethanol:
Federal agencies obligated about $505.5 million for biofuels R&D in
fiscal year 2008 (see table 6).[Footnote 122] DOE obligated $463.2
million in fiscal year 2008, primarily on cellulosic ethanol R&D. USDA
obligated an estimated $39.3 million on bioenergy and renewable energy
R&D in fiscal year 2008. EPA's Office of Research and Development
obligated about $3 million for biofuels R&D related to EPA's regulatory
responsibilities in fiscal year 2008. Each of these agencies
significantly increased biofuels R&D obligations between fiscal years
2005 and 2008.
Table 6: Federal Agencies' Obligations for Biofuels R&D, Fiscal Years
2005-2008 (Dollars in millions):
Agency: DOE;
Fiscal year: 2005: $117.8;
Fiscal year: 2006: $95.0;
Fiscal year: 2007: $213.6;
Fiscal year: 2008: $463.2.
Agency: USDA;
Fiscal year: 2005: $26.7;
Fiscal year: 2006: $30.0;
Fiscal year: 2007: $35.1;
Fiscal year: 2008: $39.3.
Agency: EPA;
Fiscal year: 2005: $0.3;
Fiscal year: 2006: $0.3;
Fiscal year: 2007: $0.7;
Fiscal year: 2008: $3.0.
Agency: Total;
Fiscal year: 2005: $144.8;
Fiscal year: 2006: $125.3;
Fiscal year: 2007: $249.4;
Fiscal year: 2008: $505.5.
Sources: DOE, USDA, and EPA.
Note: Obligated amounts may differ from appropriated amounts because
they account for deobligations, recast funds, carryover funds, and
rescissions. USDA obligations data for fiscal year 2008 are estimates,
as are obligations data for fiscal years 2005-2008 for DOE's Office of
Science.
[End of table]
DOE's Obligations for Biofuels R&D Have Grown Substantially:
DOE's obligations for biofuels R&D have increased almost fourfold since
fiscal year 2005, when it obligated $117 million on biofuels R&D. About
75 percent of DOE's fiscal year 2008 obligations for biofuels R&D
supported the Office of Energy Efficiency and Renewable Energy's
Biomass Program (about 70 percent primarily focused on cellulosic
ethanol) and Vehicle Technologies Program (about 5 percent). About 25
percent of DOE's fiscal year 2008 obligations for biofuels R&D
supported basic research through the Office of Science.
* Biomass Program: Biofuels R&D obligations by the Biomass Program more
than quadrupled between fiscal years 2005 and 2008--from about $76
million to $327 million--with the percentage of funding going to
cellulosic ethanol increasing to about 70 percent by fiscal year 2008.
In particular, these funds support the Integrated Biorefineries Program
with a goal of developing commercial-scale integrated biorefineries to
demonstrate how these biorefineries can use a wide variety of
cellulosic feedstocks and operate profitably once construction costs
are covered. In February 2007, the Biomass Program awarded up to $385
million over 5 years, subject to annual appropriations, that would
provide, at most, 40 percent of the costs for each of six pilot
integrated cellulosic biorefinery projects. Subsequently, two projects
withdrew, and DOE now plans to invest up to $272 million in the
remaining four projects, subject to annual appropriations, between
fiscal years 2007 and 2011 (see table 7).
Table 7: Integrated Biorefinery Projects Receiving DOE Funding (Dollars
in millions):
Project company and location: Abengoa Bioenergy Biomass of Kansas, LLC
Hugoton, Kansas;
Technology, feedstock, and production capacity:
Technology: Thermochemical and biochemical processing;
Feedstock: 700 tons/day of corn stover, wheat straw, milo (sorghum)
stubble, switchgrass, and other opportunity feedstocks;
Production capacity: 11.4 million gallons/year of ethanol and
sufficient energy to power the operation and sell excess energy to the
co-located dry-grind ethanol production plant;
Potential DOE and industry funding over 5 years[A]:
DOE: $76.3;
Industry: $114.2.
Project company and location: BlueFire Ethanol, Inc.; Riverside and San
Bernardino Counties, California;
Technology, feedstock, and production capacity:
Technology: Concentrated acid processing followed by fermentation of
sugars to ethanol;
Feedstock: 700 tons/day of sorted green waste and wood waste from
landfills;
Production capacity: 19 million gallons/year in the unit in which DOE
will be participating;
Potential DOE and industry funding over 5 years[A]:
DOE: $40.0;
Industry: $61.8.
Project company and location: POET Project Liberty, LLC Emmetsburg,
Iowa;
Technology, feedstock, and production capacity:
Technology: Integrating production of ethanol into a dry grind corn
mill process;
Feedstock: 700 metric dry tonnes/day of corn fiber, corn stover;
Production capacity: 125 million gallons/year, of which roughly 25
percent will be from lignocellulosics;
Potential DOE and industry funding over 5 years[A]:
DOE: $80.0;
Industry: $123.5.
Project company and location: Range Fuels, Inc.; near Soperton,
Georgia;
Technology, feedstock, and production capacity:
Technology: Conversion through catalytic upgrading of syngas to ethanol
and methanol;
Feedstock: 2500 tons/day of unmerchantable timber and forest residues;
Production capacity: 20 million gallons/year from first unit and about
100 million gallons/year of ethanol and about 20 million gallons/year
of methanol from the commercial unit;
Potential DOE and industry funding over 5 years[A]:
DOE: $76.0;
Industry: $280.0.
Source: DOE.
[A] DOE's potential funding is subject to review and annual
appropriations.
[End of table]
* Vehicle Technologies Program: The Vehicle Technologies Program's
biofuels-related obligations increased from about $9 million in fiscal
year 2005 to about $22 million in fiscal year 2008. Its primary
projects currently are an intermediate ethanol blends test program,
which is co-led by the Biomass Program, and an ethanol optimization
program. The intermediate blends test program is studying the
emissions, driveability, materials compatibility, and emissions control
system durability for E15 and E20 ethanol blends. The ethanol
optimization program is conducting R&D on the design of flexible-fuel
vehicles that will run optimally on fuels of any ethanol blend.
* Office of Science: Obligations for biofuels R&D at the Office of
Science increased from about $33 million in fiscal year 2005 to about
$114 million in fiscal year 2008. The Office of Science primarily
supports basic biofuels research through its Offices of Basic Energy
Sciences and Biological and Environmental Research and three Bioenergy
Research Centers. Most of the Office of Science's biofuels obligations
in fiscal year 2008 supported the three Bioenergy Research Centers--
individually led by Oak Ridge National Laboratory, the University of
Wisconsin, and Lawrence Berkeley National Laboratory. The Office of
Science plans to provide each with a total of up to $125 million
between fiscal years 2008 and 2013, subject to annual appropriations,
to accelerate basic research in the development of cellulosic ethanol
and other biofuels.
In addition, DOE's Office of the Chief Financial Officer administers
DOE's loan guarantee program for categories of energy projects that
provide a reasonable prospect of repayment and that commence
construction by September 30, 2011, including leading edge biofuel
projects that will use technologies performing at the pilot or
demonstration scale that the Secretary determines are likely to become
commercial technologies and will produce transportation fuels that
substantially reduce lifecycle greenhouse gas emissions compared with
other transportation fuels. DOE is currently reviewing loan guarantee
applications for several biofuel projects but, to date, has not
approved any.
USDA's Obligations for Biofuels R&D Have Gradually Risen:
USDA obligated an estimated $39 million in fiscal year 2008 for
bioenergy and renewable energy R&D, including biofuel, wind, solar, and
geothermal energy projects. USDA's obligations increased from about $27
million in fiscal year 2005 to about $39 million in fiscal year 2008.
Most of these funds supported the Agricultural Research Service, USDA's
chief scientific research agency, for R&D focused on developing
technologies for the sustainable production and harvest of biomass
feedstocks and the production of biofuels at or near the farm. The
goals of this R&D are to identify (1) varieties and hybrids of
bioenergy feedstocks with optimal traits, (2) optimal practices and
systems that maximize the sustainable yield of high-quality bioenergy
feedstocks, and (3) enabling commercially preferred biorefining
technologies. For example, the renewable energy assessment program is
assessing the maximum sustainable harvest of corn stover while
maintaining soil organic matter.
USDA's Cooperative State Research, Education, and Extension Service,
which will become the National Institute of Food and Agriculture on
October 1, 2009, supports land grant university research, conducts
outreach and education activities, and co-administers a Biomass
Research and Development Initiative competitive grant process with DOE.
USDA guaranteed loans for biofuels projects grew from $13.3 million in
fiscal year 2005 to $88.3 million in fiscal year 2007 but declined to
$16.5 million in fiscal year 2008 for four biofuels related projects.
USDA's Rural Development program provides loan guarantees primarily
through the Business and Industry Guaranteed Loan Program and the Rural
Energy for America Program. The Rural Business Cooperative Service,
within Rural Development, and the Commodity Credit Corporation, within
the Farm Service Agency, administer grant, loan guarantee, and payment
programs to expand ethanol, biodiesel, and advanced biofuel production
capacity.
EPA's R&D Addresses the Full Biofuels Lifecycle:
Obligations by EPA's Office of Research and Development for biofuels
R&D increased from $340,000 in fiscal year 2005 to about $3 million in
fiscal year 2008. This R&D, which supports EPA's mission and regulatory
responsibilities, focused on the biofuels lifecycle in fiscal year
2008. Specifically, this R&D includes (1) improving the
characterization of greenhouse gas emissions; (2) assessing the
environmental and human health risks associated with existing and
future feedstock, conversion technology, and fuel pathways; (3)
assessing the risks associated with genetically engineered plants and
microbes; (4) assessing the environmental implications of increased
biofuel concentrations stored in tanks including impacts on leak
prevention, detection, and remediation of releases, and implications
for protection of ground water; (5) verifying emerging biofuels tank
leak detection systems; (6) assessing the environmental implications of
using animal manures and municipal solid waste as a feedstock; and (7)
characterizing risks and updating EPA's Integrated Risk Information
System, particularly related to air emissions resulting from increased
biofuels consumer use.
The Congress Has Authorized and Appropriated Additional Funding for
Biofuels R&D:
The research and energy titles of the 2008 Farm Bill reauthorized
existing programs and created several new initiatives to promote
biofuels use, develop advanced biofuels, and increase advanced refinery
capacity. Some of these provisions provide mandatory funding, while
others authorized the use of discretionary funds through fiscal year
2012. For example, USDA's former Bioenergy Program was revised to
provide payments to support and expand production of advanced biofuels,
with mandatory funding of at least $300 million through fiscal year
2012. The act also created the Biomass Crop Assistance Program,
directing the Secretary of Agriculture to support the establishment of
eligible perennial crops for bioenergy production and biofuels
production through contracts using such sums as necessary from
Commodity Credit Corporation funds through 2012. In addition, the act
authorized (1) grants, contracts, and financial assistance for biofuels
research, including at least $118 million in mandatory funding through
fiscal year 2012; (2) competitive grants and loan guarantees for the
construction or retrofit of biorefineries for advanced biofuels
production for $320 million to $920 million through fiscal year 2012;
and (3) a R&D program to encourage using forest biomass for energy and
grants for energy efficient research and extension projects.
The American Recovery and Reinvestment Act of 2009 appropriated $800
million to DOE for biomass-related projects. In addition, the Omnibus
Appropriations Act of 2009 appropriated $217 million for DOE's biomass
and biorefinery systems R&D program.
Experts Identified R&D Areas for Improving Cellulosic Biofuels
Production:
Many experts cited the importance of R&D in the following areas for
stimulating cellulosic biofuels production:
* Long-term R&D on energy crops to improve plant and tree
characteristics. Long-term R&D on certain food, feed, and fiber crops
has led to improved yields and quality. For example, researchers are
examining ways to improve physiological characteristics of the
feedstocks, including greater ability to accumulate carbon through
photosynthesis; a more conducive molecular structure for conversion
into fuel; pest resistance; and greater drought, salt, and cold
tolerance.
* Reducing environmental impacts. Several experts cited the importance
of examining the impacts of feedstock cultivation on soil quality,
water quality and quantity, wildlife, and greenhouse gas emissions by
using such tools as remote sensing and decision tools that consider
biophysical, economic and social factors at scales ranging from field
to farm to watershed. Real-world data will improve projections and
estimates that would help land managers and policy makers to better
predict the outcomes of certain production and management practices and
weigh their potential advantages and disadvantages.
* Conducting large-scale field trials. DOE's and USDA's Regional
Feedstock Partnership initiated 38 herbaceous crop and corn stover
removal field trials in 2008 to help develop best practices for
producing, harvesting, and managing energy crops. For example, USDA and
DOE are using field trial data to develop a computer tool to maximize
the amount of corn stover that can be removed without materially
reducing soil organic matter or increasing soil erosion. However, DOE's
manager for the partnership program stated that the 5-acre research
plots used by the Regional Feedstock Partnership are too small to
collect and integrate sufficient data on nutrient, carbon, and water
cycles. The manager cited the importance of large-scale field trial
data for developing cropping and harvesting approaches and estimating
likely yields and environmental impacts. In addition, USDA's Renewable
Energy Assessment Project is conducting field trials assessing the
impact of biomass removal--primarily corn stover but also cotton
residues and switchgrass--on long-term soil productivity at multiple
locations across the nation.
[End of section]
Chapter 7: Significant Challenges Must Be Overcome to Meet the RFS's
Increasing Volumes of Biofuels:
The domestic biofuels industry faces multiple challenges to meet the
RFS's increasing volumes of biofuels, particularly those volumes
related to cellulosic biofuels. At least 16 billion gallons of the 21-
billion-gallon requirement for advanced biofuels must be met from
cellulosic feedstocks; yet cellulosic ethanol currently costs at least
twice as much to produce as conventional corn starch ethanol.
Collecting, transporting, and storing the leaves, stalks, and even tree
trunks of cellulosic biomass needed by cellulosic biorefineries
presents numerous logistical difficulties that increase costs. Also,
cellulosic conversion technology needs further development to reduce
processing costs. Scientists are currently working to do so through
improved pretreatment processes and biochemical and thermochemical
refining technologies.
An immediate challenge that may limit the use of ethanol produced from
either corn starch or cellulosic feedstocks is the lack of
infrastructure for distributing and using the growing volumes of
ethanol. Specifically, because the Clean Air Act limits the ethanol
content in gasoline to 10 percent for most U.S. vehicles and the
current economic slowdown has reduced U.S. gasoline demand, the nation
may reach the blend wall--the point where all of the nation's gasoline
supply is blended as E10 and extra volumes of ethanol cannot be readily
consumed--as early as 2011. If EPA and vehicle manufacturers find that
the current U.S. vehicle fleet cannot use higher ethanol blends,
additional ethanol consumption will be limited to specially designed
vehicles known as flexible-fuel vehicles because they can use either
gasoline or E85--a blend of 85 percent ethanol and 15 percent gasoline.
However, expanding E85 consumption will depend on substantial
investment in the ethanol distribution infrastructure and consumer
purchases of flexible-fuel vehicles. Alternatively, if advances are
made in thermochemical refining technology, biorefineries could produce
products that are compatible with the existing oil refining,
distribution, and storage infrastructure and the existing vehicle
fleet--and therefore avoid blending wall issues. While the RFS requires
more modest use of biodiesel beginning in 2009, this industry faces its
own set of challenges, including the cost of feedstocks and a limited
U.S. market for its product.
Farmers and Other Suppliers Face the Challenge of Identifying and
Developing Productive and Profitable Cellulosic Feedstocks:
Various potential cellulosic feedstocks are being explored for
commercial use. A 2005 study, sponsored by DOE and USDA, identified
more than 1.3 billion dry tons per year of biomass potential in the
United States--an amount sufficient, according to the study, to produce
biofuels that could replace 30 percent of U.S. crude oil consumption by
around 2030 and still meet food, feed, and export demands.[Footnote
123] The study identified two broad sources of biomass potential:
* From agricultural lands. 998 million sustainable dry tons are
estimated to be potentially available annually, assuming extensive
development, including 428 million dry tons from annual crop residues;
377 million dry tons of perennial crops; 87 million dry tons of grains
used for biofuels; and 106 million dry tons of animal manures, process
residues, and other miscellaneous feedstocks.
* From forest lands. 368 million sustainable dry tons of biomass
feedstock are estimated to be available annually, including 145 million
dry tons from forest products industry residues, 64 million dry tons
from logging and site-clearing residues, 60 million dry tons from fuel
treatment operations to reduce fire hazards, 52 million dry tons in
fuel wood, and 47 million dry tons in urban wood residues (yard and
tree trimmings, packaging materials, and construction and demolition
debris).[Footnote 124]
Despite the vast availability of potential cellulosic feedstocks,
uncertainties remain over how much of it will be profitable for either
a farmer to grow or a supplier to harvest. The chemical composition of
fuel ethanol does not change whether it is made from corn starch or
cellulosic sources. In general, to operate profitably an ethanol
refinery needs a year-round supply of large volumes of low-cost
feedstocks that are of consistent quality. As a result, the relative
cost, consistency, volume, and accessibility of a feedstock is critical
in determining whether it is ultimately sought by an ethanol refinery.
In this context, farmers and suppliers face multiple challenges in
identifying and developing productive and profitable cellulosic
feedstocks, including the following:
* The production, yield, and marketing of dedicated energy crops are
uncertain. Switchgrass is considered a promising biofuel feedstock and
offers the potential to expand the geographic range of biofuel
refineries due to its productivity on poor soil and low fertilizer and
water needs. Yet, because switchgrass is a perennial crop that requires
time to establish, farmers may face a 2-to 3-year period before
switchgrass fields mature and potentially become economically
productive.[Footnote 125] In addition, although switchgrass has
frequently produced more than 10 tons of dry matter per acre on test
plots, yields could vary widely depending on such factors as land
quality, weather conditions, weeds, and overall management.
Furthermore, it will take time to develop the means to produce
switchgrass on a large scale and to develop markets for this and other
new feedstocks. Finally, potential feedstock producers would also have
to consider less tangible factors, such as complexity, convenience, and
ability to conserve soil and habitat. For example, advanced feedstock
crops could require different planting and harvest schedules, which
could interfere with other tasks on the farm or with family
obligations.
* The use of agricultural residues may be limited. In contrast to
dedicated energy crops, agricultural residues, such as corn stover, are
already produced in substantial quantities and located nearby existing
ethanol refineries. However, the amount of residues that farmers will
be able and willing to remove from their fields is unknown.
Agricultural residues are vital for preventing soil erosion and
improving soil fertility. The amount of agricultural residues that can
be safely removed will vary by field and region and is the subject of
ongoing research. There are also practical considerations that could
make corn stover harvesting unprofitable or make farmers unwilling to
harvest remaining residues. For instance, corn stover harvesting may
compete with other crop harvesting operations and complicate their
collection. Also, weather and soil conditions may not allow timely
field drying of corn stover for safe storage. Corn stover can also
become contaminated with dirt and other materials during harvesting,
which can limit its consistency and therefore its desirability as an
ethanol feedstock.
* Feedstock demand for certain residues may conflict with current uses
and restrictions. Mill residues such as bark, sawdust and shavings, are
generally dry, consistent and concentrated--all desirable feedstock
characteristics sought by ethanol refineries. However, mill waste is
currently used for fuel, particleboard and mulch. Similarly, other
potential feedstocks, including willow, poplar, pines, and cottonwood,
have already been established and are being commercially harvested,
primarily for pulpwood and other wood products. As a result, ethanol
refineries would have to compete with other markets for these higher-
valued feedstocks. Growers of new stands of woody biomass face time
lags even longer than for perennial herbaceous crops before trees
mature and potentially become economically productive. For example,
hybrid poplar trees require 8 to 15 years of growth to reach their
first harvest. Finally, biomass harvested from federal forest lands
generally cannot be counted toward RFS specified levels. The Energy
Independence and Security Act (EISA) excludes forest-related slash and
precommercial tree thinning--the trimming or removal of trees in a
stand of trees to improve the growth of the remaining trees--harvested
from federal forest lands.
* EISA and the 2008 Farm Bill provide different definitions of
renewable biomass. EISA requires that, for purposes of RFS-specified
levels, cellulosic biofuels be derived from renewable biomass and
provides a more limited definition of this term than the 2008 Farm
Bill. For example, EISA's definition of renewable biomass excludes
municipal waste and residues or other woody crops on federally managed
forest land. Also, with regard to planted crops and crop residues, EISA
defines renewable biomass as planted crops and crop residue harvested
from agricultural land cleared or cultivated prior to its enactment
that is either actively managed or fallow and nonforested. In contrast,
the 2008 Farm Bill contains no similar exclusions or restrictions in
its definition of renewable biomass. The different definitions could
cause confusion over where biomass may be grown or harvested. Some
government and academic projections assume that biofuels made from
feedstock on federal forest lands will count toward the RFS, and they
include these feedstocks in their projections of the amount of
feedstock that will potentially be available for biofuel production.
[Footnote 126] Some USDA, DOE, and EPA officials told us that these
inconsistencies have complicated rule formulation and could make it
more difficult to meet the RFS's advanced biofuel requirements. Without
clarification of the renewable biomass definition and how it affects
land eligibility, stakeholders and program officials may be unsure
about how to most efficiently and effectively reach individual program
outcomes, meet interagency goals such as those in the National Biofuels
Action Plan, and achieve RFS's specified levels. This could reduce the
focus on and investment in a feedstock source that some experts
consider among the most favorable options, provided an economical
conversion process can be demonstrated. On the other hand, agency
officials also expressed concern that if renewable biomass is defined
too broadly, this could permit feedstock production on lands that now
provide a carbon sink or other environmental benefits, thus potentially
increasing greenhouse gas emissions.
Cellulosic Feedstocks Pose Unique Logistical Challenges for
Biorefineries:
Additional challenges for the cellulosic biofuel industry lie in the
feedstock supply chain. Specifically, cellulosic feedstocks do not have
the established and efficient harvest, storage, and transportation
infrastructure long since developed for corn. In contrast to corn
kernels that currently compose most of the biomass used in domestic
ethanol refineries, cellulosic feedstocks are less energy dense,
bulkier, and more difficult and costly to transport. They are also
harder to dry and store and lack established feedstock quality
standards sought by ethanol refineries. According to DOE officials,
cellulosic ethanol currently is estimated to cost at least twice as
much to produce as conventional corn starch ethanol and the uncertainty
of the biomass feedstock supply chain and associated risks are major
barriers to procuring capital funding for start-up cellulosic
biorefineries.[Footnote 127] The Biomass Research and Development Board
estimates that supply chain costs for cellulosic ethanol refineries
constitute as much as 20 percent of the projected cost of finished
cellulosic ethanol and states that harvesting and collecting feedstocks
from cropland or out of forest, feedstock storage, feedstock
preprocessing, and feedstock transportation from the field to the
refinery need to become more cost effective to meet the RFS.[Footnote
128]
The industry faces several challenges in harvesting and collecting
feedstocks, including operations to get cellulosic feedstock from its
production source into storage. For example, as noted contamination of
corn stover with dirt and other material can foul baling equipment. In
addition, the contaminants can complicate feedstock grinding that
occurs during preprocessing and the unneeded weight can increase
transportation costs to the ethanol refinery. Also, weather and soil
conditions may not allow farmers to leave the stover in the field long
enough to dry to prevent spoilage during storage. In response to these
issues, DOE has funded R&D to evaluate machinery capable of
simultaneously segregating and processing both corn ears and stover in
one pass, which could minimize these harvesting and collection
problems. To date, few such machines are commercially available. As
with corn stover, specialized machinery would need to be developed to
harvest, handle, and collect large volumes of cellulosic feedstocks,
regardless of whether they are agricultural residues, dedicated
perennial energy crops, forest residues, or other feedstocks.
After harvesting and collection, adequate storage facilities are also
needed because cellulosic feedstocks generally have a narrow harvest
window and are subject to spoilage, while ethanol refineries require a
large, steady, and year-round supply of a consistent-grade feedstock.
Cellulosic feedstocks also require preprocessing steps, such as
grinding, to minimize quality variability so that feedstocks have the
proper moisture content, bulk density, fluid thickness (viscosity), and
quality needed by an ethanol refinery. Finally, cellulosic feedstock
suppliers face additional transportation costs associated with their
feedstock. The low bulk density of cellulosic feedstocks would require
additional deliveries to an ethanol refinery compared with a refinery
that uses corn. Researchers at the National Renewable Energy Laboratory
(NREL) forecast that cellulosic feedstock producers would generally
need to be located within 50 miles of a cellulosic ethanol refinery to
minimize feedstock transportation costs.
High Costs and the Limitations of Current Conversion Technology Are Key
Challenges to Making Cellulosic Biofuels Competitive with Other Fuels:
Cellulosic conversion technology--whether through biochemical or
thermochemical processes--needs more R&D and commercial development and
is expensive relative to the cost of producing ethanol from corn
starch. According to NREL researchers, producing cellulosic ethanol
through biochemical conversion is difficult because it requires a
complex chemical process to convert the plant material into simple
sugars to use for ethanol.
The total project investment for a 50-million-gallon-per-year
cellulosic ethanol biorefinery using a biochemical conversion process
is estimated to be $250 million, as compared with a total project
investment of $76 million for a similar capacity corn starch ethanol
plant, according to NREL.[Footnote 129] Because of these biorefinery
capital costs and higher costs for collecting and transporting the
feedstock, additional pretreatment steps, and enzymes to break down the
sugars, the cost of producing a gallon of cellulosic ethanol is about
twice that of producing a gallon of corn starch ethanol. Currently,
while some small U.S. biorefineries are processing cellulosic
feedstocks using biochemical or thermochemical conversion technologies,
no commercial-scale facilities are operating. However, as of January
2009, 25 cellulosic ethanol projects with a combined projected
production capacity of up to 376 million gallons per year were under
development and construction in the United States, according to the
Renewable Fuels Association.
To date, federal funding for R&D on processing cellulosic feedstocks
into a biofuel has focused mainly on biochemical processes that use
enzymes and microorganisms similar to a corn starch ethanol biorefinery
to break down the sugars in cellulosic feedstocks to make ethanol. Less
federal R&D funding has been spent on developing advanced
thermochemical conversion processes, which use heat and chemical
catalysts to break down cellulosic feedstocks. Thermochemical
conversion processes can achieve higher fuel yields from a given
feedstock than biochemical processes by converting more of the biomass
into fuel. They also offer the potential to convert biomass into
products that oil refineries can use as direct replacements for
petroleum-based fuels, in contrast to ethanol. Federal R&D on
thermochemical conversion technologies has focused on gasification and
fast pyrolysis:
* The gasification process heats the biomass at very high temperatures
(about 800 degrees Celsius) with a controlled amount of oxygen to
produce a mixture called synthesis gas, or syngas. With additional
cleanup and conditioning, the syngas can then be used as a fuel itself
to generate steam or electricity or used as a feedstock for Fischer-
Tropsch synthesis, in which the syngas undergoes a catalytic reaction
and can be converted into ethanol, diesel fuel, jet fuel, or other
biofuels.
* The fast pyrolysis process, based on centuries-old technology used to
make charcoal, heats biomass at high temperatures (about 400 to 500
degrees Celsius) in the absence of oxygen. About 60 percent to 70
percent of the conversion yield is an intermediate product referred to
as bio-oil or pyoil. However, oil refineries currently cannot use pyoil
as a petroleum substitute or hydrocarbon fuel because of its
instability, inability to mix with petroleum, acidity, and
corrosiveness. NREL, ARS, and industry scientists are conducting R&D on
chemical catalysts to improve pyoil's stability and refinability by
lowering its oxygen content and acidity. In addition, about 12 percent
to 15 percent of the conversion yield of fast pyrolysis process is
biochar, a carbon-rich charcoal similar in appearance to potting soil.
[Footnote 130] Injecting biochar in agricultural lands has been
proposed as a way to both increase the soil's carbon content and reduce
greenhouse gas emissions into the atmosphere. USDA is conducting
research to quantify the effects of adding biochar into soils on crop
productivity, soil quality, carbon sequestration, and water quality.
[Footnote 131] Finally, about 13 percent to 25 percent of the
conversion yield is syngas, which can be used as a fuel for heat or
power generation. Alternatively, the syngas from fast pyrolysis can
also be used as a feedstock for Fischer-Tropsch synthesis and converted
into different liquid fuels.
Researchers at NREL and USDA's Eastern Regional Research Center told us
the pyrolysis conversion process offers two additional benefits. First,
this technology can be used on a small, distributive scale that reduces
feedstock transportation and storage costs. Because of its energy
density per unit volume, the resulting pyoil is more economical to
transport. Second, pyrolysis converts more of the available biomass
into fuels than biochemical conversion and is generally less energy
intensive than either biochemical conversion or gasification. As a
result, it is likely to have a smaller carbon footprint than the other
conversion processes. Furthermore, the process could actually achieve
net greenhouse gas reductions if the biochar successfully increases the
soil's carbon content when it is injected in agricultural lands.
However, researchers at both laboratories told us that pyrolysis R&D
funding has been limited. NREL has primarily participated in a
cooperative R&D agreement involving DOE's Pacific Northwest National
Laboratory and UOP, a subsidiary of Honeywell. The Eastern Regional
Research Center recently entered into a cooperative R&D agreement with
Siemens Energy & Automation, Inc., and UOP to improve pyrolysis oil
production technology.
Blending Limits and Transportation Pose Challenges to Expanded Ethanol
Consumption:
In 2008, U.S. biorefineries produced and distributed more than 9.2
billion gallons of ethanol. This ethanol was blended with gasoline to
make either E10, which most vehicles can use as an oxygenate additive,
or E85, which has a more limited market, primarily in the upper
Midwest. Because the current economic slowdown has reduced U.S.
gasoline demand, the nation may reach the blend wall--the point where
all of the nation's gasoline supply is blended as E10 and extra volumes
of ethanol cannot be readily consumed--as early as 2011. The United
States may reach the blend wall limit solely with existing ethanol
production from corn starch. This could greatly restrict the growth of
the cellulosic biofuels industry, because ethanol is likely to be the
first biofuel produced from cellulosic sources, rather than bio-oil or
jet fuel.
One option to avoid the blend wall is to determine whether higher
ethanol blends--E12, E15, or E20--can be used in the gasoline
distribution and storage infrastructure and vehicles without adversely
affecting the integrity of storage tank systems or vehicle equipment
and performance. E10 is the highest ethanol blend that may currently be
used in most U.S. vehicles. Before a higher ethanol blend could be
marketed, EPA would have to approve a waiver to the Clean Air Act that
would classify the blends as substantially similar to
gasoline.[Footnote 132] Similarly, automobile manufacturers would have
to determine that a higher ethanol blend than E10 has no long-term
effects on vehicle equipment and performance. Without this
determination, they might void their warranty protection for existing
vehicles that use a higher blend of ethanol. In addition, there are
concerns that higher blends, or even E10, could damage non-auto
engines, such as boat engines and small engines for equipment like lawn
mowers and small tractors, and underground storage tank systems that
were not rated to handle these higher blends. Also, leak detection
technologies used in underground storage tank systems were developed
for use with petroleum fuel and would need to be tested for performance
with higher ethanol blend fuels.
DOE's NREL and Oak Ridge National Laboratory are collaborating with EPA
to conduct a short-term emissions study using 20 cars to test 31 fuels,
including ethanol blends. The study is expected to be completed by
December 2009. In addition, under DOE's Intermediate Blends Test
program, the two laboratories have initiated a project to test the long-
term effects of using E15 and E20 blends by comparing them with
vehicles that use unblended gasoline. Specifically, the laboratories
are testing 32 cars over their full useful lives to assess emission
control catalyst durability. The cars will run 120,000 miles with stops
for all required vehicle maintenance and emission testing at 60,000;
90,000; and 120,000 miles. Smaller programs conducted in collaboration
with the automotive and petroleum industries are examining fuel system
materials compatibility and evaporative emissions, and they plan to
initiate a study of vehicle cold start and drivability. Researchers
expect to publish test results by June 2010.
A second option to avoid the blend wall is to increase E85 consumption
by providing the infrastructure needed to distribute, store, and
dispense E85, while also increasing the number of vehicles, called flex-
fuel vehicles, that can run on E85. Expanding ethanol consumption will
be costly because of the following:
* Ethanol is transported primarily on the freight rail system, which is
more costly than shipping by pipeline. According to NREL, the overall
cost of transporting ethanol from refineries to fueling stations is
estimated to range from 13 cents per gallon to 18 cents per gallon, as
compared to the overall cost of transporting petroleum fuels via
pipelines from refineries to fueling stations of about 3 cents to 5
cents per gallon. While ethanol cargo currently represents a relatively
small share of overall rail volume, DOE and ethanol industry experts
are concerned about the limited capacity of the freight rail system for
transporting greater amounts of biofuels if production increases
significantly. For example, in an April 2009 study, the National
Commission on Energy Policy reported that few blending terminals have
the off-loading capacity to handle large train shipments of ethanol.
[Footnote 133] In 2006, we reported that replacing, maintaining, and
upgrading the existing aging rail infrastructure is extremely costly,
and while railroad officials plan to make substantial investments in
infrastructure, the extent to which these investments will increase
capacity as freight demand increases is unclear.[Footnote 134]
Ethanol is not transported through the petroleum product pipeline
system because of concerns that, for example, it will attract water in
the pipes, rendering it unfit to blend with gasoline, according to DOE
officials. Our June 2007 report found that even if ethanol could be
shipped by existing pipelines, no pipelines exist to transport it from
the Midwest, where it is mainly produced, to major markets on the East
and West coasts.[Footnote 135] Alternatively, existing petroleum
pipelines could be used in certain areas to transport ethanol if
ongoing efforts by operators to identify ways to modify their systems
to make them compatible with ethanol or ethanol-blended gasoline are
successful. A 2006 NREL report estimated the current costs of
constructing pipelines at roughly $1 million per mile, although the
costs can vary dramatically based on right-of-way issues, the number of
required pumping stations, and other considerations.
* Ethanol is corrosive, so gasoline stations will need to install
dedicated tank systems for storing E85 and specialized pumps and
equipment for dispensing it. EPA estimates that the cost of installing
E85 refueling equipment will average $122,000 per facility--which may
be a significant impediment for many potential retailers. Liability
concerns are also a challenge to increasing the number of E85 pumps.
According to the Biomass Research and Development Board, one of the
most significant hurdles to retail ethanol expansion is the current
lack of Underwriters' Laboratory certification for pumps dispensing
blends of E15 or higher because large operators of fuel pumps, ranging
from the Postal Service to large retailers, will be reluctant to sell
E85 or potentially other approved intermediate blends.
In October 2008, we reported that the lack of E85 fueling stations
greatly reduced the ability of the federal vehicle fleet to achieve its
nationwide energy objectives for using alternative fuels.[Footnote 136]
We concluded that until alternative fuel, particularly E85, is more
widely available, federal agencies will likely continue to expend time
and resources on acquiring flexible-fuel vehicles that can run on E85
with limited success in displacing petroleum, possibly missing
opportunities to displace petroleum through other means, such as
through the purchase of conventional hybrids (vehicles that are powered
by both an internal combustion engine and an electric motor) or natural-
gas-powered vehicles.
* Only about 8 million flexible-fuel vehicles out of more than 250
million in the nationwide vehicle fleet can use E85. However, many
flexible-fuel vehicles are using E10 because a ready supply of E85 does
not exist outside the upper Midwest. Fueling stations offering E85 are
concentrated in the upper Midwest--15 states have less than 10 such
fueling stations and 7 states have none. As of February 2009, only
about 1,900 fueling stations nationwide offered E85, compared with
nearly 168,000 gas stations.
The Biodiesel Industry Faces Feedstock and Market Challenges:
The domestic biodiesel industry faces several challenges that limit its
potential market.[Footnote 137] Specifically, the biodiesel industry
faces high feedstock costs.[Footnote 138] The cost for soybean oil, the
most common feedstock for U.S. biodiesel production, and other plant
oils is high because the biodiesel industry competes with food and
animal feed markets for these oils. These high feedstock costs have
prompted the biodiesel industry to look to other feedstock sources,
including animal fats, recycled greases, and nonfood-grade corn oil.
The biodiesel industry also faces substantial production overcapacity.
According to the National Biodiesel Board, as of September 2008, the
annual production capacity from 176 existing U.S. biodiesel refineries
totaled 2.61 billion gallons--yet actual U.S. biodiesel production
reached 700 million gallons from October 1, 2007, to September 30,
2008, leaving the capacity utilization at many of these facilities
extremely low.
In contrast to the U.S. ethanol industry, the nation's biodiesel
refining capacity is relatively dispersed. While many biodiesel
refineries are located in the Midwest, substantial refineries are
located in the South and on the West Coast. Yet, as with the U.S.
ethanol industry, biodiesel cannot be blended at oil refineries and
transported through product pipelines because of contamination
concerns. Rather, biodiesel is transported by railroad cars and tanker
trucks to fueling stations, which are expensive and slower than using
pipeline and, in turn, add to product cost. In addition, for biodiesel
to penetrate the light-duty vehicle fleet beyond the B5 or B10 blending
levels,[Footnote 139] additional biofuel-capable vehicles must be
produced and marketed to consumers. There are limited numbers of
fueling stations carrying B20, because its physical properties may
require the retrofit of storage tank systems and dispensing equipment.
Furthermore, while the RFS requires use of at least 500 million gallons
of biodiesel in 2009, the National Biodiesel Board has expressed
concern that the production from many biodiesel refineries,
particularly ones using soybean and other vegetable oil feedstocks, may
not qualify as biomass-based diesel under EPA's proposed RFS regulation
because biomass-based diesel under the RFS must generally achieve at
least a 50 percent reduction in lifecycle greenhouse gas emissions as
compared with petroleum fuels. A new biodiesel feedstock for the future
is algae. DOE and private companies are increasing their funding of R&D
to develop technologies that can cost effectively use algae to produce
biodiesel.
Conclusions:
The RFS allows the use of up to 15 billion gallons per year of
conventional biofuel by 2015 and requires at least 21 billion gallons
of advanced biofuels--with at least 16 billion gallons of this amount
coming from cellulosic feedstocks--in 2022. Yet, at present, the
distribution infrastructure and vehicle types necessary to transport
and use increased ethanol production do not exist. In addition, the
United States will reach the blend wall limit as early as 2011 solely
with existing ethanol production from corn starch, which could greatly
restrict the growth of the cellulosic biofuels industry. Thermochemical
processing technologies, such as pyrolysis, have the potential to
produce advanced biofuels that can be used in the nation's existing
fuel distribution and vehicle infrastructure and therefore avoid future
blend wall issues. However, DOE and USDA have not focused substantial
R&D resources on developing these technologies. Furthermore, EISA and
the 2008 Farm Bill define renewable biomass differently regarding
feedstocks and land eligibility, creating difficulties for agencies to
formulate rules, implement program activities, and effectively execute
the interagency National Biofuels Action Plan. This may also create
uncertainty for biofuels producers and could potentially reduce the
nation's ability to increase advanced biofuels feedstock production and
realize their benefits.
Recommendations for Executive Action:
To minimize future blend wall issues and associated ethanol
distribution infrastructure costs, we recommend that the Secretaries of
Agriculture and Energy give priority to R&D on process technologies
that produce biofuels that can be used by the existing petroleum-based
distribution and storage infrastructure and the current fleet of U.S.
vehicles.
To address inconsistencies in existing statutory language, we recommend
that the Administrator of the Environmental Protection Agency, in
consultation with the Secretaries of Agriculture and Energy, review and
propose to the appropriate congressional committees any legislative
changes the Administrator determines may be needed to clarify what
biomass material--based on type of feedstock or land--can be counted
toward the RFS.
Agency Comments:
USDA and DOE commented on our recommendation for giving priority to R&D
for producing biofuels that can be used by the existing petroleum-
based infrastructure. Specifically, USDA agreed that this is an
important goal which its R&D should address, but cited other similarly
important R&D goals that its scientists are simultaneously pursuing,
such as the development of feedstocks with physical and chemical
properties that make them effective for conversion, and the creation of
productive methods that are environmentally sound and economically
advantageous for producing large quantities of feedstocks. In its
comments, DOE stated that it has already expanded in this direction,
noting for example that its $480 million funding opportunity
announcement for integrated biorefinery operation, which closed on June
30, 2009, included green diesel and green gasoline. DOE also cited a
new solicitation to fund consortia to accelerate development of
advanced biofuels under the American Recovery and Reinvestment Act
supports infrastructure-compatible fuels and algae-based fuels.
USDA, DOE, and EPA commented on our recommendation for clarifying what
biomass material can be counted toward the RFS. USDA agreed with the
recommendation that the executive agencies should consult on a
definition and propose any legislative changes to the appropriate
congressional committees, stating that the department supports the 2008
Farm Bill's definition. DOE stated that the department would welcome
the opportunity to participate in deliberations about how to clarify
the biomass definition if requested to do so by the EPA Administrator,
adding that the department supports an expansion of biomass eligibility
to include materials that do not come from federal lands classified as
environmentally sensitive and that can be grown and harvested in a
sustainable manner. EPA stated that the agency is working with USDA to
identify inconsistencies and interpret how biomass is treated under
EISA and the 2008 Farm Bill.
[End of section]
Appendix I: Key Studies on the Agricultural and Related Effects of
Biofuels and on the Transition to Advanced Biofuel Feedstock
Production:
Abbott, P.C., Hurt, C., and Tyner, W.E. "What's Driving Food Prices?"
Farm Foundation, 2009.
Anderson, D.P., Outlaw, J.L., Bryant, H.L., Richardson, J.W., et al.
"The Effects of Ethanol on Texas Food and Feed," Agricultural and Food
Policy Center, Texas A&M University, April 2008.
Babcock, B.A. "Breaking the Link Between Food and Biofuels," Center for
Agricultural and Rural Development, Iowa State University, Briefing
Paper 08-BP 53, July 2008. Baker, J.M., Ochsner, T.E., Venterea, R.T.,
and Griffis, T.J. "Tillage and Soil Carbon Sequestration: What Do We
Really Know?" Agriculture. Ecosystems and Environment, vol. 118 (2007);
1-5.
Biomass Research and Development Board, "The Economics of Biomass
Feedstocks in the United States: A Review of the Literature," October
2008.
Biomass Research and Development Board, "Increasing Feedstock
Production for Biofuels: Economic Drivers, Environmental Implications,
and the Role of Research," December 2008.
Cassman, K.G. "Ecological Intensification of Cereal Production Systems:
Yield Potential, Soil Quality, and Precision Agriculture," Proceedings
of the National Academy of Sciences, vol. 96 (1999); 5952-5959.
Collins, K. The Role of Biofuels and Other Factors in Increasing Farm
and Food Prices: A Review of Recent Developments with a Focus on Feed
Grain Markets and Market Prospects, June 2008. Report prepared for
Kraft Foods Global, Inc.
Congressional Budget Office, The Impact of Ethanol Use on Food Prices
and Greenhouse Gas Emissions, April 2009.
De La Torre Ugarte, D., English, B.C., and Jensen, K. "Sixty Billion
Gallons by 2030: Economic and Agriculture Impacts of Ethanol and
Biodiesel Expansion," American Journal of Agricultural Economics, vol.
89, no. 5 (2007): 1290-1295.
English, B.C., De La Torre Ugarte, D., Jensen, K., Hellwinckel, C.,
Menard, J., Wilson, B., Roberts, R., and Walsh, M. "25% Renewable
Energy for the United States by 2025: Agricultural and Economic
Impacts," The University of Tennessee, November 2006.
Fabiosa, J.F., Beghin, J.C., Dong, F., Elobeid, A., Tokgoz, S., and Yu,
T. "Land Allocation Effects of the Global Ethanol Surge: Predictions
from the International FAPRI Model," Center for Agricultural and Rural
Development, Iowa State University, Working Paper 09-WP 488, March
2009.
Fales, S.L., Hess, J.R., and Wilhelm, W.W. "Convergence of Agriculture
and Energy: II. Producing Cellulosic Biomass for Biofuels," Council for
Agricultural Science and Technology (CAST) Commentary, QTA2007-2,
November 2007.
Fargione, J., Hill, J., Tilman, D., Polasky, S., and Hawthorne, P.
"Land Clearing and the Biofuel Carbon Debt," Science, vol. 319 (2008):
1235-1238.
Feng, H. and Babcock, B.A. "Impacts of Ethanol on Planted Acreage in
Market Equilibrium," Center for Agricultural and Rural Development,
Iowa State University, Working Paper 08-WP 472, June 2008.
Fronning, B.E., Thelen, K.D., and Min, D.H. "Use of Manure, Compost,
and Cover Crops to Supplant Crop Residue Carbon in Corn Stover Removed
Cropping Systems," Agronomy Journal, vol. 100, no. 6 (2008): 1703-1710.
Groom, M.J., Gray, E.M., and Townsend, P.A. "Biofuels and Biodiversity:
Principles for Creating Better Policies for Biofuel Production,"
Conservation Biology, 22, no. 3 (2008): 602-609.
Hayes, D.J., Babcock, B.A., Fabiosa, J.F., Tokgoz, S., Elobeid, A., Yu,
T., Dong, F., Hart, C.E., Chavez, E., Pan, S., Carriquiry, M., and
DuMortier, J. "Biofuels: Potential Production Capacity, Effects on
Grain and Livestock Sectors, and Implications for Food Prices and
Consumers," Center for Agricultural and Rural Development, Iowa State
University, Working Paper 09-WP 487, March 2009.
Heaton, E.A., Dohleman, F.G., and Long, S.P. "Meeting U.S. biofuel
goals with less land: The potential of Miscanthus," Global Change
Biology, 14 (2008): 1-15.
Hill, J., Nelson, E., Tilman, D., Polasky, S., and Tiffany, D.
"Environmental, Economic, and Energetic Costs and Benefits of Biodiesel
and Ethanol Biofuels," Proceedings of the National Academy of Sciences,
vol. 103, no. 30 (2006): 11206-11210.
Hipple, P.C., Duffy, M.D. "Farmers' Motivations for Adoption of
Switchgrass," in J. Janich and A. Whipkey (eds.),Trends in New Crops
and New Uses (Alexandria, Va.: ASHA Press, 2002): 252-266.
Hochman, G., Sexton, S.E., and Zilberman, D. "The Economics of Biofuel
Policy and Biotechnology," Journal of Agricultural & Food Industrial
Organization, vol. 6, no. 8 (2008): 1-22.
Johnson, J.M.F, Coleman, M.D., Gesch, R., Jaradat, A., Mitchell, R.,
Reicosky, D., and Wilhelm, W.W. "Biomass-Bioenergy Crops in the United
States: A Changing Paradigm," The Americas Journal of Plant Science and
Biotechnology, 1, 1 (2007): 1-28.
Johnson, J.M.F, Reicosky, D., Allmaras, R., Archer, D., Wilhelm, W. "A
Matter of Balance: Conservation and Renewable Energy," Journal of Soil
and Water Conservation, Jul/Aug, 61, 4 (2006): 120A-125A.
Khanna, M. "Cellulosic Biofuels: Are They Economically Viable and
Environmentally Sustainable?" Choices, vol. 23, no. 3 (2008): 16-21.
Kim, S. and Dale, B.E. "Life Cycle Assessment of Various Cropping
Systems Utilized for Producing Biofuels: Bioethanol and Biodiesel,"
Biomass and Bioenergy, vol. 29 (2005): 426-439.
Lawrence, C.J. and Walbot, V. "Translational Genomics for Bioenergy
Production from Fuelstock Grasses: Maize as the Model Species," The
Plant Cell, 19 (2007): 2091-2094.
Lawrence, J.D., Mintert, J., Anderson, J.D., and Anderson, D.P. "Feed
Grains and Livestock: Impacts on Meat Supplies and Prices," Choices,
vol. 23, no. 2 (2008): 11-15.
Low, S.A. and Isserman, A.M. "Ethanol and the Local Economy: Industry
Trends, Location Factors, Economic Impacts, and Risks," Economic
Development Quarterly, vol. 23, no. 1 (2009): 71-88.
McDonald, S., Robinson, S., and Thierfelder, K. "Impact of Switching
Production to Bioenergy Crops: The Switchgrass Example," Energy
Economics, vol. 28 (2006): 243-265.
Mitchell, D. "A Note on Rising Food Prices," The World Bank, Policy
Research Working Paper, no. 4682, July 2008.
McPhail, L.L. and Babcock, B.A. "Short-Run Price and Welfare Impacts of
Federal Ethanol Policies," Center for Agricultural and Rural
Development, Iowa State University, Working Paper 08-WP 468, June 2008.
Naylor, R.L., Liska, A.J., Burke, M.B., Falcon, W.P., Gaskell, J.C.,
Rozelle, S.D., and Cassman, K.G. "The Ripple Effect: Biofuels, Food,
Security, and the Environment," Environment, vol. 49, no. 9 (2007): 31-
43.
Oak Ridge National Laboratory, prepared for DOE and USDA. "Biomass as
Feedstock for a Bioenergy and Bioproducts Industry: The Technical
Feasibility of a Billion-Ton Annual Supply," April 2005.
OECD, Economic Assessment of Biofuels Support Policies, 2008.
Parcell, J.L. and Westhoff, P. "Economic Effects of Biofuel Production
on States and Rural Communities," Journal of Agricultural and Applied
Economics, vol. 38, no. 2 (2006): 377-387.
Pimentel, D. and Patzek, T.W. "Ethanol Production Using Corn,
Switchgrass, and Wood; Biodiesel Production Using Soybean and
Sunflower," Natural Resources Research, vol. 14, no. 1 (2005): 65-76.
Rajagopal, D., Sexton, S.E., Roland-Holst, D., and Zilberman, D.
"Challenge of Biofuel: Filling the Tank without Emptying the Stomach?"
Environmental Research Letters, vol. 2 (2007): 1-9.
Rajagopal, D. and Zilberman, D. "Review of Environmental, Economic and
Policy Aspects of Biofuels," The World Bank, Policy Research Working
Paper, no. 4341, September 2007.
Robertson, G.P., Dale, V.H., Doering, O.C., Hamburg, S.P., Melillo,
J.M., Wander, M.M., et al. "Sustainable Biofuels Redux," Science, vol.
322 (2008): 49-50.
Sarath, G., Mitchell, R.B., Sattler, S.E., Funnell, D., Pedersen, J.F.,
Graybosch, R.A., and Vogel, K.P. "Opportunities and roadblocks in
utilizing forages and small grains for liquid fuels," Journal of
Industrial Microbiology and Biotechnology, vol. 35, no. 5 (2008): 343-
354.
Schmer, M.R., Vogel, K.P., Mitchell, R.B., and Perrin, R.K. "Net Energy
of Cellulosic Ethanol from Switchgrass," Proceedings of the National
Academy of Sciences, vol. 105, no. 2 (2008): 464-469.
Searchinger, T., Heimlich, R., Houghton, R.A., Dong, F., Elobeid, A.,
Fabioso, J., et al. "Use of U.S. Croplands for Biofuels Increases
Greenhouse Gases through Emissions from Land-Use Change," Science, vol.
319 (2008): 1238-1240.
Senauer, B. "Food Market Effects of a Global Resource Shift Toward
Bioenergy," American Journal of Agricultural Economics, vol. 90, issue
5 (2008): 1226-1232.
[End of section]
Tokgoz, S., Elobeid, A., Fabiosa, J., Hayes, D.J., Babcock, B.A., Yu,
T.H., Dong, F., and Hart, C.E. "Bottlenecks, Drought, and Oil Price
Spikes: Impact on U.S. Ethanol and Agricultural Sectors," Review of
Agricultural Economics, vol. 30, no. 4 (2008): 604-622.
Tyner, W., and Taheripour, F. "Biofuels, Policy Options, and Their
Implications: Analyses Using Partial and General Equilibrium
Approaches," Journal of Agricultural and Food Industrial Organization,
vol. 6, article 9 (2008).
Walsh, M.E., De La Torre Ugarte, D.G., Shapouri, H., and Slinsky, S.P.
"Bioenergy Crop Production in the United States--Potential Quantities,
Land Use Changes, and Economic Impacts on the Agricultural Sector,"
Environmental and Resource Economics, vol. 24, no. 4, (2003): 313-333.
Westhoff, P., Thompson, W., and Meyer, S. "Biofuels: Impact of Selected
Farm Bill Provisions and Other Biofuel Policy Options, Food and
Agricultural Policy Research Institute at University of Missouri-
Columbia, FAPRI-MU Report no. 06-08, 2008.
U.K. Renewable Fuels Agency. "The Gallagher Review of the Indirect
Effects of Biofuels Production," East Sussex, United Kingdom, July
2008.
USDA, Cooperative State Research, Education, and Extension Service,
"The Human and Social Dimensions of a Bioeconomy: Implications for
Rural People and Places," Discussion Paper, March 2007.
USDA, Economic Research Service and Office of Chief Economist. "An
Analysis of the Effects of an Expansion in Biofuel Demand on U.S.
Agriculture," May 2007.
USDA, Office of the Chief Economist, De La Torre Ugarte, D.G., Walsh,
M.E., Shapouri, H., and Slinsky, S.P. "The Economic Impacts of
Bioenergy Crop Production on U.S. Agriculture," Agricultural Economic
Report, no. 816, February 2003.
USDA, Economic Research Service. "Productivity Growth in U.S.
Agriculture," Economic Brief Number 9, September 2007.
USDA, Economic Research Service. "Economic Measures of Soil
Conservation Benefits," Technical Bulletin Number 1922, September 2008.
USDA, Economic Research Service. "Feed Grains Backgrounder," March
2007.
USDA, Economic Research Service. "Environmental Effects of Agricultural
Land-Use Change: The Role of Economics and Policy," Economic Research
Report Number 25, August 2006.
USDA, Economic Research Service. "Global Agricultural Supply and
Demand: Factors Contributing to the Recent Increase in Food Commodity
Prices," July 2008 (revised).
USDA, Economic Research Service. "Ethanol Expansion in the United
States: How Will the Agricultural Sector Adjust?" May 2007.
USDA, National Agricultural Statistics Service, 2007 Census of
Agriculture, Vol. 1, Part 51, February 2009.
USDA, Office of the Chief Economist. "USDA Agricultural Projections to
2017," February 2008.
United Nations Food and Agriculture Organization. The State of Food and
Agriculture: Biofuels--Prospects, Risks, and Opportunities, Rome,
Italy, 2008.
Varvel, G.E., Vogel, K.P., Mitchell, R.B., Follett, R.F., and Kimble,
J.M. "Comparison of Corn and Switchgrass on Marginal Soils for
Bioenergy," Biomass & Bioenergy, vol. 32 (2008): 18-21.
[End of section]
Appendix II: Economic Studies Examining the Impacts of Increased
Biofuel Production on U.S. Food and Agricultural Markets:
[End of section]
We selected 12 key economic studies on the impacts of increased biofuel
production on U.S. food and agricultural markets. The authors generally
found, to varying degrees, that increased demand for biofuel production
will affect many sectors throughout food and agriculture. We summarized
the results of these studies for biofuel production, feedstock prices,
feedstock production, food prices, other crop and livestock production
and prices, land-use effects, changes in government program/welfare
impacts, net farm income, and other impacts. The variation in impact
found between these studies may be due, in part, to the different
economic models, time periods, data and assumptions that they used.
However, in general, the studies found that increased demand for corn
ethanol had the following effects:
* Corn and soybean prices rose significantly, with the amount of the
rise varying with the baseline, time period, and the scenario that the
researchers used to make assumptions about economic conditions and
ethanol demand.
* The production of other traditional crops declined with increases in
biofuel demand while their prices increased.
* The increased prices of corn and other feed crops caused livestock
production to decline, but the amount of this decline varied by animal,
with the deepest declines in dairy, swine, and poultry.
* Increased production of dried distiller's grains (DDG)--a livestock
feed and a co-product of ethanol production--mitigated the effects of
increased feed prices somewhat in the short run.
* Land area devoted to corn increased and some other crops, such as
barley and oats, used for livestock feed increased, while land planted
to soybeans and other crops declined sharply.
* In six of the studies that looked at retail food prices, increased
biofuel demand caused small increases in food prices.
Several of the studies also looked at the impacts on agricultural
markets of increased biofuels from cellulosic feedstocks, and their
outcomes varied, in part based on the baseline used, model, and
assumptions they made about the land that was available and type of
cellulosic feedstock assumed.
In table 8, we describe the basic methodology and modeling assumptions
of the economic studies of the impacts of increased biofuel production.
Specifically, we explain several aspects of the studies, including the
main objective, type of model, data and time period, major assumptions,
model scenarios, government policies examined, and other aspects
examined. For most of them, the sources of biofuel feedstock examined
was corn for ethanol, but corn stover, switchgrass, and other
cellulosic feedstocks were also included, as well as soybeans for
biodiesel. The studies assumed various analytical frameworks, including
partial equilibrium and general equilibrium,[Footnote 140] and employed
a range of different modeling techniques, including econometric models,
simulation models, optimization models, break-even analysis, and
representative farm models. For the most part, we selected studies that
took a broader, more national approach. We also included studies that
were quantitative or empirical in nature, in order to measure the
impacts of increased biofuel production on various sectors of the food
and agricultural market. To observe the impact of increased biofuels
production on various market conditions, a majority of the studies
included a variety of different scenarios, including higher crude oil
prices, production shortfalls, higher productivity levels, various
subsidy and biofuel mandate levels, and land-use policies. Also, three
of the studies that we examined measured the impacts on various
stakeholders, such as biofuel producers, crop and livestock producers,
taxpayers, and consumers.
Table 8 presents some of the main results of these studies, including
the impacts of increased biofuels production on feedstock production
and prices, food prices, other crop and livestock prices, land-use
impacts, government programs, and other effects. For most studies, we
reported the results for all scenarios, but for a few we only reported
on the major scenario due to space limitations.
Table 8: Major Economic Studies of Agricultural Market Impacts of
Biofuels Production:
Model Description: Economic Research Service and Office of Chief
Economist, USDA, May 2007:
Objective of the study: Main purpose is to assess the effects on
agriculture of alternative levels of biofuels production from corn
(ethanol) and soybean oil (biodiesel). Also, to review the expansion of
cellulosic ethanol production;
Model/Time/Data: National Model: Food and Agricultural Policy Simulator
(FAPSIM) using 2007 USDA baseline for years 2007-2016; Regional Model:
Regional Environmental and Agricultural Programming Model (REAP) uses
crop mix from 1992 National Resources Inventory;
Major assumptions:
* Increase in biofuel production was assumed to occur gradually over
time, from 2007-2016;
* Assumes only dried distiller's grain;
* Conservation Reserve Program (CRP) acres remain constant in 2016;
Scenarios: 3 Scenarios:
1) Corn ethanol increase to 15 billion gallons by 2016, biodiesel to 1
billion gallons;
2) Corn ethanol increase to 20 billion gallons by 2016, biodiesel to 1
billion gallons;
3) Effects of a production shortfall of 10% below baseline in 2012 for
each scenario above;
Results:
* For scenarios 1 and 2, respectively: Corn production and price rise
in both scenarios; 5.4 and 7.2 billion bushels and $3.61 and $3.95 per
bushel in 2016;
* Overall livestock production is reduced;
* Soybean, wheat, cotton, and rice acreage declines over baseline;
* Retail prices for pork, dairy, and broilers increase by 5.4, 4.8 and
4.4% (scenario 1) and 2, 1.4, and 1.9% (scenario 2) annually during
2007-2016;
* Net farm income increases by $2.6 and $7.1 billion, in scenarios 1
and 2, respectively.
Model Description: De La Torre Ugarte, English, and Jensen, American
Journal of Agricultural Economics, 2007[A]:
Objective of the study: Projects economic impacts of increasing ethanol
beyond RFS: production to 10, 30, and 60 billion gallons by 2010, 2020,
and 2030, and biodiesel production by 1 and 1.6 billion gallons by 2012
and 2030;
Model/Time/Data: POLYSYS/IMPLAN Integrator (PII) - a dynamic
agricultural sector model incorporating an economic input-output model.
2006 USDA baseline. Facility output costs, feedstock and associated
costs based on prior studies;
Major assumptions:
* Cellulose-to-ethanol assumed commercially available by 2012;
* Switchgrass is proxy for energy crop with yields from 1.5 to 5%;
* No-till increases from 20-55%;
* 307 million acres crops plus hay and 56.2 million for pasture;
* DDGs in feed ration are 30% for beef, and 10% for dairy, hogs, and
broilers;
Scenarios: 3 Scenarios:
1) ETH60-attain targets assuming cellulose-to-ethanol by 2012;
2) ETH60CA-allows corn ethanol to adjust as cellulose-to-ethanol is
available in 2012;
3) ETH60CACD-delays cellulose-to-ethanol until 2015, and corn ethanol
adjusts;
Results: ETH60 Scenario;
* Corn, soybean, and wheat prices increase. Corn ethanol production
until 2012. After 2012, switches to cellulose of wood residues and then
dedicated energy crops;
* Higher feed prices, but lower cattle inventories reduce demand for
feed, offsetting feed prices. DDGS more heavily incorporated into
cattle rations;
* Savings in government payments of $150 billion and increase in net
farm income of $210 billion in 2007-2030;
* Economic impacts of $368 billion per year and 2.4 million jobs.
Model Description: Tokgoz, Elobeid, Fabiosa, Hayes, Babcock, Tun-
Hsiang, Dong, and Hart, Review of Agricultural Economics, Vol. 30, No.
4, 2008:
Objective of the study: The study estimates how large the U.S. biofuels
sector could become and assesses the likely impact of this sector on
crop markets, trade, and on wholesale and retail livestock markets;
Model/Time/Data: A multi-commodity, multi-country, partial equilibrium
econometric model of the agriculture sector which incorporates a
biofuels component. Feedstocks include ethanol from corn, corn stover,
and switchgrass, although ethanol only one included in baseline and
scenarios due to positive returns. Data for supply and use from F.O.
Lichts, FAO, and USDA. Macro data from Global Insight and other various
sources. Adjusted NYMEX crude oil prices. Baseline for U.S. and
international commodity models based on 2006 data; Projections between
2007 through 2016;
Major assumptions:
* Assumes long-run equilibrium conditions baseline and for Scenarios 1
and 2;
* Analysis of flex-fuel vehicles and "E-85 Bottleneck" issue;
* Parameters estimated from the literature, or expert opinion;
* Assumes 20 DDGs for pork and poultry; this does not affect quality;
* Assumes domestic and border policies (duties, tariff-rate quotas,
export subsidies) in all scenarios;
Scenarios: 2 Scenarios:
1) Scenario with higher crude oil prices ($10 higher on $60/barrel oil)
but with constrained demand from an E-85 "bottleneck";
2) Short-crop scenario that mimics the 1988 drought in 2012-13
marketing year (middle of projection period) with an ethanol mandate in
place of 14.7 billion gallons. Results of the 2 scenarios are
considered relative to the baseline projections;
Results:
Scenario 1: Ethanol production increases to 22.4 billion gallons or a
55% increase in 2016-17. Corn production increases by 11% and price
increases by 20% from $3.15 to $3.75 per bushel. Wheat and soybean
production decreases, and prices increase by 9%. Planted area for corn
increases by 11% and other crops decrease 3-6%. Overall food price
increases small, about 1%. Retail meat, dairy, and egg prices would
increase.
Scenario 2: Ethanol production from corn falls 2.4% to 14.3 billion
gallons. Corn price increases 44% and production decreases by 23%.
Soybean production decreases by 21% and price increases by 22%. Planted
area for corn increases by 2%, wheat stays the same, soybeans area
declines. Livestock production decreases.
Overall: Finds no ethanol price that justifies growing switchgrass.
Model Description: Tyner and Taheripour, Journal of Agricultural & Food
Industrial Organization, Vol. 6, Article 9, 2008:
Objective of the study: The study investigates the economic
consequences of further ethanol expansion for key economic variables of
the U.S. agriculture and energy markets under several policy options.
They extend the analysis to look at global biofuels impacts;
Model/Time/Data: Break-even analysis, partial equilibrium model
simulating various policy scenarios, and computable general equilibrium
built on GTAP; For the break-even analysis, use actual price
observations of corn and ethanol from 2000 to 2008. For partial
equilibrium, models calibrated for 2004-2006 data;
Major assumptions:
* All simulations done with a 5% fuel demand shock;
* A 40% corn export demand shock for fall in value of dollar;
* Infrastructure and blending wall does not restrict the market;
Scenarios: 4 Scenarios-partial equilibrium model:[B]
1) A fixed subsidy of 45 cents per gallon, starting 2009;
2) No ethanol subsidy;
3) Variable subsidy beginning at $70 for crude oil, increasing $0.0175
for each dollar of crude that falls below $70;
4) A renewable fuel standard (RFS) of 15 billion gallons;
Results: Partial Equilibrium Analysis; Under $40 oil prices and fixed
subsidy, 10.25 billion bushels of corn production (less than 15 billion
RFS). With oil at $100 or greater, the subsidy induces higher corn
production. Above $120 oil, the RFS is not binding. Models show a tight
linkage between oil and corn prices. Price increase from 2004-2008 due
to ethanol subsidy ($1) and due to an increase in oil prices ($3). At
$140 oil, see corn price of $6 under all scenarios except fixed
subsidy.
* RFS cost is paid by the consumer at the pump and is high at low
prices and low at high oil prices;
* Fixed and variable subsidy costs are financed through the budget;
* Fixed subsidy rises linearly with oil prices;
* Variable subsidy has low costs at higher oil prices, and manifests
only at lower oil prices;
* At oil prices greater than $80, the cost of RFS is always lower than
the fixed subsidy.
Model Description: Walsh, De La Torre Ugarte, Shapouri, and Slinsky,
Environmental and Resource Economics, 24, 2003:
Objective of the study: The study seeks to identify what prices are
needed for bioenergy crops to compete for agricultural land, and what
would happen to traditional crop prices and farm income if a bioenergy
market could be developed to use all of the biomass potentially
available at a given price. Bioenergy crops include switchgrass, hybrid
poplar, and willow;
Model/Time/Data: POLYSYS, a simulation model of the U.S. agricultural
sector. Uses 1999 USDA baseline for 8 major crops and 1999 FAPRI
baseline for alfalfa and other hay. Baseline timeframe runs from 1999-
2008. CRP baseline is 1998. Crop enterprise budgets using the APAC
Budgeting System which estimates costs associated with traditional
crops. BIOCOST estimates costs for bioenergy crops--hybrid poplar and
willow[C];
Major assumptions:
* A planning horizon of 40 years with a real discount rate of 6.5%;
* On CRP acres, existing contracts can be renewed under same conditions
or planted to bioenergy crops with 25% of rental rate forfeited;
* Rational expectations is incorporated into farmers' decisions;
* Prices of biofuel crops are exogenous to the model;
Scenarios: 2 Scenarios;
1) Prices of $30/dt, $31.74/dt, and $32.90/dt for switchgrass, willow,
and hybrid poplar. Assumes wildlife management practices are employed
on CRP acres and farmers receive 75% of rental rate for producing
bioenergy crops;
2) Prices of $40/dt, $42.32/dt, and $43.87/dt for switchgrass, willow,
and hybrid poplar. Assumes production management practices employed on
CRP acres and 75% of rental rate;
Results:
* Overall: Authors conclude government policies needed to encourage use
of bioenergy production. Switchgrass is more profitable than poplars or
willows in nearly all regions, but under the wildlife scenario (1)
acres are split between switchgrass and poplars;
* Scenario 1: Supplies about 8.5 billion gallons of ethanol. For
feedstock, total switchgrass production of 60.4 million dry tons
annually. Poplar annualized to 35.5 million dry tons. Traditional crop
prices increase by an estimated 4 to 9 percent. An estimated 19.4
million acres planted to bioenergy crops;
* Scenario 2: Supplies 16.7 billion gallons of ethanol. All from
Switchgrass (188 million dry tons). Traditional crop prices rise by 9-
14 percent with 41.9 million acres planted to bioenergy crops.
Model Description: Anderson, Outlaw, Bryant, Richardson, Ernstes,
Raulston, Welch, Knapek, Herbst, and Allison, Agricultural and Food
Policy Center, Texas A&M, April, 2008:
Objective of the study: Objectives of this study that we focused on are
to 1) examine the impacts of higher corn and energy prices on food
price increases, 2) evaluate the impacts of higher crop prices on the
livestock industry. and 3) analyze the effects of a reduction of the
Model/Time/Data: For the effect of feed prices on livestock markets,
study uses representative farm models and costs studies. For food price
section-time series vector autoregression econometric model. Uses DOE
oil prices, BLS labor prices, and BLS and USDA retail food prices. No.
2, yellow corn prices Central Illinois, Primark Datastream. Feeder
cattle prices from AMS/USDA, Fed price from Texas-Oklahoma average
price. Use monthly data for 2006-2008. For RFS scenarios, authors use a
hybrid stochastic simulation model;
Major assumptions: For the retail food model: Assumes underlying
structural model is recursive with:
* Price of crude oil in one period is not affected by same period
shocks in any other variables;
* Labor price is affected by same period crude oil shocks;
* Corn price could be affected by shocks in the same period for either
oil or labor prices;
* Retail food prices are determined last.
For the RFS model: tax credits for ethanol and biodiesel blending are
assumed to continue and biodiesel RFS continues at 1 B. gallon after
2012;
Scenarios: For the RFS model 3 scenarios:
1) First, the current RFS, and all other government programs, proceed
as currently planned;
2) The conventional biofuel RFS is immediately and permanently reduced
by one-quarter;
3) The conventional biofuel RFS is reduced by one-half;
Results:
For livestock model: For dairy, feed costs increased from 17 to 22
percent from 2006-2008. For cattle, breakeven feed prices went from $94
to $107 per cwt as feed costs increased and feeder steer prices fell
from $110 to $98 per cwt over the same period. For broilers, feed costs
increased from an index of 93.5 in 2006 to 144.3 in 2008;
For retail model: High corn prices have small overall impact on retail
food prices. On a product-by-product basis, they found a significant
effect of corn price on eggs, bread, and milk prices. The livestock
industry is in the middle of transition, and higher livestock prices
have yet to be passed on to the retail level to reflect the higher
costs of feed;
For RFS model: Relaxing the RFS does not significantly reduce corn
prices--they are fairly steady under all scenarios. However, they
gradually diverge, with the one-quarter RFS waiver corn prices falling
about $0.30 per bushel below the full RFS price, and the one-half RFS
waiver corn price about $0.50 to $0.60 per bushel below the full RFS
price.
Model Description: The Biomass Research and Development Board, 2008[E]:
Objective of the study: The goal of this report was to research and
make recommendations to address the constraints surrounding the
availability of biomass feedstocks. As part of this study, an economic
assessment was developed that linked an analysis of environmental
consequences of feedstock production from agriculture and forestry
sources;
Model/Time/Data: Two comprehensive models:
REAP--Regional Environment and Agriculture Programming model, a
mathematical optimization model which analyzes the feedstocks
associated with producing first-generation biofuels. The baseline case
uses the USDA baseline for 2007, which provides projections to 2016.
POLYSYS, an agricultural policy simulation model, used to assess the
impacts of cellulosic production of ethanol in 2022 on agricultural
prices and production. To simulate 2022, the 2007 USDA baseline for all
crop prices and production used extended to 2022 based on an
extrapolation of trends in the last 3 years of the USDA baseline.
Report uses the renewable fuel volumes in EISA as basis for scenarios;
Major assumptions: Some key assumptions:
REAP:
* All demands are national except for regional livestock demands;
* Crop rotations are allocated proportionately and yields fixed at
average levels;
* Total CRP land is fixed, but allowed to reallocate among regions.
POLYSYS:
* Constrained to remove no more than 34% of corn stover and 50% of
wheat straw;
* Cropland used as pasture will be converted to energy crops provided
the net returns are greater than the rental rates, they are the most
profitable, and hay production can offset lost forage production;
* In cellulosic high productivity scenario, corn productivity doubles
the rate over baseline in 2022 and energy crops increase at an annual
rate of 1.5% starting in 2012;
Scenarios: First generation scenarios:
1) Reference case: for 2016 represents a total biofuel target of 16
billion gallons, 15 billion of corn-based ethanol and 1 billion
biodiesel.
2) A high productivity scenario represents an increase in productivity
by an additional 50% above baseline assumptions;
3) A high input cost scenario represents an increase in the cost of
energy-intensive inputs of 50 percent over baseline;
4) A price of $25 is assumed for the positive carbon price scenario;
Cellulosic scenarios:[F]
1) Reference Scenarios: 36 BGY biofuel scenario--15 BGY of corn-based
ethanol, 1 BGY soybean diesel, and 20 BGY of cellulosic biofuels. This
is broken down into 3 cases of various proportions of cropland,
forestland, and imported biofuels;
2) Increased Productivity: Same as reference case scenarios only with
high productivity assumption (see assumptions);
Results: Reference case: A 3.6% increase in corn production is
accompanied by a 4.6% increase in price over baseline. The price of
soybeans is 3.2 percent higher, while the prices of other crops
increase by less than 1 percent. Planted acreage in 2016 is 4.4 million
acres over USDA baseline. Corn acreage expands by 3.7-million-acres
with an additional 700,000 acres in other crops. Each region exhibits
an increase of 3%-7% in corn acres, most new corn acres are in the Corn
Belt, Northern Plains, and the Lake States. The Corn Belt absorbs about
1 million CRP acres, with CRP acres in the Mountain region increasing
by 1 million acres. Net farm returns increase by 10.4% for corn and
3.5% for other crops. Returns for livestock producers decline by 0.8%
due to increased feed costs;
High Productivity Scenario: In the high-productivity case, a 50%
increase in yield growth led to a 6.3% decline in corn price with a
2.6% increase in production. Also, the price and production effects on
other crops are mostly mitigated. Net returns for corn producers
decline by 2.7% compared to the reference case and decline 1.8% for
other crop producers. The lower price of corn lifts returns for
livestock producers by 1.4%. Total acres planted is 1.6 million less; 3
million fewer corn acres are planted nationally than the reference
case;
Cellulosic Scenarios: For the reference cases: Cellulosic feedstock
prices coming entirely from cropland reach over $60/dry ton in 2022.
About 36 percent of this feedstock would come from perennial grasses,
woody crops, and annual energy crops with the remainder from crop
residues, mainly corn stover. For a cropland scenario of 15 BGY, prices
needed to secure sufficient feedstock are about $15/dry ton less than
under the previous scenario and are about $20/dry ton less under the 12
BGY scenario of advanced biofuels from cropland. Scenarios with less
cropland bring in larger shares of energy crops relative to crop
residues.
Model Description: Rajagopal, Sexton, Roland-Holst, and Zilberman,
Environmental Research Letters, No. 2, 2007:
Objective of the study: The objective of the study is to estimate the
maximum amount of ethanol that could be produced from principal food
crops today if they were diverted entirely to energy production. The
authors also estimate the impacts of biofuels on food and fuel
production and develop a framework for estimating the wealth transfers
from biofuel production;
Model/Time/Data: Conceptual model and welfare analysis--authors employ
a conceptual model of supply and demand for a crop with multiple uses,
like food and fuel. With this conceptual model, they develop estimates
of short-run costs and benefits of the ethanol production tax credit
for the year 2006;
Major assumptions: Corn demand elasticity of -0.5 Corn supply
elasticity of 0.2; Gasoline demand elasticity of -0.23 and supply
elasticity of 0.25; Elasticities short-run (inelastic), whereas in the
long-run both supply and demand are more elastic; Conceptual model does
not include impacts of other crops, livestock, import tariffs, RFS, or
deficiency payments;
Scenarios: N/A[G];
Results:
Corn market: U.S. corn production was 12.5 billion bushels with 1.8
billion allocated to ethanol. Average price of corn for marketing year
2006-07 was $3 per bushel. Increase in corn price due to additional
ethanol demand was estimated to be 21% higher; price of corn in absence
of ethanol demand $2.48 per bushel.
Gasoline Market: The average price of gasoline was $2.53 per gallon and
was estimated to be 3% higher or $2.61 per gallon in the absences of
ethanol.
Welfare estimates: Cost to taxpayers from ethanol production--$2.5
billion; Increase in corn producer surplus--$6.4 billion; Loss in U.S.
consumer surplus to non-ethanol corn users--$4.4 billion; Loss in
consumer surplus (from corn) to rest of the world -$1.1 billion.
Model Description: Fabiosa, Beghin, Dong, Elobeid, Tokgoz, and Yu,
Working Paper 09-WP 488, Center for Agricultural and Rural Development,
Iowa State University, March 2009:
Objective of the study: Authors investigate the trade-offs between
food, feed, energy, and environment and where they occur in terms of
geographic and market location. In particular, the authors examine the
land allocation effects of ethanol expansion and its effects on land
devoted to feedstock and competing crops;
Model/Time/Data: Analysis uses FAPRI model, a multi-market, partial-
equilibrium model of world agriculture. They compute average effects of
ethanol shocks in deviations from 2007 FAPRI baseline and calculate
proportional impact multipliers on key variables for 2007/08 to
2016/17. Data from F.O. Lichts, FAOSTAT, USDA, and the European
Commission Directorate General for Energy and Transport, and UNICA.
Macroeconomic data from IMF and Global Insight.
Major assumptions:
* Supply and demand elasticities for crop and livestock based on
econometric and consensus estimates;
* Supply and demand elasticities for ethanol estimated at the sample
average of 2000-2004;
* Profit margins do not signal entry and exit, except in ethanol
capacity;
* Baseline assumes continuity of policies in the coming decade;
* Domestic and international policies include tariffs, tariff-rate
quotas, export subsidies, intervention prices, set-aside programs, and
other domestic support;
Scenarios: 2 Scenarios:
1) A 10% exogenous increase in the U.S. demand for ethanol leading to a
3% increase in ethanol use;
2) An exogenous 5% increase in world demand for ethanol (specifically,
in Brazil, China, the EU, and India) leading to an increase in
aggregate demand in these countries of about 3%/;
Results:
Scenario 1: A 3% increase in ethanol use elicits a much smaller
increase in total corn use. Derived demand for feedstock increases, as
corn displaces other grains. Corn for feed use falls and seed use
increases. Corn exports decrease and stocks fall substantially. Lower
DDG prices result. There is a short-run departure in prices of DDGs and
corn, going back to their strong correlation in the long-run; Land area
devoted to corn increases. Land area planted to hay and barley
increases. There is a sharp reduction in land devoted to soybeans. Food
corn use falls slightly; most significant being HFCS; other food use
falls by much less. Small reduction in aggregate meat production.
Wholesale prices increase moderately while retail prices increase by
less.
Scenario 2: U.S. ethanol production and feedstock are barely affected
because of the segmentation of the U.S. and world markets due to the
ethanol import tariff and sugar trade protection. U.S. and world
ethanol markets are segmented by the ethanol tariff. Authors believe
that removing the ethanol tariff would remove the corn land area effect
of the current U.S. ethanol expansion.
Model Description: McDonald, Robinson, and Thierfelder, Energy
Economics, Vol. 28, 2006:
Objective of the study: To evaluate the effects of substituting a
biomass product, in this case switchgrass, for crude oil in the
production of petroleum in the U.S. In particular, the study focuses on
the global general equilibrium implications using a multi-region
general equilibrium model with detailed commodity markets;
Model/Time/Data: Policy simulations using a global computable general
equilibrium (CGE) model. The policy change simulated in the model is
substitution of crude oil by switchgrass in the petroleum activity. The
database used is a Social Accounting Matrix (SAM) representation of the
Global Trade Analysis Project (GTAP). For this study, it was necessary
to add a switchgrass commodity and activity accounts to the SAM for the
U.S;
Major assumptions:
* Model incorporates the Armington approach--that domestically produced
and consumed products are imperfect substitutes for both imports and
exports;
* Assumes that the private costs equal the social costs; does not
consider negative externalities of crude oil consumption;
* Assumed that if 6% of US land was changed to switchgrass production,
there would be a 4% decline in use of crude oil activity;
* Assumed equivalent variations for measure of welfare effects of
policies[H];
Scenarios: 4 Scenarios:
1) "One-to-one" direct substitution--4% increase in switchgrass for 4%
decrease in crude oil;
2) "Calibrated" simulation--6% of land is devoted to switchgrass;
3) With total factor productivity or "TFP"--estimates extent to which
the efficiency in petroleum activity must increase to compensate for
use of switchgrass;
4) "With land"--land restored to agricultural production (such as land
restored to production from government "set aside" programs) is used to
produce switchgrass;
Results:
1) "One-on-one"-translates into about a 3% increase in land to
switchgrass. Production increases by 4.83% in the U.S. and draws land
from other food commodity production. Production in the U.S. of
cereals, other crops, and livestock decline by between 0.22% and 0.4%.
U.S. has small increase in welfare of $1.1 billion. While in U.S. there
are inefficiencies due to switchgrass production, these costs are
offset by lower crop subsidies for cereals. World welfare effects are
slightly negative;
2) This scenario results in 6% of land area converted to switchgrass,
but this increase makes production less efficient. Decreased production
of cereals, other crops, and livestock by 0.40% to 0.69%. Increased
prices for U.S. cereals between 1.5 and 2%. Welfare declines by $2.02
billion in U.S. due to loss of productivity;
3) 30% increase in total factor productivity of petroleum sector would
offset productivity loss of using switchgrass. Increase of U.S. price
of cereals between 1.5 and 2%. Same increase in land area as in
scenario 2. Welfare increase to U.S. of $700 million;
4) Drawing land from "set-aside" program nullifies nearly all negative
U.S. price impacts from earlier scenarios. Welfare change in U.S. of
$190 million; Overall: Impacts same as partial equilibrium results--
world price of cereals increases slightly. As the U.S. imports less
crude oil, its exchange rate appreciates. Regions that depend upon U.S.
imports are hurt because their imports become more expensive.
Model Description: Congressional Budget Office, April 2009:
Objective of the study: The 2009 CBO study examines the period from
April 2007 to April 2008, during the period in which rapidly increasing
production of ethanol coincided with rising prices for corn, food, and
fuel. CBO estimated how much of the rise in food prices during that
time was due to an increase in the consumption of ethanol and how much
the rise in food prices would have boosted federal expenditures on food
assistance programs. In addition, they examine how increased use of
ethanol may lower emissions of greenhouse gases;
Model/Time/Data: Time period of April 2007 to April 2008. For corn
price increases attributed only to ethanol, CBO used estimates of
supply elasticities, along with the actual price increases from USDA.
CBO used a range of corn supply elasticity estimates of 0.3 to 0.5
gathered from the agricultural economics literature. To estimate the
impact of changing corn prices on the; CPI for food, CBO used the
proportion of corn used in total food expenditures and average price
increase of corn. For the federal food programs, CBO estimated the
changes in the CPI-U categories for food consumed at home and food away
from home attributable to increased production of ethanol;
Major assumptions:
* Assumed rising demand allowed producers to pass along the increase in
costs to consumers for corn, animal feed prices, and other crops;
* Assumed all food costs were passed along in the same period. Study
notes that the computation used a "snapshot" from 2007 of the
consumption and use of corn in the United States;
* CBO did not consider how the amount of biodiesel produced in 2007 and
2008 affected prices for corn and soybeans;
* For the food programs, calculations incorporated the assumption that
66 percent of calories were consumed at home and 34 percent of calories
were consumed away from home. Also assumed program participation
remained somewhat constant;
Scenarios: N/A;
Results:
* CBO estimates that corn prices increased by between 50 and 80 cents
per bushel between April 2007 and April 2008. This was a range
equivalent to between 28 percent and 47 percent of the increase in the
price of corn, which rose from $3.39 per bushel to $5.14 per bushel
during the same period;
* Overall, CBO estimates that from April 2007 to April 2008, the total
rise in food prices resulting from expanded production of ethanol
contributed between 0.5 and 0.8 percentage points (10-15% of the
increase) of the 5.1 percent increase in food prices as measured by the
consumer price index (CPI);
* To break this down, CBO estimated the higher prices of corn resulting
from the production of ethanol increased consumers' expenditures on
food by an additional 0.2 percent to 0.4 percent. Similarly, an
increase in soybean prices raised expenditures on food by between 0.2
percent and 0.3 percent;
* CBO projected for 2009 that increased production of ethanol and
higher prices for food most likely would account for an estimated $600
million to $900 million, or roughly 10 percent to 15 percent of the
change in federal spending for food and child nutrition programs as a
result of higher food prices[I];
* The impact of higher prices for food will probably be greater in
other countries because the percentage of households' income spent on
food is larger and the value of commodities makes up a bigger share of
the cost of food.
Model Description: Hayes, Babcock, Fabiosa, Tokgoz, Elobeid, Yu, Dong,
Hart, Chavez, Pan, Carriquiry, and Dumortier, Center for Agriculture
and Rural Development, March 2009:
Objective of the study: In an earlier paper, Tokgoz (2007) analyzed the
likely impact of the growing biofuel sector on the grain and livestock
sectors and on consumer prices. This report updates that earlier paper,
specifically, to allow for recent economic changes and policy changes
introduced by the provisions of the EISA, endogenizes gasoline and
ethanol prices, adjusts for the new blenders' credits, and increases
international farm-level production costs when energy prices rise;
Model/Time/Data: The model is similar to that used in the earlier paper
by Tokgoz et al. (2007, 2008). It utilizes the FAPRI model, a broad
partial equilibrium model of the world agricultural economy that is
used to develop a baseline calibrated on data from January, 2008. The
projection period is extended to the year 2022. Crude oil price
projections were taken from NYMEX and extended to 2022 using a simple
linear trend. The price of unleaded gasoline is calculated through a
price transmission mechanism;
Major assumptions:
* The model was revised to allow for the impact of ethanol production
on gasoline prices. Wholesale price of gasoline responsive to the
changes in ethanol supply at the rate of $0.03 per billion gallons;
* Revisions in model are made to explore long-run equilibrium effects;
* Ethanol capacity is fixed at 2008/09 and 2009/10 based on
construction reports, beyond that, model solves for it;
* International rice and cotton models were run;
* Higher crude oil prices in the U.S. increase the costs of production
for all crops;
* Assumes that the livestock producer passes along costs in full. Also,
that the retailer passes along these extra production costs on a dollar-
for-dollar basis;
Scenarios: Baseline: Used the provisions of the EISA and the energy
provisions of the farm bill of 2008, coupled with a crude oil price of
$75 per barrel;
1) "High Energy Price" scenario crude oil prices are increased by 40%,
to $105, and increased natural gas prices 19%;
2) "High Energy Price--Removal of Biofuel Tax Credits" high energy
price scenario without biofuel tax credits;
3) "Removal of Biofuel Support" includes the baseline $75 crude oil
price with the elimination of tax credits, the RFS, and import tariffs
and duties;
4) The "no bottleneck" scenario where the energy price is high and
there are no bottlenecks in the delivery mechanism for ethanol. Assumed
that market can absorb all ethanol mandated by RFS plus that by market
forces;
Results:
Baseline: Ethanol production from corn 16.9 billion gallons and uses
5.9 billion bushels of corn with total ethanol production at 32.9
billion gallons. The ethanol price is at $1.55/gallon. The price of
corn reaches $3.73/bushel and corn area planted is 101.2 million acres.
Soybean area planted is 73.6 million acres with a price of
$9.79/bushel;
High Energy Price: With a crude oil price of $105/barrel, total ethanol
production from corn increases by 50% and price increases by 18%. The
price of corn increases by about 20%, and corn net exports decline by
23%. Soybean planted area decreases by 7%, and price increases by 9%;
High Energy Price with Removal of Biofuel Tax Credits: Total ethanol
production from corn declines by 35% relative to the case of a high
petroleum price and a continuation of biofuel support policies. The
ethanol price declines by 11% and corn price falls by 16%. Less area
planted to corn leads to more land available for other crops;
Removal of Biofuel Support: Ethanol production from corn declines by
72%. The ethanol price increases by 13%, and ethanol use declines by
68%. Corn price decreases by 18%, planted area decreases by 9%, and
corn exports rise by 24%. Corn used for exports and for feed increases.
Less area going into corn means more area is available for other crops;
High Energy Price--No Bottleneck: Corn-based ethanol production reaches
39.8 billion gallons, and ethanol use is approximately 40% of gasoline
use. The ethanol sector uses more than 13 billion bushels of corn, and
price is $5.63;
Food Prices: CPI food component would increase by 0.8% for $1 increase
in corn. Price impacts greatest for grain-intensive products such as
eggs and poultry and impacts of value-added products much smaller.
Source: GAO analysis.
[A] We report only the results of the ETH60 scenario due to space
limitations. The authors also depict two other scenarios, including
ETH60CA, which allows corn-to-ethanol to adjust as cellulose-to-ethanol
becomes available in 2012, and ETH60CACD, which delays the cellulose-to-
ethanol technology until 2015, and the corn ethanol industry is allowed
to adjust.
[B] We excluded the results for the two scenarios in this article that
include the CGE modeling: (1) the effects of country biofuel mandates
in land-use changes and (2) one incorporating biofuels by-products.
[C] BIOCOST is a budget generator model developed by the Oak Ridge
National Laboratory to estimate the cost of producing bioenergy crops.
[D] We report on only certain questions or objectives posed by the
Texas A&M study that are pertinent to our analysis.
[E] We report on only a limited number of scenarios for the Biomass
Research and Development Board study regarding both the first and
second generation biofuels analyses.
[F] Billion gallons per year.
[G] Not applicable.
[H] Equivalent variations is the amount of money that, paid to a
person, group, or whole economy, would make them as well off as a
specified change in the economy. It provides a monetary measure of the
welfare effect of that change that is similar to, but not in general
the same as, compensating variation (Deardorff's Online Glossary of
International Economics).
[I] These programs included the Supplemental Nutrition Assistance
Program, formerly known as the Food Stamp program and Child Nutrition
Programs such as the National School Lunch Program, the School
Breakfast Program, and other, smaller programs.
[End of table]
[End of section]
Appendix III: Scientific Studies on the Environmental Impacts of
Biofuels:
Alexander, R.B. R.A. Smith, G.E. Schwarz, E.W. Boyer, J.V. Nolan, and
J.W. Brakebill. "Differences in Phosphorous and Nitrogen Delivery to
the Gulf of Mexico from the Mississippi River Basin," Environmental
Science and Technology, vol. 42, no. 3 (2008): 822-830.
Barney, J.N. and J.M. DiTomaso. "Nonnative Species and Bioenergy: Are
We Cultivating the Next Invader?" Bioscience, vol. 58, no. 1 (2008): 64-
70.
Bechtold, R., J. Thomas, S. Huff, J. Szybist, T. Theiss, B. West, M.
Goodman, and T. Timbario. Technical Issues Associated with the Use of
Intermediate Ethanol Blends (>E10) in the U.S. Legacy Fleet: Assessment
of Prior Studies, Oak Ridge National Laboratory, Department of Energy,
Oak Ridge, Tennessee, August 2007.
Berndes, G. "Bioenergy and water-the implication of large-scale
bioenergy production for water use and supply," Global Environmental
Change, vol. 12 (2002): 253-271.
Biomass Research and Development Board. Increasing Feedstock Production
for Biofuels, Economic Drivers, Environmental Implications, and the
Role of Research, Washington, D.C., March 2009.
Biomass Research and Development Board. The Economics of Biomass
Feedstocks in the United States, A Review of the Literature. Occasional
Paper No. 1, Washington, D.C., October 2008.
Börjesson, P. and G. Berndes. "The prospects for willow plantations for
wastewater treatment in Sweden," Biomass and Bioenergy, vol. 30 (2006):
428-438.
Chesapeake Bay Commission. Biofuels and the Bay: Getting It Right to
Benefit Farms, Forests and the Chesapeake, September 2007.
Delucchi, M. Emissions of Criteria Pollutants, Toxic Air Pollutants,
and Greenhouse Gases, From the Use of Alternative Transportation Modes
and Fuels, UCD-ITS-RR-96-12. Institute of Transportation Studies,
University of California. Davis, California, 2002.
Dominguez-Faus, R., S.E. Powers, J.G. Burken, and P.J. Alvarez. "The
Water Footprint of Biofuels: A Drink or Drive Issue?" Environmental
Science and Technology, vol. 43 (2009): 3005-3010.
Department of Energy. Energy Demands on Water Resources: Report to
Congress on the Interdependency of Energy and Water, Washington, D.C.,
December 2006.
Diaz, R.J. and R. Rosenberg. "Spreading Dead Zones and Consequences for
Marine Ecosystems," Science, vol. 321 (2008): pp. 926-929.
Donner, S.D. and C.J. Kucharik. "Corn-based ethanol production
compromises goal of reducing nitrogen export by the Mississippi River,"
Proceedings of the National Academy of Sciences, vol. 105, no.
11(2008):4513-4518.
Farrell, A.E., R.J. Plevin, B.T. Turner, A.D. Jones, M. O'Hare, and
D.M. Kammen. "Ethanol Can Contribute to Energy and Environmental
Goals," Science, vol. 311, no. 5760 (2006): 506-508.
Gerbens-Leenes, P.W., A.Y. Hoekstra, and Th. Van der Meer. "The water
footprint of energy from biomass: A quantitative assessment and
consequences of an increasing share of bio-energy in energy supply,"
Ecological Economics, (2008): Web-published.
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vol. 103, no. 30 (2006): 11206-11210.
Hill, J., S. Polasky, E. Nelson, D. Tilman, H. Huo, L. Ludwig, J.
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air emissions from biofuels and gasoline," Proceedings of the National
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Malcom, S. and M. Aillery. "Growing Crops for Biofuels Has Spillover
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Mitchell, R., K.P. Vogel, and G. Sarath. "Managing and enhancing
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Morris, R.E., A.K. Pollack, G.E. Mansell, C. Lindhjem, Y. Jia, and G.
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National Research Council. Nutrient Control Actions for Improving Water
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National Academies Press, Washington, D.C., 2008.
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National Research Council. Water Implications of Biofuels Production in
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Orbital Engineering Company, Market Barriers to the Uptake of Biofuels
Study: A Testing Based Assessment to Determine Impacts of a 20% Ethanol
Gasoline Fuel Blend on the Australian Passenger Vehicle Fleet, Report
to Environment Australia, March 2003.
Orbital Engineering Company, Market Barriers to the Uptake of Biofuels
Study: Testing Gasoline Containing 20% Ethanol (E20), Phase 2B-Final
Report, Report to Department of the Environment and Heritage of
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Powers, S.E. Quantifying Cradle-to-Farm Gate Life-Cycle Impacts
Associated with Fertilizer Used for Corn, Soybean, and Stover
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NREL/TP-510-37500, Golden, CO, May 2005.
Powers, S.E. "Nutrient Loads to Surface Water from Row Crop
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Rabalais, N.N., R.E. Turner, B.K. Sen Gupta, E. Platon, and M.L.
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the Northern Gulf of Mexico," Ecological Applications, vol. 17, no. 5
(2007): S129-S143.
Robertson, G.P, V.H. Dale, O.C. Doering, S.P. Hamburg, J.M. Melillo,
M.M. Wander, W.J. Parton, P.R. Adler, J.N. Barney, R.M. Cruse, C.S.
Duke, P.M. Fearnside, R.F. Follett, H.K. Gibbs, J. Goldemberg, D.J.
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Weathers, J.A. Wiens, W.W. Wilhelm. "Sustainable Biofuel Redux,"
Science, vol. 322 (2008): 49-50.
Ruiz-Aguilar, G.M.L., K. O'Reilly, and P.J.J. Alvarez, "A Comparison of
Benzene and Toluene Plume Lengths for Sites Contaminated with Regular
vs. Ethanol-Amended Gasoline," Ground Water Monitoring & Remediation,
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Secchi, S., P.W. Gassman, M. Jha, L. Kurkalova, H.H. Feng, T. Campell,
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Secchi, S., J. Tyndall, L.A. Schulte, and Heidi Asbjornsen. "High crop
prices and conservation: Raising the Stakes," Journal of Soil and Water
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Simpson, T.W., A.N. Sharpley, R.W. Howarth, H.W. Paerl, and K.R.
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Water Quality," Journal of Environmental Quality, vol. 37(2008): 318-
324.
Tillman, D., J. Hill, and C. Lehman. "Carbon-Negative Biofuels from Low-
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(2006): 1598-1600.
Turner, R.E., N.N. Rabalais, and D. Justic. "Gulf of Mexico Hypoxia:
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and Small Non-Road Engines, Report 1. Oak Ridge National Laboratory,
U.S. Department of Energy, Oak Ridge, TN, October 2008.
Winebrake, J.J., M.Q. Wang, and D. He. "Toxic Emissions from Mobile
Sources: A Total Fuel-Cycle Analysis for Conventional and Alternative
Fuel Vehicles," Journal of the Air & Waste Management Association, vol.
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Analysis by Center for Transportation Research, Argonne National
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Wu, M., M. Mintz, M. Wang, and S. Arora. Consumptive Water Use in the
Production of Ethanol and Petroleum Gasoline. Center for Transportation
Research, Energy Systems Division, Argonne National Laboratory, January
2009.
Wu, M., Y. Wu, and M. Wang. "Energy and Emission Benefits of
Alternative Transportation Liquid Fuels Derived from Switchgrass: A
Fuel Life Cycle Assessment," Biotechnology Progress, vol. 22 (2006):
1012-1024.
[End of section]
Appendix IV: Key Studies on the Lifecycle Greenhouse Gas Effects of
Biofuels:
Dale B. "Thinking Clearly About Biofuels: Ending The Irrelevant 'Net
Energy' Debate And Developing Better Performance Metrics For
Alternative Fuels," Biofuels, Bioproducts, and Bioreferences, vol. 1
(2007): 14-17.
Del Grosso S.J., Ogle S.M., Parton W.J., and Adler P.R. "Impacts of
Land Conversion for Biofuel Cropping on Soil Organic Matter and
Greenhouse Gas Emissions," p. 58-67. In: M. Khanna (Ed.) Transition to
a BioEconomy: Environmental and Rural Development Impacts, Proceedings
of the October 15 and 16, 2008 Conference, St. Louis, Missouri, Farm
Foundation Oak Brook, IL.
Del Grosso S.J., Mosier A.R., Parton, W.J., Ojima, D.S. "DAYCENT model
analysis of past and contemporary soil N2O and net greenhouse gas flux
for major crops in the USA," Soil and Tillage Research, vol. 83 (2005):
9-24.
Delucchi M.A. "Conceptual and Methodological Issues in Life Cycle
Analysis of Transportation Fuels," U.S. Environmental Protection Agency
Office of Transportation and Air Quality, 2004.
Kammen D.M., Farrell, A.E., Plevin R.J., Jones, A.D., Nemet G.F., and
Delucchi M.A. "Energy and Greenhouse Gas Impacts of Biofuels: A
Framework for Analysis," UCD-ITS-RR-0804, Institute of Transportation
Studies, University of California, Davis, 2008.
Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P. "Land
Clearing and the Biofuel Carbon Debt," Science, vol. 319, issue 5867
(2008): 1235-1238.
Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P.
"Supporting Online Material for Land Clearing and the Biofuel Carbon
Debt," Science Express, 2008.
Farrell A.E., Plevin R.J., Turner, B.T., Jones, A.D., O'Hare, M., and
Kammen, D.M. "Ethanol Can Contribute to Energy and Environmental
Goals," Science, vol. 311, issue 5760 (2006): 506-508.
Food and Agriculture Organization of the United Nations. "The State of
Food and Agriculture: Biofuels - Prospects, Risks, and Opportunities."
Rome, Italy, 2008.
Gallagher E. "The Gallagher Review of the Indirect Effects of Biofuels
Production," U.K. Renewable Fuels Agency. United Kingdom: 2008.
Gibbs H.K., Johnston M., Foley J.A., Holloway T., Monfreda, C.,
Ramankutty, N., and Zaks, D. "Carbon Payback Times for Crop-Based
Biofuel Expansion in the Tropics: The Effects of Changing Yield and
Technology," Environmental Research Letters, vol. 3 (2008): 1-10.
Gibbs, H.K., Johnston, M., Foley, J., Holloway, T., Monfreda, C.,
Ramankutty N., and Zaks, D. Supporting online material for "Carbon
Payback Times for Crop-Based Biofuel Expansion in the Tropics: The
Effects of Changing Yield and Technology," Environmental Research
Letters, 3 (2008): 034001.
Hill J., Polasky S., Nelson E., Tilman D., Huo H., Ludwig L., Neumann
J., Zheng H., and Bonta D. "Climate Change and Health Costs of Air
Emissions from Biofuels and Gasoline," Proceedings of the National
Academies of Sciences, vol. 106, no. 6 (2009): 2077-2082.
Hill J., Polasky S., Nelson E., Tilman D., Huo H., Ludwig L., Neumann
J., Zheng H., and Bonta D. Supporting information for "Climate Change
and Health Costs of Air Emissions from Biofuels and Gasoline,"
Proceedings of the National Academies of Sciences, vol. 106, no. 6
(2009): 2077-2082.
Hill J., Nelson E., Tilman D., Polasky S., and Tiffany, D.
"Environmental, Economic, and Energetic Costs and Benefits of Biodiesel
and Ethanol Biofuels," Proceedings of the National Academy of Sciences,
vol. 103, no. 30 (2006): 11206-11210.
Khanna, M. "Cellulosic Biofuels: Are the Economically Viable and
Environmentally Sustainable?" Choices - A Publication of the
Agricultural and Applied Economics Association, vol. 23, no. 3 (2008):
16-21.
Kim H., Kim S., Dale B.E. "Biofuels, Land Use Change, and Greenhouse
Gas Emissions: Some Unexplored Variables." Environmental Science and
Technology, Accepted November 2008 (pre-publication).
Kim M.K., and McCarl B.A. "Carbon Sequestration and Its Trading in
U.S." Invited paper prepared for presentation at the Symposium on
Measures to Climatic Change in the Agricultural Sector, Rural
Development Administration (RD), (Korea) National Institute of
Agriculture Science and Technology (NIAST), Seoul, Korea, September 7-
11, 2008.
Kim S. and Dale B.E. "Allocation Procedure in Ethanol Production System
from Corn Grain," International Journal of Life Cycle Assessment, vol.
7, no. 4 (2002): 237-243.
Kim S. and Dale B.E. "Effects of Nitrogen Fertilizer Application on
Greenhouse Gas Emissions and Economics of Corn Production,"
Environmental Science and Technology, vol. 42, no. 16 (2008): 6028-
6033.
Kim S. and Dale B.E. "Ethanol Fuels: E10 or E85 - Life Cycle
Perspectives," International Journal of Life Cycle Assessment,
OnlineFirst (2005): 1-5.
Kim S. and Dale B.E. "Life cycle assessment of fuel ethanol derived
from corn grain via dry milling," Bioresource Technology, vol. 99, no.
12 (2008): 5250-5260.
Kim S. and Dale B.E. "Life Cycle Assessment of Various Cropping Systems
Utilized for Producing Biofuels: Bioethanol and Biodiesel," Biomass and
Bioenergy, vol. 29 (2005): 426-439.
Liebig M.A., Schmer M.R., Vogel K.P., Mitchell R.B. "Soil Carbon
Storage by Switchgrass Grown for Bioenergy," Bioenergy Research (2008):
215-222.
Liska A.J., Yang H.S., Bremer V.R., Klopfenstein T.J., Walters D.T.,
Erickson G.E., and Cassman K.G. "Improvements in Life-Cycle Energy
Efficiency and Greenhouse Gas Emissions of Corn-Ethanol," Submitted to
the Journal of Industrial Ecology, Nov. 10, 2008 (prepublication).
Liska A.J. and Cassman K.G. "Towards Standardization of Life-Cycle
Metrics for Biofuels: Greenhouse Gas Emissions Mitigation and Net
Energy Yield," Journal of Biobased Materials and Bioenergy, vol. 2
(2008): 187-203.
McCarl B., Gillig D., Lee H.C., Qin X., Cornforth G. "Potential for
Biofuel-Based Greenhouse Gas Emission Mitigation: Rationale and
Potential." Presentation for Agriculture as a Producer and Consumer of
Energy Conference, Farm Foundation, Washington D.C., June 2004:
McCarl, B.A. "Lifecycle Carbon Footprint, Biofuels and Leakage:
Empirical Investigations." Presented at USDA, FARM Foundation
Conference on The Lifecycle Carbon Footprint of Biofuels: January 29,
2008, in Miami.
McCarl, B.A. "Bioenergy in a greenhouse mitigating world," Choices--A
Publication of the Agricultural and Applied Economics Association, vol.
23, no.1 (2008): 31-33.
McCarl, B.A., Maung T., and Szulczyk K.T. "Could Bioenergy be Used to
Harvest the Greenhouse: An Economic Investigation of Bioenergy and
Climate Change?" Chapter in Handbook of Bioenergy Economics and Policy,
edited by Madhu Khanna, Jurgen Scheffran, and David Zilberman,
forthcoming, spring 2009:
Patzek T.W. "A First-Law Thermodynamic Analysis of the Corn-Ethanol
Cycle," Natural Resources Research, vol. 15, no. 4 (2006): 255-270.
Patzek, T.W. "A Statistical Analysis of the Theoretical Yield of
Ethanol from Corn Starch," Natural Resources Research, vol. 15, no. 3
(2006): 205-212.
Patzek, T.W. "Thermodynamics of Agricultural Sustainability: The Case
of U.S. Maize Agriculture," Critical Reviews in Plant Sciences, vol.
27, no. 4 (2008): 272-293.
Pimentel D. and Patzek T. "Ethanol Production Using Corn, Switchgrass,
and Wood; Biodiesel Production Using Soybean and Sunflower," Natural
Resources Research, vol. 14, no. 1 (2005): 65-76.
Schmer M.R., Vogel K.P, Mitchell R.B., and Perrin R.K. "Net Energy of
Cellulosic Ethanol from Switchgrass," Proceedings of the National
Academy of Sciences, vol. 105, no. 2 (2008): 464-469.
Searchinger T., Heimlich R., Houghton R.A., Dong F., Elobeid A.,
Fabiosa J., Tokgoz S., Hayes D., and Yu T. "Use of U.S. Croplands for
Biofuels Increases Greenhouse Gases through Emissions from Land-Use
Change," Science, vol. 319 (2008): 1238-1240.
Searchinger T., Heimlich R., Houghton R.A., Dong F., Elobeid A.,
Fabiosa J., Tokgoz S., Hayes D. and Yu T. "Supporting Online Material
to 'Use of U.S. Croplands for Biofuels Increases Greenhouse Gases
Through Emissions from Land-Use Change.'" Published 7 February 2008 on
Science Express.
Shapouri H. Duffield J., and McAloon A.J. "The 2001 Net Energy Balance
of Corn Ethanol." Proceedings on the Conference on Agriculture as a
Producer and Consumer of Energy, Arlington, VA, June 24-25, 2004.
Sheehan, J., Aden, A., Paustian, K., Killian, K., Brenner, J., Walsh,
M., and Nelson, R. "Energy and Environmental Aspects of Using Corn
Stover for Fuel Ethanol," Journal of Industrial Ecology, vol. 7, no. 3-
4 (2004): 117-146.
Sylvester-Bradley, R. "Critique of Searchinger (2008) and Related
Papers Assessing Indirect Effects of Biofuels on Land-Use Change." ADAS
UK Ltd. Prepared for the U.K. Renewable Fuels Agency. United Kingdom:
2008.
Tillman D., Hill J., and Lehman, C. "Carbon-Negative Biofuels from Low-
Input High-Diversity Grassland Biomass," Science, vol. 314, no. 5805
(2006): 1598-1600.
Wang M. and Huo H. "Fuel-Cycle Assessment of Selected Bioethanol
Production Pathways in the United States." Sponsored by the U.S.
Department of Energy, Office of Energy Efficiency and Renewable Energy.
Argonne National Laboratory Center for Transportation Research, 2006.
Wang M., Huo H., Hong H., and Arora S. "Methods of Dealing with Co-
Products of Biofuels in Life-Cycle Analysis and Consequent Results
within the U.S. Context," Forthcoming in Energy Policy Journal.
Submitted November 2008; Revised in June 2009:
Wang M.Q. "Wells-to-Wheels Energy and Greenhouse Gas Emission Results
and Issues of Fuel Ethanol." Chapter from Biofuels, Food and Feed
Tradeoffs. 2008 (prepublication).
Wu M., Wang M., Liu J., and Huo H. "Life-Cycle Assessment of Corn-Based
Butanol as a Potential Transportation Fuel," Sponsored by the U.S.
Department of Energy, Office of Energy Efficiency and Renewable Energy.
Argonne National Laboratory Center for Transportation Research, 2007.
Wu M., Wu Y., and Wang M. "Energy and Emission Benefits of Alternative
Transportation Liquid Fuels Derived from Switchgrass: A Fuel Life Cycle
Assessment," Biotechnology Progress, vol.22 (2006): 1012-1024.
[End of section]
Appendix V: Recent Studies on Federal Supports for Biofuels:
Bruce A. Babcock, Center for Agricultural and Rural Development, Iowa
State University, Statement before the U.S. Senate Committee on
Homeland Security and Governmental Affairs, Hearing on Fuel Subsidies
and Impact on Food Prices (May 7, 2008).
Congressional Budget Office, The Impact of Ethanol Use on Food Prices
and Greenhouse-Gas Emissions (Washington, D.C.: April 2009).
Council on Foreign Relations, Independent Task Force Report No. 61,
Confronting Climate Change: A Strategy for U.S. Foreign Policy, (New
York, N.Y.: June 2008).
Harry de Gorter and David R. Just, "The Economics of a Blend Mandate
for Biofuels" forthcoming American Journal of Agricultural Economics,
vol. 91: in press (2009).
Harry de Gorter and David. R. Just, "The Law of Unintended
Consequences: How the U.S. Biofuel Tax Credit with a Mandate Subsidizes
Oil Consumption and Has No Impact on Ethanol Consumption," Department
of Applied Economics and Management Working Paper No. 2007-20, Cornell
University (Oct. 23, 2007). [hyperlink,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1024525].
Harry de Gorter and David R. Just, "The Welfare Economics of the U.S.
Ethanol Consumption Mandate and Tax Credit." Department of Applied
Economics and Management Working Paper unpublished, Cornell University
(Nov. 4, 2008).
Bruce Gardner, "Fuel Ethanol Subsidies and Farm Price Support," Journal
of Agricultural & Food Industrial Organization, vol. 5, iss. 2 (Dec.
2007):
Farzad Taheripour and Wallace E. Tyner, "Ethanol Subsidies, Who Gets
the Benefits?" Purdue University, paper presented at Biofuels, Food and
Feed Tradeoffs Conference, St. Louis, MO (April 12-13, 2007).
Wallace E. Tyner and Farzad Taheripour, "Future Biofuels Policy
Alternatives," Department of Agricultural Economics, Purdue University,
paper presented at Biofuels, Food, and Feed Tradeoffs Conference, St.
Louis, MO (April 12-13, 2007).
Pat Westhoff, Wyatt Thompson, and Seth Meyer, "Impact of Selected US
Ethanol Policy Options," Food and Agricultural Policy Research
Institute, Report No. 04-09, University of Missouri (Columbia, MO: May
2009).
[End of section]
Appendix VI: Economic Linkages of the Corn Ethanol Industry to Food and
Agricultural Markets:
Figure 8 depicts some of the complex economic linkages of the ethanol
industry to food and agricultural markets. Each of the markets is shown
as a box and is related by supply and demand factors to other markets.
Additional boxes, such as the one called "Biofuel Drivers," depict
external energy factors that drive these markets. In the figure, the
boxes are connected by arrows, signifying that a change in a driver or
a market leads to a change in another market. For instance, drivers of
the biofuels market, such as the Renewable Fuel Standard (RFS),
increase the demand for ethanol in the ethanol market, and thus the
demand for corn for ethanol in the corn market. Within the boxes are a
series of bullets indicating either the drivers of change or factors
changing within a market. For example, within the ethanol market, an
increase in demand for ethanol causes an increase in the price of
ethanol, which causes an increase in production of both ethanol and
ethanol by-products.
Figure 8: Economic Linkages of Ethanol Production to Food and
Agricultural Markets:
[Refer to PDF for image: illustration]
The following economic linkages (as described above) are depicted in
the illustration:
Biofuel drivers (external factor)[linked to Ethanol market]:
* RFS;
* Ethanol tax credit;
* Petroleum prices.
Ethanol market (ethanol and agricultural market)[linkage and feedback
effects with Feed by-product market and Crop market]:
* Demand for ethanol;
* Ethanol price;
* Ethanol production;
* Corn by-product production.
Feed by-product market (ethanol and agricultural market)[linkage and
feedback effects with Ethanol market, Livestock market, and Crop
market]:
* Corn by-product prices;
* Price of substitutes for by-products.
Crop market (ethanol and agricultural market)[linkage and feedback
effects with Ethanol market, Food by-product market, Input markets,
Livestock market, Export market, Consumer market, and Farm returns]:
Corn:
* Demand for corn for ethanol;
* Total corn demand;
* Price of corn;
Other crops:
* Soybean prices;
* Barley prices;
* Wheat prices;
* Cotton prices.
External factors [linked to Crop market, Input markets, and Export
market]:
* Weather;
* Agricultural policies;
* Trade policies.
Input markets [linkage and feedback effects with Crop market]
* Land;
* Fertilizer;
* Pesticides.
Livestock market (ethanol and agricultural market)[linkage and feedback
effects with Food by-product market, Input markets, Crop market,
Consumer market, and Farm returns]:
* Feed prices;
* Livestock inventories;
* Price of livestock.
Export market (final market) [linkage with External factors; linkage
and feedback effects with Crop market]:
* Corn for export;
* Other crops for export;
* Livestock export and beef, turkey, pork, and poultry.
Consumer market (final market) [linkage and feedback effects with Crop
market and Livestock market]:
* Price of food containing corn;
* Price of food containing other crops;
* Price of beef, turkey, pork, and poultry.
Farm returns (final market) [linkage and feedback effects with Crop
market and Livestock market]:
* Corn prices and production;
* Other crops‘ prices and production;
* Livestock prices and production;
* Input prices;
* Government payments.
Source: GAO.
[End of figure]
In the upper left-hand corner of figure 8, petroleum prices (in
particular, gasoline prices for which ethanol is a substitute), the
ethanol tax credit, and the Renewable Fuel Standards are all primary
"biofuels drivers," leading to increases in the price and production of
ethanol. As the ethanol price rises, so does the derived demand for
corn for ethanol and thus corn prices in the crop market. Assuming
overall production of corn remains constant during the period in
question, corn used for ethanol would increase and corn used for feed
is reduced. The increased corn price ripples down into the livestock
market, increasing feed costs, and the price of livestock. At the same
time, with greater ethanol production, there are larger supplies of the
ethanol by-product, dried distiller's grains (DDG), an animal feed by-
product, reducing its price in the feed market. To a certain extent,
the lower-priced DDGs counterbalance the rise in corn prices in the
livestock market. Also, instead of corn for feed, livestock producers
may be able to substitute other crops in livestock rations, such as
barley or hay. However, the effects of higher corn prices would very
likely dominate for livestock such as poultry, swine, and dairy cows,
since in general corn is a more important feed source than DDGs and
there are limits on substituting by-products for corn. In the short-
run, some producers may be able to mitigate the effect of higher corn
prices by decreasing livestock inventories. Nevertheless, these cost
increases lead to an overall decrease in livestock production and an
increase in livestock prices.
In the longer-term, the higher demand for ethanol and higher corn
prices affect farmers' future expectations, providing incentives for
different crop, land allocation, and input decisions. For instance,
with higher corn prices, farmers may switch from a corn-soybean
rotation to a corn-corn rotation. With reduced supplies of other crops,
such as soybeans and barley, their prices also increase. The higher
demand for and price of corn and other crops would also affect the
demand for and prices of agricultural inputs associated with crop
production. For instance, the higher demand for corn for ethanol may
provide economic incentives for farmers to take land out of pasture or
rangeland and devote this land to crop cultivation. Prices or rental
rates for cropland would then be bid up. The increased land devoted to
crop cultivation also increases the demand for and prices of other
inputs such as fertilizer and pesticides. Furthermore, these increased
prices in the input market would have feedback effects on the corn and
other crop and livestock markets.
For the farmer, the impact of the increase in corn prices as well as
other crop prices would be an increase in net farm income. This may be
tempered somewhat by the increasing costs of inputs. In the near term,
for the livestock producer, increased feed costs may lead to lower
overall returns to livestock production and lower net farm income. The
main short-term adjustment option to higher costs for livestock
producers is liquidation which would increase revenue temporarily to
the individual producer. However, this could depress meat prices in the
market and ultimately prevent livestock producers from covering higher
feed costs. Also, in the absence of wide-spread herd liquidation, any
short-term increase in meat prices could trigger an increase in imports
from lower cost producers overseas, which in turn may lower prices.
Many analysts see the livestock sector shrinking as ethanol expansion
could ultimately lead to a smaller U.S. sector and more production
shifting overseas. As far as government payments to farmers, increased
ethanol demand would lead to lower counter-cyclical payments and
marketing loan benefits because crop prices would be supported above
the levels triggering these program benefits.
For consumers, higher prices for corn and other crops and livestock are
eventually passed on in the form of higher food prices, although the
share of the farm value and the amount of pass-through of price
increases may be small. These food products for which consumer prices
are expected to rise are meat or other processed food products that
contain corn (such as high-fructose corn syrup) or other crops.
In the export market, increases in the price of corn and other crops,
all else being equal, would generally cause U.S. corn exports to
decrease compared to competing exporters. However, depending on other
factors, such as world demand, exchange rates, stock levels, and world
weather patterns, higher corn and other crop prices may not cause
exports to contract and receipts from these exports may even increase.
Conversely, if the biofuel drivers were to decrease, all else being
equal, the impacts would go in the opposite direction. For instance, if
gasoline prices decrease, reducing the demand for ethanol, ethanol
prices and production would also decrease. This could trickle down to
other agricultural markets, contributing to lower crop prices,
including the price of corn and other crops, livestock prices, the
prices of inputs, and eventually the prices of food. Outside factors,
such as weather, agricultural policies, and trade policies can either
lessen or increase the impact of ethanol on crop and livestock markets.
For instance, a production decline caused by a drought could amplify
the price impacts of a large RFS target on the corn market.
[End of section]
Appendix VII: Summary of Researchers' Assumptions and Conclusions about
Lifecycle Greenhouse Gas Emissions of Biofuels Production:
This appendix describes the key assumptions and conclusions of 17
researchers we interviewed who have published work in the past 4 years
on the lifecycle greenhouse gas effects of biofuels production. See
appendix IV for a bibliography of the 46 research articles we reviewed.
Researcher: Timothy Searchinger (Princeton University);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Food crops for biofuels will trigger higher crop prices and induce
farmers worldwide to clear more forest and grassland;
* Carbon sequestered will always be higher if the land reverts to its
native form than if it is used for biofuel feedstocks;
* Cellulosic feedstocks will be grown on productive, not marginal land;
* No energy is allocated to co-products for cellulosic feedstocks.
Researcher: Ralph Heimlich (Agricultural Conservation Economics);
Assumptions and conclusions influencing greenhouse gas emission
results:
* No new land will be available for biofuel feedstock production--these
crops will come from existing croplands or "natural" lands;
* Yields will continue to increase at the same rate as they have
historically, but yields will not respond to price increases;
* General equilibrium models do not adequately estimate costs of
production on marginal land;
* No energy is allocated to co-products for cellulosic feedstocks.
Researcher: Tad Patzek (University of Texas);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Includes cumulative free energy consumed in farming and production as
opposed to limiting inputs to fossil fuels;
* Includes as energy inputs both the photosynthetic energy value of
corn grain as well as the energy used to restore biodiversity damage
created by biofuel feedstocks;
* Processing co-products should be returned to the field.
Researcher: David Pimentel (Cornell University);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Using lignin as fuel for cellulosic conversion might not save energy;
* Uses fossil fuels as utility energy inputs for both corn ethanol and
cellulosic ethanol;
* Corn stover or other agricultural residue would intensify soil
erosion and further degrade ecosystems by removing nutrients and other
species and should not be used for ethanol;
* Includes energy inputs from farm labor, farm machinery, hybrid corn,
and irrigation.
Researcher: Holly Gibbs (University of Wisconsin);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Industrialized nations with biofuel mandates are unlikely to have the
land needed to meet the demand for agricultural biofuels;
* Expansion of biofuels into productive tropical ecoystems will always
lead to net carbon emissions for decades to centuries;
* Expanding into degraded or already cultivated land will provide
almost immediate carbon savings;
* Increased demand for crop-based biofuels will likely require
expanding agricultural production at the expense of tropical
ecosystems;
* Crop yield improvements could increase biofuel production and in turn
improve the carbon payback time;
* No energy is allocated to co-products.
Researcher: Joseph Fargione (The Nature Conservancy);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Agricultural land diverted to biofuel production from food crops
causes land in undisturbed ecosystems to be converted to biofuel crop
production, resulting in large carbon debts;
* Some cellulosic feedstocks may also accelerate land clearing by
adding to the agricultural land base needed for biofuels;
* No-till farming might not result in soil carbon savings;
* Crops grown on abandoned agricultural land or from waste biomass may
not accelerate land clearing;
* Energy is allocated to co-products using market-based method.
Researcher: Jason Hill (University of Minnesota);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Carbon saved might not be higher if the land reverts to its native
form if the biofuel feedstocks sequester more carbon than the original
land;
* Used abandoned land as test sites for high-diversity grassland
instead of land that could still be used for farming;
* No-till farming might not affect the amount of carbon lost;
* Recent advances in crop yields and in system machinery reduce biofuel
energy impacts.
Researcher: Erik Nelson (University of Minnesota);
Assumptions and conclusions influencing greenhouse gas emission
results:
* The primary information gap in lifecycle analyses is how land-use
change is linked to biofuels, since researchers cannot always
differentiate between existing baseline changes and changes due to
biofuels;
* Energy allocated to co-products using mass balance - the weight of
the co-product versus the weight of ethanol;
* The method used to allocate energy to the co-product can change the
final energy impacts.
Researcher: Michael Wang (Argonne National Laboratory, DOE);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Including land-use changes is correct, but current models cannot
project the extent to which land-use changes might affect biofuel
energy impacts;
* Cellulosic feedstocks may not cause indirect land-use change impacts;
* Increased yields and conversion productivity will reduce greenhouse
gas impacts;
* Agricultural practices and utility process fuels can reduce impacts;
* Energy is allocated to co-products using economic displacement.
Researcher: Mark Delucchi (University of California at Davis);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Methods used to measure land-use change have significant
uncertainties and omissions, including market-mediated effects, land-
use change, climate impacts of emissions, and uncertain and highly
variable data;
* There is not one single model and no well-accepted method that all
researchers agree is the right one for calculating the magnitude of
land-use change effects;
* Changes in carbon stocks related to deforestation might be the most
important factor associated with land-use conversion;
* The environmental performance of ethanol varies greatly depending on
production processes.
Researcher: Ken Vogel and Marty Schmer (Agricultural Research Service,
USDA);
Assumptions and conclusions influencing greenhouse gas emission
results:
* There is no proof regarding indirect land-use change--high commodity
prices from feedstocks may not lead to land change;
* Lignin from cellulosic feedstocks can be used to power biorefineries;
* No-till farming technique will lead to a zero-loss of soil carbon;
* Switchgrass will be grown on marginal land, not productive land.
Researcher: Bruce Dale (Michigan State University);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Current economic and equilibrium models cannot project global land-
use, including unused and marginal land;
* Productive use could made of cleared timber, farmers could use
conservation tillage or cover crops instead of plow tillage;
* Cover crops grown in the fall could reduce nitrogen leaching from the
soil and greenhouse gas emissions, as well as lead to negative land
requirements if the crop is harvested as an animal feed;
* Marginal and unused land should be included in the modeling.
Researcher: Kenneth Cassman (University of Nebraska-Lincoln);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Does not include indirect land-use changes in response to commodity
price increases because such indirect effects are applied generally to
all corn ethanol at a national or global level and are not specific to
a particular corn-ethanol biorefinery;
* Updated energy efficiencies in new ethanol plants that have initiated
production since 2005 can reduce greenhouse gas emissions;
* Advances in agronomic science, not in genomic or biotechnology
breakthroughs, can result in increased corn yields and reduced
environmental impacts;
* Includes updated energy efficiencies in new ethanol plants, including
plants that are located in close proximity to cattle feeding operations
to reduce co-product greenhouse gas emissions;
* Energy is allocated to co-products using displacement method.
Researcher: Madhu Khanna (University of Illinois);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Research is not clear on increases and decreases in biofuel acreage
in response to prices;
* The amount of existing carbon in soil and biomass is unknown;
* At least one feedstock could be grown and harvested on Conservation
Reserve Program land that would not compete with food and feed
cropland.
Researcher: Steve Del Grosso (Texas A&M University);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Researchers have to make assumptions about the elasticity of the
supply of feed that might affect measurement results for indirect land-
use change impacts;
* Conversion to no-tillage at the national scale could mitigate about
20 percent of U.S. agricultural emissions.
Researchers: Bruce McCarl; (Texas A&M University);
Assumptions and conclusions influencing greenhouse gas emission
results:
* Indirect land-use change does affect analysis results, but no data
are available on how much land would be replaced;
* Used a model that does not include alternative sources for utilities,
such as biomass, but currently uses the average for the region;
* Satellite data to find implied land-use changes are not accurate;
* Allocates energy to co-products based on both the displacement method
and market price.
Source: GAO's analysis of greenhouse gas literature and interviews
conducted with key researchers.
[End of table]
[End of section]
Appendix VIII: Comments from the Department of Agriculture:
USDA:
United States Department of Agriculture:
Research/Education/Economics:
Office of the Under Secretary:
Room 216W:
Jamie L. Whitten Building:
Washington, DC 20250-0110:
July 30, 2009:
Ms. Patricia Dalton:
Managing Director:
U.S. Government Accountability Office:
441 G. Street, NW., Rm. 2T23A:
Washington, D.C. 20548:
Dear Ms. Dalton:
On behalf of the Department of Agriculture (USDA), I am responding to
your letter of June 17, 2009, to Secretary Vilsack, requesting USDA
comments on your draft report: "Biofuels: Challenges and Potential
Effects of Required Increases in Production" (GAO-09-446). We
appreciate the time and effort you and your staff have invested in
reviewing this important topic, the care that you have taken to ensure
your report is constructive and accurate, and the opportunity to
review.
Overall, USDA considers the draft report to be a comprehensive, well-
written, and accurate representation of the Government Accountability
Office (GAO) review process involving USDA officials and experts.
Indeed, the GAO provides a broad view that would be difficult for any
one agency to replicate, and the resulting report will be a useful
review reference for many parties having interest in the production of
feedstocks for biofuels, including lawmakers considering energy
legislation in the coming months. The report appropriately highlights
the complexity of the issues and the many uncertainties ahead. We agree
with most of the findings and conclusions. In the interest of
strengthening the report, we offer several substantive comments and
statements on recommendations for executive action.
Substantive Comments:
1. Although we do not dispute most findings and conclusions, we note
that the report generally tends to emphasize negative aspects of
increased biofuels production. Since the title of the report refers to
"challenges" of required increases in production, the reader is
prepared for emphasis on potential adverse effects, and we consider
many of these to be priorities for research in USDA. However, some of
the negative effects may be overstated, including the extent of
feedstock production and its adverse impacts on the environment. We
suggest that the impact of feedstock production might be assessed
differently under alternative-and equally likely-scenarios. Moreover,
we saw few positive outcomes from increased biofuels production
discussed in the report. For example, in discussing the potential
problems of using ethanol in small engines (e.g., lawn mowers), the
report provides virtually no consideration of the major benefits to air
quality arising from the Environmental Protection Agency (EPA)
reformulated gasoline program that relies on ethanol as a clean air
additive. In some cases where studies critical of biofuels are cited,
the literature answering such criticisms is not offered as a balance.
To be sure, we agree that increasing biofuels production will present
challenges such as those cited in the report concerning water quality
and quantity, soil erosion, fertilizer use and runoff, pests and
pesticide use, air quality, and wildlife habitat. However, these are
challenges facing agriculture and forestry in general, and USDA has
vigorous research programs addressing such challenges in many
production systems and contexts. We are more optimistic than the
report's writers that current and future research and development will
rise to those challenges.
2. The report is written as if the EPA study on the Renewable Fuels
Standard is still in progress. This study has been released. The GAO
report could be improved if the EPA study's findings and conclusions
are discussed, along with dimensions of the debate on including
indirect land use changes in projecting impacts of biofuel feedstock
production.
3. The report notes several mechanisms and processes that facilitate
coordination of research and development spread among several
Departments and agencies, but the report does not recognize one type of
obstacle to achieving the best possible biofuels research: restrictions
on eligibility for some research funding programs. The Energy Policy
Act of 2005, Section 989, "Merit Review of Proposals," subsection (b)
precludes scientists at Government Owned-Government Operated research
facilities, such as those operated by researchers employed by the USDA
Agricultural Research Service or Forest Service, from applying for and
receiving research funds from the Department of Energy (DOE) Bioenergy
Research Centers program. Competitive research funding programs should
be open to competition from all sources to ensure support of the best
science in the public interest. The report's recognition of how
restricted funding eligibility limits the participation of certain
Federal scientists could stimulate changes that enhance the pool of
research talent available to focus on important topics in bioenergy
research and development.
4. The impact of linkages between the corn ethanol industry and the
livestock industry (Appendix VI, page 172) needs clarification and
correction. In particular, the conclusion that the livestock industry
could achieve an increase in net farm income due to increasing ethanol
demand is questionable. We believe it would be possible only under
certain assumptions the report's authors seem to have accepted without
adequately explaining or justifying them. The discussion in Appendix VI
does not seem consistent with the main text where impacts on the
livestock sector are discussed (pages 43-44). Although our more
detailed response to this issue can be found in our technical comments,
our doubts about the report's conclusion on this important issue are
substantial.
Comments on Recommendations for Executive Action:
(Page 98, bottom) "...Develop a coordinated approach to identifying and
researching unknown variables and major uncertainties in the lifecycle
greenhouse gas analysis of increased biofuels production..."
We agree with the general premise implicit in this recommendation,
namely, that life cycle analyses are complex, delineating the
boundaries of a system for life cycle analysis can be controversial,
and analytical outcomes depend on many assumptions and methodological
choices. Although we agree that the scientific expertise residing in
USDA, EPA, DOE, and elsewhere should engage in a discussion of the
complex issues of life cycle analyses, we have concerns about a
potential undesirable consequence of this specific recommendation for
executive action. Methods of conducting life cycle analyses differ
depending on the system involved, so we would want to ensure that the
coordinated scientific discussions do not lead to "standard methods"
that become codified in regulations, which then would inhibit the
adoption and use of new information and improved or more appropriate
methods as they become available. We recommend that, while the science
is still in its infancy and is being widely debated, USDA, EPA, and DOE
should develop forums to engage the community of experts in ongoing
discussions of methods and come to agreement on standards not for the
analytical methods themselves, but instead, standards for transparent
documentation of assumptions, methods, boundaries, and uncertainties in
the analyses, so that differences in the outcomes of analyses on which
polices are based can be freely examined.
(Pg. 134, bottom) "...Give priority to R&D on process technologies that
can be used by the existing petroleum-based distribution and storage
infrastructure and current fleet of U.S. vehicles."
We agree that this is an important goal and that USDA R&D should
address it. However, given the numerous and diverse challenges raised
in the GAO report, research in USDA must progress simultaneously on
several fronts, not just giving priority to the development of process
technologies. Research must focus also on the development of feedstocks
with physical and chemical properties that make them effective for
conversion, and the creation of productive methods that are
environmentally-sound and economically advantageous for producing large
quantities of feedstocks.
(Bottom of page 134 to top of 135) "...Review and propose to the
appropriate congressional committees any legislative changes the [EPA]
Administrator determines may be needed to clarify what biomass
material - based on type of feedstock or land - can be counted toward
the RFS.
We agree with this recommendation, the finding that there are
inconsistent definitions of renewable biomass, and the stated
consequences of these inconsistencies on development of regulations.
USDA believes that a definition of biomass that excludes materials from
all Federal lands and from naturally regenerating forests toward
meeting requirements of the Energy Independence and Security Act (EISA)
is unacceptable and will limit the role of existing forests in meeting
energy demand and in maintaining or improving environmental quality of
natural resources. For example, if the definition does not include all
forest lands, then it will be difficult to attain 16 billion gallons of
cellulosic biofuels in 2022. Furthermore, USDA favors the Farm Bill
definition of biomass and agrees with the recommendation that
Departments within the Administration come to agreement on a
definition, and then work with Congress to resolve inconsistencies.
Technical and editorial comments and corrections recommended by several
different USDA agencies' staff are contained in the document
accompanying this letter. We urge you to consider each of these
recommendations, particularly those specified to correct matters of
fact or interpretations of facts. We also acknowledge that GAO
solicited technical comments directly from several USDA scientific
experts. Some comments submitted directly to you in response to those
requests are not included herein, but we trust they may be useful to
you.
In closing, I reiterate my compliments on the high quality of work done
by GAO on a complex and very visible topic. I hope our comments will be
constructive as you finalize the report. Should you have questions,
please contact Dr. Steven Shafer, Deputy Administrator for Natural
Resources and Sustainable Agricultural Systems of the USDA Agricultural
Research Service (301-504-7987), or contact my office (202-720-1542)
directly.
Sincerely,
Signed by:
M.L. O'Neill, for:
Rajiv J. Shah:
Chief Scientist, USDA:
Under Secretary:
Enclosure:
cc:
F. Woods, USDA-AMS:
S. Shafer, USDA-ARS:
G. Casamassa, USDA-FS:
P. Riley, USDA-FSA:
H. Baumes, USDA-OCE:
J. Johnson, USDA-NASS:
C. Zelek, USDA-NRCS:
B. O'Loughlin, USDA-RD:
[End of section]
Appendix IX: Comments from the Department of Energy:
Department of Energy:
Washington, DC 20585:
July 20, 2009:
Ms. Patricia Dalton:
Managing Director:
Natural Resources and Environment:
U.S. Government Accountability Office:
441 G. St. NW:
Washington, DC 20548:
Dear Ms. Dalton:
Thank you for the opportunity to comment on the draft GAO Report
titled: "Biofuels: Challenges and Potential Effects of Required
Increases in Production - (GAO-09-446). The Department of Energy (DOE)
appreciates the effort put forth by GAO with regard to this report and
the Recommendations for Executive Action it includes. The
recommendations pertain specifically to the administration of the
Renewable Fuels Standard (RFS) under the Energy Independence and
Security Act and a requested shift in research priorities to be more
supportive of biofuels that can be used in the existing petroleum-based
fuels distribution and storage infrastructure with the current fleet of
U.S. vehicles.
The DOE has reviewed the Report and its comments are detailed below.
On page 15, based on reasonable assumptions regarding E85
infrastructure development. the Energy Information Administration's
Annual Energy Outlook 2009 projects that E85 could account for 30% of
the total ethanol volume in 2020 and 50% in 2030, as long as E85 is
slightly less expensive than E10 on an "energy equivalent" basis. Thus
the blend wall is not necessarily insurmountable to achieving the RFS
goals. Nevertheless, allowing for E15 in conventional vehicles may be
seen by some parties as an economic "path of least resistance" in the
short run (2011-2015) while the fleet for FFVs increases and E85
equipment at the retail level becomes more readily available.
On page 17, with regard to the recommendation for improved coordination
with the Environmental Protection Agency (EPA) and the U.S. Department
of Agriculture in determining greenhouse gas emissions and defining
fuels eligibility under the RFS. it should be noted that EPA already
consults with DOE on these matters, but that DOE would welcome the
opportunity to become more engaged in this process if requested to do
so by the EPA Administrator.
Also on page 17, with regard to increased support for petroleum-based
fuels, sometimes referred to as hydrocarbon fuels, the Department has
already expanded in this direction. Beginning in 2007, DOE started
funding hydrocarbon fuels development through our gasification and
pyrolysis research and development. The $480 million funding
opportunity announcement for integrated biorefinery operations that
closed on June 30, 2009, included green diesel and green gasoline under
eligible fuels. A new solicitation to fund consortia to accelerate
development of advanced biofuels under the Recovery Act also supports
infrastructure-compatible fuels and algae-based fuels. In the future it
is anticipated that hydrocarbon fuels will become a higher priority and
contribute to RFS requirements for advanced biofuels.
On page 18, regarding eligibility of biomass material suitable for
meeting the RFS mandate, the Department supports an expansion of
biomass eligibility to include Federal lands that do not come from land
classified as environmentally sensitive and can be grown and harvested
in a sustainable manner. Again, if the EPA Administrator requests
clarification on biomass definitional considerations, DOE would be
responsive and welcome the opportunity to participate in these
deliberations.
Footnote 20 found on page 26 refers to Cello Energy's production plans.
Since Cello Energy recently lost a fraud lawsuit, it is recommended
that the authors consider hedging the remarks associated with this
reference.
GAO's concerns about piercing the blend wall are fleshed out on page
129-132 of the report. Their concerns might partly stem from the
statement found on page 13 1, "DOE and ethanol industry experts are
also concerned about the limited capacity of the freight rail
system..." In fact, ethanol cargo currently represents a mere fraction
of the total rail cargo. Also, given major capital expansions
envisioned over the coming decades by the railway industry, even with
the growth of ethanol production mandated, ethanol cargo will still be
a very minor portion of total rail capacity, although, "beefing up" of
rail terminal infrastructure will need to occur. However, no mention
was made of barge movement of ethanol, which could face more
significant problems as ethanol distribution is increased (see NCEP's
recent "Biofuels Infrastructure Task Force" white paper).
Finally with regard to the ethanol pipeline discussion on page 131, it
should be noted that Kinder-Morgan has performed extensive testing on
transporting ethanol in existing petroleum product pipelines in
Florida.
Thank you again for the opportunity to comment on the draft Report. We
look forward to working with GAO as we continue our efforts to develop
the potential of biofuels.
If you have any questions, please contact me or Ms. Martha Oliver,
Office of Congressional and Intergovernmental Affairs, at (202) 586-
2229.
Sincerely,
Signed by:
Jacques Beaudry-Losique:
Deputy Assistant Secretary for Renewable Energy:
Office of Technology Development:
Energy Efficiency and Renewable Energy:
[End of section]
Appendix X: Comments from the Environmental Protection Agency:
United States Environmental Protection Agency:
Office Of Air And Radiation:
Washington, D.C. 20460:
July 24, 2009:
Patricia Dalton:
Managing Director:
Natural Resources and Environment:
U.S. Government Accountability Office:
441 G. St., NW:
Washington, DC 20548:
Dear Ms. Dalton:
Thank you for the opportunity to comment on the draft final report,
"Biofuels: Challenges and Potential Effects of Required Increases in
Production," (GAO-09-446), dated July 2009. This draft was distributed
across the key offices of the Environmental Protection Agency (EPA) to
assure a full review. In general, our reviewers found the draft report
to comprehensively identify the main issues that should be considered
when assessing expanded biofuel production. Herein we identify our
major comments. We have also provided in a separate document additional
technical comments; consideration of these comments will also enhance
the final product.
The Report makes three critical policy and legislative recommendations
that require Administration review.
GAO recommendation 1: The Congress may wish to consider amending the
Energy Independence and Security Act of 2007 (EISA) to require the
Environmental Protection Agency (EPA) to develop a strategy to assess
the effects of increased biofuels production on the environment at all
stages of the lifecycle - cultivation, harvest, transport, conversion,
storage, and use - and to use this assessment in determining which
biofuels are eligible for consideration under the RFS.
Comment: This recommendation might best be addressed by the newly
created Executive Biofuel Interagency Working Group co-chaired by the
EPA, the Department of Agriculture (USDA), and the Department of Energy
(DOE). This Working Group is tasked to address, among other things,
"new policy options to promote the environmental sustainability of
biofuel feedstock production, taking into consideration land use,
habitat conservation, crop management practices, water efficiency and
water quality, as well as life cycle assessment of greenhouse gases."
The draft report also on numerous occasions points out that the EISA
legislation mandating the RFS2 program does not specifically require
assessment of air quality impacts, water quality impacts and similar
environmental impacts. We point out, however, that EPA has clear
authorities and responsibilities under other statues (including the
Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, and other legislation) and, indeed, is considering a
range of environmental impacts as part of the RFS2 rulemaking. Further,
under EISA Section 204, EPA is required to evaluate the environmental
impacts of biofuels and submit a report to Congress; we intend to fully
comply with that responsibility. In fact, EPA has worked very closely
with DOE and USDA in the development of the lifecycle assessment
proposed for the RFS2 regulations and will continue to do so as we
develop the final rules. Further, improving biofuel lifecycle
assessment will be an ongoing emphasis in EPA and we expect to continue
to work closely with our federal partners.
GAO Recommendation 2: The Administrator of EPA, in consultation with
the Secretaries of Energy and Agriculture, develop a coordinated
approach for identifying and researching unknown variables and major
uncertainties in the lifecycle greenhouse gas analysis of increased
biofuels production, including standardized parameters for using models
and a standard set of assumptions and methods in assessing greenhouse
gas emissions for the full biofuel lifecycle.
Comment: As required by EISA, EPA has undertaken development of a
comprehensive lifecycle greenhouse gas impact assessment of biofuels.
The Agency proposed rules in May that include our draft analysis of the
greenhouse gas impact of biofuels. Throughout development of that
proposal we worked closely with experts in both the Departments of
Agriculture and Energy in developing the lifecycle assessment
methodology and, importantly, incorporated their input on critical data
and assumptions to be used. We fully expect to continue that
cooperative working relationship as we develop final rules implementing
the amendments to the Renewable Fuels Program. Additionally, there is
extensive interagency coordination already in progress and extensive
sharing of information between U.S., European Union (EU) and other
international governmental organizations and scientists on modeling
including the impact of indirect land use change.
GAO Recommendation 3 To address inconsistencies in existing statutory
language, the Administrator of EPA, in consultation with the USDA and
DOE, upon review, propose to the appropriate Congressional committees
any legislative changes the Administrator determines may be needed to
clarify what biomass material - based on type of feedstock or type of
land - can be counted toward RFS.
Comment: EPA is working with USDA to identify discrepancies and
interpret how biomass is treated under two pieces of legislation, EISA
and the 2008 Farm Bill.
Additional Comments:
In addition to addressing the specific draft recommendations affecting
EPA, we also wish to make the following comments. EPA earlier this year
provided extensive comment on a prior draft of this report. We note
that a number of our comments and recommendations are reflected in this
redraft. However, as indicated in our earlier comments, the analyses
provided via EPA's notice of proposed rulemaking for the Renewable Fuel
Standard (RFS2) mandated under the Energy Independence and Security Act
(EISA) represents the most up-to-date and comprehensive assessment of
many of these issues. (74 FR 24904, May 26, 2009) While in a few cases
the publicly available work completed for that proposal is recognized
in this draft, it is not clear that the Government Accountability
Office (GAO) fully considered or acknowledged these analyses. We ask
that the report more clearly reference this EPA product.
The report emphasizes the inconsistencies in biofuel assessments in
reported literature and interprets these as suggesting a lack of
agreement amongst researchers as to the impacts of biofuels. Literature
on lifecycle assessment of biofuels has grown considerably in the last
few years as more researchers evaluate different aspects of lifecycle
assessment and continually refine the tools, methodologies and data
used in these analyses. While it is clear lifecycle assessment is an
area of evolving research and analysis, we are concerned that the
portrayal of a wide range of analytical results in the literature is
being interpreted as the range of uncertainty in biofuel lifecycle
assessment. We believe that in many of the examples cited, the
differences in analytical results can in large part be explained by
either differences in what is being modeled or in some cases the use of
more precise or up-to-date data and assumptions. We recommend the GAO
acknowledge in the report that the results found in the evolving
lifecycle literature reflect, in fact, improvements in lifecycle
assessment.
Once again, thank you for the opportunity to review this draft report.
Sincerely,
Signed by:
Gina McCarthy:
Assistant Administrator:
[End of section]
Appendix XI: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Mark E. Gaffigan, (202) 512-3841 or gaffiganm@gao.gov for energy
issues:
Anu K. Mittal, (202) 512-3841 or mittala@gao.gov for environmental
issues:
Lisa R. Shames, (202) 512-3841 or shamesl@gao.gov for agricultural
issues:
Staff Acknowledgments:
In addition to the individuals named above, Richard Cheston, Assistant
Director; Elizabeth Erdmann, Assistant Director; James Jones, Assistant
Director; Sarah Lynch; Micah McMillan; Tim Minelli; Kevin Bray; Erin
Carson; Jay Cherlow; Julie Corwin; Barbara El Osta; Cindy Gilbert;
Rachel Girshick; Marietta Mayfield; Charles K. Orthman; Tim Persons;
Jeanette Soares; MaryLynn Sergent; Ben Shouse; Anne Stevens; Barbara
Timmerman; Swati Thomas; Lisa Vojta; and Rebecca Wilson made key
contributions to this report.
[End of section]
Footnotes:
[1] Under the act, the RFS applies to transportation fuel sold or
introduced into commerce in the 48 contiguous states. However, the
Administrator of the Environmental Protection Agency (EPA) is
authorized, upon a petition from Alaska or Hawaii, to allow the RFS to
apply in that state. On June 22, 2007, Hawaii petitioned EPA to opt
into the RFS, and the Administrator approved that request. For the
purposes of this report, statements that the RFS applies to U.S.
transportation fuel refer to the 48 contiguous states and Hawaii.
[2] Pub. L. No. 109-58, §1501 (2005). The act authorizes the EPA
Administrator, in consultation with the Secretaries of Agriculture and
Energy, to waive the RFS levels established in the act, by petition or
on the Administrator's own motion, if meeting the required level would
severely harm the economy or environment of a state, a region, or the
United States or there is an inadequate domestic supply. Throughout
this report, the RFS levels established in the act are referred to as
requirements, even though these levels could be waived by the EPA
Administrator.
[3] Pub. L. No. 110-140, § 201 (2007).
[4] While EISA specifies the reductions in lifecycle greenhouse gas
emissions that each type of renewable fuel must achieve, it also
authorizes EPA to adjust the required reductions if the specified
reduction is not commercially feasible for fuels made using a variety
of feedstocks, technologies, and processes. EPA's proposed rule, if
finalized, would adjust the reduction for advanced biofuels to 44 or 40
percent. 74 Fed. Reg. 24904 (May 26, 2009).
[5] The tax credit is paid to the crude oil refiners or gasoline
wholesalers that blend the ethanol with gasoline.
[6] Greenhouse gases trap a portion of the sun's heat in the atmosphere
and prevent the heat from returning to space. The insulating effect,
known as the greenhouse effect, moderates atmospheric temperatures,
keeping the earth warm enough to support life. According to the
Intergovernmental Panel on Climate Change--an organization within the
United Nations that assesses scientific, technical, and economic
information on the effects of climate change--global atmospheric
concentrations of these greenhouse gases have increased markedly as a
result of human activities over the past 200 years, contributing to a
warming of the earth's climate.
[7] Biofuels can be in solid, gaseous, or liquid form. In this report
we refer to liquid biofuels as biofuels.
[8] Under the act, the RFS applies to transportation fuel sold or
introduced into commerce in the 48 contiguous states. However, the
Administrator of the Environmental Protection Agency (EPA) is
authorized, upon a petition from Alaska or Hawaii, to allow the RFS to
apply in that state. On June 22, 2007, Hawaii petitioned EPA to opt
into the RFS, and the Administrator approved that request. For the
purposes of this report, statements that the RFS applies to U.S.
transportation fuel refer to the 48 contiguous states and Hawaii.
[9] The act authorizes the EPA Administrator, in consultation with the
Secretaries of Agriculture and Energy, to waive the RFS levels
established in the act, by petition or on the Administrator's own
motion, if meeting the required level would severely harm the economy
or environment of a state, a region, or the United States or there is
an inadequate domestic supply. Throughout this report, the RFS levels
established in the act are referred to as requirements, even though
these levels could be waived by the EPA Administrator.
[10] Section 211(o)(1) of the Clean Air Act defines lifecycle
greenhouse gas emissions as the aggregate quantity of greenhouse gas
emissions--including direct emissions and significant indirect
emissions such as significant emissions from land-use changes--as
determined by EPA's Administrator, related to the full fuel lifecycle.
Lifecycle emissions include all stages of fuel and feedstock production
and distribution, from feedstock generation or extraction through the
distribution and delivery and use of the finished fuel to the ultimate
consumer, where the mass values for all greenhouse gases are adjusted
to account for their relative global warming potential.
[11] Ethanol is also imported from some member nations of the Caribbean
Basin Initiative and Brazil, which use sugarcane as their feedstock,
and produced from domestically grown sorghum.
[12] The 2007-2008 corn marketing year began September 1, 2007, and
ended August 31, 2008.
[13] These estimates were based on 93.5 million planted acres in 2007,
of which 86.5 million were harvested, at an average yield of 150.7
bushels per acre. For 2008, USDA estimated that corn growers will plant
86 million acres, of which 78.6 million would be harvested, at an
average yield of 153.9 bushels per acre.
[14] It is generally estimated that 7.5 pounds of soybean oil will
yield 1 gallon of biodiesel.
[15] Predominant feedstocks for biodiesel production are rapeseed in
Europe and palm, coconut, and castor oils in tropical and subtropical
countries.
[16] The 2007-2008 soybean marketing year began September 1, 2007, and
ended August 31, 2008.
[17] Energy Information Administration, Short-Term Energy Outlook
Supplement: Biodiesel Supply and Consumption in the Short-Term Energy
Outlook, April 2009.
[18] See Biomass Research and Development Board, Increasing Feedstock
Production for Biofuels Economic Drivers, Environmental Implications,
and the Role for Research (Washington, D.C., December 2008) for
information about biomass yields and fuel yields for different biofuel
feedstocks.
[19] For example, Cello Energy recently opened a biorefinery in Bay
Minette, Alabama, that uses pyrolysis technology to process tires, hay,
straw, wood chips, and switchgrass.
[20] Pub. L. No. 95-618, §221 (1978).
[21] Pub. L. No. 108-357, §301 (2004).
[22] The 2008 Farm Bill limits the combined value of all tax credits
for cellulosic ethanol to $1.01 per gallon.
[23] Pub. L. No. 101-508, §11502 (1991) Small Ethanol Producer Credit;
Pub. L. No. 109-58, §1345, §1342 (2005) Small Agri-Biodiesel Tax Credit
and Alternative Fuel Infrastructure Tax Credit; Pub. L. No. 109-432,
§209 (2006) Special Depreciation Allowance for Cellulosic Biomass
Ethanol Plant Property
[24] Because of its lower production cost, corn starch ethanol is the
predominant U.S. biofuel used to meet the RFS.
[25] EPA determined that the regulatory scheme for the RFS created
pursuant to the Energy Policy Act of 2005 did not provide a mechanism
for implementing this requirement in 2009. Accordingly, EPA decided to
create a combined 2009/2010 requirement by increasing the RFS's 2010
biomass-based diesel requirement by 500 million gallons and allowing
obligated parties to demonstrate compliance only at the end of the 2010
compliance period. 73 Fed. Reg. 70643 (Nov. 21, 2008).
[26] Biorefineries for which construction began before EISA's enactment
are not subject to this requirement.
[27] While EISA specifies the reductions in lifecycle greenhouse gas
emissions that each type of renewable fuel must achieve, it also
authorizes EPA to adjust the required reductions if the specified
reduction is not commercially feasible for fuels made using a variety
of feedstocks, technologies, and processes.
[28] The yearly blending standard is calculated as a percentage, by
dividing the amount of renewable fuel that the RFS requires to be used
in a given year by the amount of gasoline expected to be used during
that year, including certain adjustments specified by EISA.
[29] See GAO, Advanced Energy Technologies: Budget Trends and
Challenges for DOE's R&D Program, [hyperlink,
http://www.gao.gov/products/GAO-08-556T] (Washington, D.C.: March 5,
2008).
[30] See GAO, Federal Energy Management: Agencies Are Acquiring
Alternative Fuel Vehicles but Face Challenges in Meeting Other Fleet
Objectives, [hyperlink, http://www.gao.gov/products/GAO-09-75R]
(Washington, D.C.: Oct. 22, 2008).
[31] Pub. L. 106-224, Title III, 114 Stat. 428 (as amended by section
Pub. L. No. 109-58, Pub. L. No. 110-14, and Pub. L. No. 110-246).
[32] Biomass Research and Development Board, Increasing Feedstock
Production for Biofuels: Economic Drivers, Environmental Implications,
and the Role of Research (Washington, D.C., December 2008).
[33] Other factors such as drought conditions in some grain-producing
countries also contributed to higher feed prices.
[34] According to USDA's National Resources Inventory, privately owned
grassland decreased by almost 25 million acres from 1982 through 2003,
and more recent data indicated that this decline continues,
particularly in the Northern Plains states, including North Dakota and
South Dakota. GAO, Agricultural Conservation: Farm Program Payments Are
an Important Factor in Landowners' Decisions to Convert Grassland to
Cropland, [hyperlink, http://www.gao.gov/products/GAO-07-1054]
(Washington, D.C.: Sept. 10, 2007) and Prairie Pothole Region: At the
Current Pace of Acquisitions, the U.S. Fish and Wildlife Service Is
Unlikely to Achieve Its Habitat Protection Goals for Migratory Birds,
[hyperlink, http://www.gao.gov/products/GAO-07-1093] (Washington, D.C.:
Sept. 27, 2007).
[35] The Corn Belt is the area of the United States where corn is a
principal cash crop, including Iowa, Indiana, most of Illinois, and
parts of Kansas, Minnesota, Missouri, Nebraska, Ohio, South Dakota, and
Wisconsin.
[36] We previously reported on the direct and indirect economic impacts
of a new renewable energy employer in rural communities. See GAO,
Renewable Energy: Wind Power's Contribution to Electric Power
Generation and Impact on Farms and Rural Communities, [hyperlink,
http://www.gao.gov/products/GAO-04-756] (Washington, D.C.: Sept. 3,
2004).
[37] The stocks-to-use ratio indicates the level of carryover stock for
any given agricultural commodity as a percentage of the total use of
the commodity.
[38] Pasture, or pastureland, is land used primarily for the production
of domesticated forage plants for livestock. In contrast, range, or
rangeland, is land where vegetation is naturally occurring and is
dominated by native grasses, grasslike plants, and shrubs.
[39] Switchgrass is a native prairie grass long used for conservation
planting and cattle feed in the United States. Switchgrass is a
promising biofuel feedstock crop because it can be grown across a wide
range of conditions, can yield great amounts of biomass, establishes
deep roots to store carbon in the soil, and does well on marginal
lands.
[40] GAO, International Food Security: Insufficient Efforts by Host
Governments and Donors Threaten Progress to Halve Hunger in Sub-Saharan
Africa by 2015, [hyperlink, http://www.gao.gov/products/GAO-08-680]
(Washington, D.C.: May 29, 2008).
[41] Pub. L. No. 110-246 § 9001, 122 Stat. 1651, 2089 (amending 7
U.S.C. § 8111).
[42] GAO, Agricultural Conservation: USDA Should Improve Its Process
for Allocating Funds to States for the Environmental Quality Incentives
Program, [hyperlink, http://www.gao.gov/products/GAO-06-969]
(Washington, D.C.: Sept. 22, 2006), Conservation Security Program:
Despite Cost Controls, Improved USDA Management Is Needed to Ensure
Proper Payments and Reduce Duplication with Other Programs, [hyperlink,
http://www.gao.gov/products/GAO-06-312] (Washington, D.C.: Apr. 28,
2006), and GAO, Agricultural Conservation: State Advisory Committees'
Views on How USDA Programs Could Better Address Environmental Concerns,
[hyperlink, http://www.gao.gov/products/GAO-02-295] (Washington, D.C.:
Feb. 22, 2002).
[43] As of the 2008 Farm Bill, direct payments are available for
producers with eligible historic base acres of such crops as corn,
wheat, grain sorghum, and oilseeds. Countercyclical payments are
available for producers with eligible historic base acres when the
commodity's effective price is less than the target price. The
effective price is the sum of the direct payment rate plus either the
national commodity loan rate or the national average farm price for the
crop year, whichever is higher.
[44] Producing one bushel of corn in any of the major corn-producing
regions consumes between 19 and 865 gallons of water, on average, based
on an evaluation by the Argonne National Laboratory. The amount of
water needed depends on precipitation, atmospheric demand (which is a
result of solar radiation, wind, humidity, and temperature) and plant
growth stage. Greater amounts of water are needed during peak growth
stages (July and August for the U.S. Corn Belt), when rainfall may be
insufficient to satisfy the needs of a rapidly growing plant. Good soil
quality can help keep a plant from stress during dry spells by its
moisture-holding capacity.
[45] King and Webber, "Water Intensity of Transportation,"
Environmental Science and Technology (2008), vol. 42, no. 21, pp. 7866-
7872.
[46] Comparatively, biodiesel shows potential benefits over petroleum-
based diesel if nonirrigated soy is used. Irrigated soy consumes 0.6 to
24 gallons of water per mile traveled, while rainfed soy consumes .01
to .02 gallons of water traveled per mile traveled. Comparatively,
petroleum-based diesel consumes 0.05 to 0.11 gallons. (King and Webber,
"Water Intensity of Transportation," Environmental Science and
Technology (2008), vol. 42, no. 21, pp. 7866-7872.)
[47] See Center for Transportation Research, Energy Systems Division,
Argonne National Laboratory, "Consumptive Water Use in the Production
of Ethanol and Petroleum Gasoline" (Argonne, Ill.: Jan. 2009).
[48] USGS, 1997, Groundwater Atlas of the United States: Kansas,
Missouri, and Nebraska, HA 730-D.
[49] Crop residues are materials left in the field after the crop has
been harvested. For example, corn stover is the unharvested portions of
the corn plant, including stalks, leaves, and cobs.
[50] According to EPA officials, the long-term impacts of irrigating
with wastewater or saline water sources are currently unknown and may
be detrimental. Additional controls on runoff will need to be added to
protect water quality.
[51] Corn requires significantly higher applications of nitrogen as
compared with soybeans, which are legumes that obtain their own
nitrogen from the atmosphere. For example, in crop year 2005, the
average annual applications for corn were 138 pounds of nitrogen per
acre and 58 pounds of phosphorous per acre for 96 percent and 81
percent of planted acreage in the United States, respectively. In
comparison, in crop year 2004, soybeans required, on average, 28 pounds
of nitrogen per acre and 69 pounds of phosphorous per acre for 21
percent and 26 percent of total planted acres respectively [NASS 2006,
2005]
[52] The algae themselves do not reduce oxygen; instead, when the algae
die, bacteria deplete oxygen during the decomposition process.
[53] Diaz, Robert and Rutger Rosenberg, "Spreading Dead Zones and
Consequences for Marine Ecosystems." Science, vol. 321, 2008, pp. 926-
929.
[54] Alexander, Richard, Richard Smith, Gregory Schwarz, Elizabeth
Boyer, Jacqueline Nolan, and John Brakebill, "Difference in Phosphorous
and Nitrogen Delivery to the Gulf of Mexico from the Mississippi River
Basin," Environmental Science and Technology (2008), vol. 42, no. 3,
pp. 822-830.
[55] Malcom, S. and M. Aillery. "Growing Crops for Biofuels Has
Spillover Effects." Amber Waves, USDA Economic Research Service, vol.
7, issue 1, March 2009, pp. 10-15; and Donner, S. and C. Kucharik.
"Corn-based ethanol production compromises goal of reducing nitrogen
export by the Mississippi River." Proceedings of the National Academy
of Sciences of the United States, vol. 105, no. 11, 2008, pp. 4513-
4518.
[56] Nolan, B. and K. Hitt. "Vulnerability of Shallow Groundwater and
Drinking-Water Wells to Nitrate in the United States." Environmental
Science & Technology, vol. 40, no. 24, 2006, pp. 7834-7840.
[57] EPA's maximum contaminant level goals for drinking water are set
at the level at which no known or anticipated adverse effects on the
health of persons occur and which allows an adequate margin of safety.
The maximum contaminant level goal for total nitrate and nitrogen is 10
milligrams per liter. This does not mean that less than 10 milligrams
per liter poses no risk. Recent studies also indicate levels of nitrate
as low as 2.5 milligrams per liter may be associated with several types
of cancer.
[58] Gilliom, and others. "The Quality of Our Nation's Waters--
Pesticides in the Nation's Streams and Ground Water, 1992-2001." U.S.
Geological Survey Circular 1291, 2006, p. 172.
[59] Malcom, S. and M. Aillery. "Growing Crops for Biofuels has
Spillover Effects." Amber Waves, USDA Economic Research Service, vol.
7, issue 1, March 2009, pp. 10-15.
[60] According to USDA officials, perennial grasses will probably have
lower input requirements than corn, but incentives to increase yields
will narrow any gap. Compared to other crops, the difference in input
requirements ultimately may be quite small.
[61] Landis, D., M. Gardiner, W. van der Werf, and S. Swinton.
"Increasing corn for biofuel production reduces biocontrol services in
agricultural landscapes." Proceedings of the National Academy of
Sciences of the United States of America, vol. 105, no. 51, 2008, pp.
20552-20557.
[62] Tillman D., J. Hill, and C. Lehman. "Carbon-Negative Biofuels from
Low-Input High-Diversity Grassland Biomass," Science, vol. 314, issue
5805, 2006, pp. 1598-1600.
[63] Barney, J.N. and J.M. DiTomaso. "Nonnative Species and Bioenergy:
Are We Cultivating the Next Invader?" Bioscience, vol. 58, no. 1, 2008,
pp. 64-70.
[64] An invasive species is a nonnative species whose introduction does
or is likely to cause economic or environmental harm or harm to human,
animal, or plant health. For example, an invasive plant may outcompete
and displace native grasses and broadleaf plants that serve as a
primary source of forage for animals.
[65] Wu, M., M. Mintz, M. Wang, and S. Arora. "Consumptive Water Use in
the Production of Ethanol and Petroleum Gasoline." Center for
Transportation Research, Energy Systems Division, Argonne National
Laboratory (Argonne, Ill. January 2009).
[66] Average water consumption in the United States is 100 gallons per
day per person, according to EPA.
[67] National Research Council, "Water Implications of Biofuels
Production in the United States," 2008.
[68] McMahon, P.B., J.K. Böhlke, and C.P. Carney. Vertical Gradients in
Water Chemistry and Age in the Northern High Plains Aquifer, Nebraska,
2003: U.S. Geological Survey Scientific Investigations Report 2006-
5294, 2007.
[69] Among the problems with using low-quality water in the biofuel
conversion process, boilers lose heat capacity and may be spoiled if
using water with high total dissolved solids.
[70] Thermochemical gasification is a process where the entire biomass
input is converted in a syngas (an intermediate mixture of carbon
monoxide and hydrogen) that can then be refined into a number of
biofuel products, including ethanol, diesel, methane, or butanol, among
other fuels.
[71] Reverse osmosis is a filtration process used to purify fresh water
by, for example, removing the salts from it. This process is used to
treat the water supply for the ethanol plant.
[72] EPA Region 7 has developed guidance manuals for the construction
and operation of ethanol and biodiesel facilities: "Environmental Laws
Applicable to Construction and Operation of Ethanol Plants; 2007" and
"Environmental Laws Applicable to Construction and Operation of
Biodiesel Production Facilities, 2008." These guidance manuals can be
viewed at [hyperlink, http://www.epa.gov/sustainability/energy.htm].
[73] Biological oxygen demand is a measure of how much oxygen it will
take to break down the material. According to EPA officials, biodiesel
wastewater with small amounts of glycerin and efficient recovery of
methanol has a biological oxygen demand of 10,000 to 15,000 mg/liter,
compared to a normal wash water biological oxygen demand of about 200
mg/liter. With glycerin, biodiesel wastewater has a biological oxygen
demand of 80,000 mg/liter. Pure glycerin has a biological oxygen demand
of 1,000,000 mg/liter.
[74] Under the Clean Air Act, EPA has established, and regularly
reviews, national ambient air quality standards (NAAQS) for six air
pollutants also known as "criteria" pollutants: ozone, particulate
matter (PM2.5 and PM10), lead, nitrogen dioxide (NO2), carbon monoxide
(CO), and sulfur dioxide (SO2). Additionally, EPA monitors volatile
organic compounds, which are known ozone precursors. The volatile
organic compounds emitted from ethanol plants might include, but are
not limited to, acetaldehyde, acrolein, formaldehyde, and methanol.
Some volatile organic compounds are hazardous air pollutants, such as
acetaldehyde, and are regulated as such under section 112 of the Clean
Air Act.
[75] A major modification is a physical or operational change that
would result in a significant net increase in emissions.
[76] A Title V operating permit contains all existing federal Clean Air
Act requirements, including reporting and monitoring requirements,
applicable to the source in one document. These operating permits
contain any applicable new source performance standards and national
emission standards for hazardous air pollutants.
[77] EPA Region 7 serves the states of Iowa, Kansas, Missouri, and
Nebraska. About 44 percent of existing U.S. ethanol production capacity
is located in these states as of March 2009.
[78] According to EPA, the standards for biorefineries are less
stringent given their size than for larger petroleum facilities on a
per unit of production basis, and the result is that as more and more
biorefineries are built to displace gasoline, there will be a steady
increase in nationwide emissions due to biofuel production.
[79] Acetaldehyde is mainly used as an intermediate in the synthesis of
other chemicals. It is ubiquitous in the environment and may be formed
in the body from the breakdown of ethanol. Acute (short-term) exposure
to acetaldehyde results in effects including irritation of the eyes,
skin, and respiratory tract. Symptoms of chronic (long-term)
intoxication of acetaldehyde resemble those of alcoholism. Acetaldehyde
is considered a probable human carcinogen based on inadequate human
cancer studies and animal studies that have shown nasal tumors in rats
and laryngeal tumors in hamsters.
[80] See Hill, J., S. Polasky, E. Nelson, D. Tilman, H. Huo, L. Ludwig,
J. Neumann, H. Zheng, and D. Bonta. "Climate Change and Health Costs of
Air Emissions from Biofuels and Gasoline," Proceedings of the National
Academies of Sciences, vol. 106, no. 6, 2009, pp. 2077-2082; and Wu,
M., Y. Wu, and M. Wang. "Energy and Emission Benefits of Alternative
Transportation Liquid Fuels Derived from Switchgrass: A Fuel Life Cycle
Assessment," Biotechnology Progress, no. 22, 2006, pp. 1012-1024.
[81] There are other hazards that may occur from releases of ethanol-
blended fuels. For example, some spills of gasoline with ethanol may
pose an explosion risk. Large scale releases of ethanol have been shown
to degrade under anaerobic conditions to produce explosive
concentrations of methane. According to EPA, this can pose a
significant challenge for emergency responders mitigating biofuel
spills. In addition, the methane generated in the subsurface can
migrate into overlying buildings, degrading indoor air quality.
[82] According to EPA officials, owners using blends containing 85
percent ethanol generally work with a licensed installer to use
certified, compatible storage and dispensing equipment. UST systems are
comprised of many components; however, some of these components have
not been tested for use with high ethanol fuel blends.
[83] When ethanol is present, the ethanol is consumed by microorganisms
in the soil first. This decomposition takes up nutrients and oxygen
needed to break down benzene and related compounds. As a result the
benzene plume extends a greater distance.
[84] Mackay, Douglas, Nicholas R. de Sieyes, Murray D. Einarson, Kevin
P. Feris, Alexander A. Pappas, Isaac A. Wood, Lisa Jacobson, Larry G.
Justice, Mark N. Noske, Kate M. Scow, and John T. Wilson. "Impact of
Ethanol on the Natural Attenuation of Benzene, Toluene, and o-Xylene in
a Normally Sulfate-Reducing Aquifer." Environmental Science Technology,
vol. 40, 2006, pp. 6123-6130; and Ruiz-Aguilar, G., K. O'Reilly, and P.
Alvarez. "A Comparison of Benzene and Toluene Plume Lengths for Sites
Contaminated with Regular vs. Ethanol-Amended Gasoline." Ground Water
Monitoring & Remediation, vol. 23, no. 1, winter 2003, pp. 48-53.
[85] The Clean Air Act Amendments of 1990 require areas with the worst
air quality to use reformulated gasoline, which includes oxygenate
additives that increase the oxygen content of the fuel and reduce
emissions of carbon monoxide in some engines. In recent years, ethanol
has been increasingly used as the primary oxygenate in gasoline.
[86] Small nonroad engines include leaf blowers, line trimmers,
generator sets, lawn mowers, and small tractors.
[87] Before approving the use of intermediate ethanol blends, EPA would
assess potential impacts on vehicle emissions.
[88] Vehicles have pollution control systems--known as catalytic
converters--that are located between a vehicle's engine and tailpipe.
Catalytic converters work by facilitating chemical reactions that
convert exhaust pollutants such as carbon monoxide and nitrogen oxides
to normal atmospheric gases such as nitrogen, carbon dioxide, and
water. As the catalytic compound breaks down over time, the converter
loses its capacity to reduce pollutant emissions.
[89] A 2007 review of available literature by a team of researchers at
Oak Ridge National Laboratory found that limited data existed on the
use of intermediate ethanol blends in conventional gasoline vehicles in
the United States. A study contracted by the Australian Department of
Environment found nitrogen oxide emissions increases and accelerated
long-term degradation of the vehicle's pollution control system with 20
percent ethanol fuel blends. See Bechtold, R., J. Thomas, S. Huff, J.
Szybist, T. Theiss, B. West, M. Goodman, and T.A. Timbario. "Technical
Issues Associated with the Use of Intermediate Ethanol Blends (>E10) in
the U.S. Legacy Fleet: Assessment of Prior Studies." Oak Ridge National
Laboratory, DOE, August 2007; Orbital Engine Company, "Market Barriers
to the Uptake of Biofuels Study: A Testing Based Assessment to
Determine Impacts of a 20% Ethanol Gasoline Fuel Blend on the
Australian Passenger Vehicle Fleet." Report to Environment Australia,
March 2003; and Orbital Engine Company, "Market Barriers to the Uptake
of Biofuels Study: Testing Gasoline Containing 20% Ethanol." Phase 2B-
Final Report to the Department of the Environment and Heritage of
Australia, May 2004.
[90] Acetaldehyde emissions increased with fuel blends containing 20
percent ethanol by an average of 0.81 milligrams per mile when compared
to regular gasoline. Increases for blends containing 10 percent and 15
percent ethanol were 0.38 milligrams per mile and 0.70 milligrams per
mile, respectively.
[91] The full useful life of a vehicle is considered to be 100,000 to
150,000 miles.
[92] Criteria have been developed to help measure environmental,
economic, and social benefits and consequences, as well as the impacts
on energy diversification and security.
[93] Researchers have generally used Argonne National Laboratory's
GREET model to estimate fuel-cycle energy use and emissions associated
with alternative transportation fuels and advanced vehicle
technologies. In addition, some researchers have used (1) the
University of Missouri's and Iowa State University's FAPRI model to
estimate international crop expansion, (2) the FASOM model developed by
Texas A&M University and others to estimate domestic crop expansion,
(3) NASA's MODIS satellite-based data to estimate the percentage of
each land type converted to cropland, and (4) Purdue University's GTAP
general equilibrium model to predict the amount and types of land
needed in a region to meet demands for both food and fuel production.
[94] Argonne National Laboratory, Fuel-Cycle Assessment of Selected
Bioethanol Production Pathways in the United States (Argonne, IL: Nov.
2006).
[95] Life-Cycle Analysis of Biofuels: Issues and Results, presentation
by Dr. Michael Wang, Center for Transportation Research, Argonne
National Laboratory, at an American Chemical Society forum for
Congressional staff (August 2008). The reduction of greenhouse gas
emissions exceeded 100 percent in one study because some feedstocks
create a net carbon benefit by sequestering more carbon than is
released when combusting the fossil fuels used to produce the biofuel.
[96] Kim S. and Dale B. "Effects of Nitrogen Fertilizer Application on
Greenhouse Gas Emissions and Economics of Corn Production."
Environmental Science and Technology, vol. 42, no. 16 (2008): pp. 6028-
6033.
[97] Using a winter cover crop, such as wheat, in the cropping system,
could reduce soil emissions of nitrous oxide compared to continuous
corn cultivation without a cover crop. See Kim S., and Dale B. "Life
Cycle Assessment of Various Cropping Systems Utilized for Producing
Biofuels: Bioethanol and Biodiesel." Biomass and Bioenergy, 29 (2005)
pp. 426-439.
[98] See Wang M., Wu M., and Huo H. "Life-Cycle Energy and Greenhouse
Gas Emission Impacts of Different Corn Ethanol Plant Types,"
Environmental Research Letters, 2 (2007).
[99] See Pimentel D., Patzek T. "Ethanol Production Using Corn,
Switchgrass, and Wood; Biodiesel Production Using Soybean and
Sunflower," Natural Resources Research, vol 14, no. 1 (2005): pp. 65-
76; Schmer M.R., Vogel K.P., Mitchell R.B., and Perrin R.K. "Net Energy
of Cellulosic Ethanol from Switchgrass." Proceedings of the National
Academy of Sciences, vol. 105, no. 2 (2008): pp. 464-469; and Argonne
National Laboratory, Fuel-Cycle Assessment of Selected Bioethanol
Production Pathways in the United States (Argonne, IL: Nov. 2006).
[100] In a 2006 survey of published and gray literature examining the
greenhouse gas effects of ethanol, Farrell found that calculations
about the net energy calculations for ethanol were most sensitive to co-
product allocation. See Farrell A.E. "Ethanol Can Contribute to Energy
and Environmental Goals," Science, vol. 311, issue 5760 (2006): pp. 506-
508.
[101] Wang M., Huo H., and Arora S. "Methods of Dealing with Co-
Products of Biofuels in Life-Cycle Analysis," forthcoming in the Energy
Policy Journal.
[102] Searchinger T., Heimlich R., Houghton R.A., Dong F., Elobeid A.,
Fabiosa J, Tokgoz S., Hayes D., and Yu T.H. "Use of U.S. Croplands for
Biofuels Increases Greenhouse Gases Through Emissions from Land-Use
Change." Science, vol. 319 (2008): pp. 1238-1240. Supporting online
material was published on Science Express (Feb. 7, 2008).
[103] See Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P.
"Land Clearing and the Biofuel Carbon Debt," Science, vol. 319, issue
5867 (2008): 1235-1238; and Gibbs H.K, Johnston M, Foley J.A, Holloway
T., Monfreda, C., Ramankutty N., and Zaks, D. "Carbon Payback Times for
Crop-Based Biofuel Expansion in the Tropics: The Effects of Changing
Yield and Technology." Environmental Research Letters, vol. 3 (2008): 1-
10.
[104] For example, the development of hybrid seeds could offset some of
the potential increase in cultivated land.
[105] Hill J., Nelson E., Tilman D., Polasky S., and Tiffany D.
"Environmental, Economic, and Energetic Costs and Benefits of Biodiesel
and Ethanol Biofuels." Proceedings of the National Academy of Sciences,
July 25, 2006, vol. 103, no. 30, pp. 11206-11210; and McCarl, B.A.,
"Bioenergy in a Greenhouse Mitigating World." Choices, 23(1), pp. 31-
33, 2008.
[106] Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P.
"Land Clearing and the Biofuel Carbon Debt," Science, vol. 319, issue
5867 (2008): pp. 1235-1238, and Hill J., Nelson E., Tilman D., Polasky
S., and Tiffany D. "Environmental, Economic, and Energetic Costs and
Benefits of Biodiesel and Ethanol Biofuels." Proceedings of the
National Academy of Sciences, vol. 103, no. 30 (2006): pp. 11206-11210.
[107] The International Organization of Standardization has developed
lifecycle analysis standards. However, researchers use different
assumptions and system boundaries in their analyses, which influence
final results.
[108] For example, while USDA's National Resources Inventory surveys
land use, natural resource conditions, and trends on domestic
nonfederal, nonforest lands, it does not analyze comprehensive land use
data gathered at the same locations every year. Also, these survey data
cannot be readily integrated with data from USDA's survey of producers
or agricultural census because of differences in land use definitions.
[109] Producers may alternatively take this credit as an income tax
credit to the extent the credits exceed the tax imposed on taxable fuel
under 26 U.S.C. § 4081.
[110] EPA's proposed rulemaking on lifecycle greenhouse gas emissions
will affect decisions whether to construct new corn starch ethanol
biorefineries because biorefineries built after December 19, 2007, must
reduce emissions by at least 20 percent to qualify under the RFS.
[111] The yearly blending standard is calculated as a percentage by
dividing the amount of renewable fuel that the RFS requires to be used
in a given year by the amount of gasoline expected to be used during
that year, including certain adjustments and exemptions specified by
the EISA. The percentage exceeds 10 percent in part because the
numerator includes the combined RFS for ethanol and biodiesel while the
denominator excludes biodiesel.
[112] A RIN consists of a 38-character code that includes the year the
biofuel is produced or imported, the equivalence value for that type of
biofuel, and a company and a facility identification.
[113] The RFS did not affect ethanol production volumes in the spring
and summer of 2008 because domestic ethanol consumption exceeded the
RFS's required amount.
[114] U.S. biofuels consumption has been limited primarily to corn
starch ethanol because of its lower production costs.
[115] With a binding RFS, much of the VEETC's benefit may go to ethanol
producers if the retail price of blended motor fuels is affected more
by the price of gasoline than by the price of ethanol, as is the case
of E10.
[116] The VEETC, in the form of forgone federal tax revenues, pays part
of the cost of a binding RFS. Without the VEETC, the entire cost would
be borne by ethanol purchasers--blenders or motor fuel purchasers, or
both--or others to whom the purchasers may be able to pass on the cost,
such as workers at blending refineries. Because the cost of tax
expenditures is often hidden, placing the cost on market participants
can make the RFS cost more transparent.
[117] The crude oil price that would make the RFS nonbinding in 2009
will vary with corn prices, which are affected by such factors as the
weather and export and livestock demand for corn. USDA data show the
current ratio of corn stocks to a year's corn use is low by historical
standards, suggesting the potential for volatile corn prices.
[118] Crude oil prices on the spot market rose to $137 per barrel in
July 2008 before dropping to $35 per barrel in January 2009 in response
to lower demand because of the global economic recession. Crude oil
prices on the spot market rose to $72 per barrel in June 2009.
[119] Agri-biodiesel is defined as biodiesel produced from virgin
agricultural products such as soybean oil or animal fats, as opposed to
biodiesel produced from previously used agricultural products such as
recycled fryer grease.
[120] Biodiesel refineries have about 2.7 billion gallons of annual
production capacity.
[121] The Department of the Treasury reports expenditures for the Small
Ethanol Producer Credit and other ethanol income tax credits together,
so this total may include expenditures on other ethanol income tax
credits.
[122] This total includes USDA obligations for all renewable energy
programs because USDA could not break-out the total by focus or
technology. USDA obligations data for fiscal year 2008 are estimates,
as are obligations data for fiscal years 2005-2008 for DOE's Office of
Science.
[123] Oak Ridge National Laboratory, prepared for DOE and USDA, Biomass
as Feedstock for a Bioenergy and Bioproducts Industry: The Technical
Feasibility of a Billion-Ton Annual Supply (April 2005).
[124] The Billion-Ton study may have overestimated the amount of
feedstock that can be economically harvested because it did not
calculate costs associated with harvesting potential feedstocks with
existing technology. The study also included woody biomass from federal
forest lands, but EISA subsequently excluded such biomass from
qualifying under the RFS. An updated study is expected to be published
later this year.
[125] The Tennessee Biofuel Initiative includes a demonstration pilot
refinery that is scheduled to begin producing ethanol from switchgrass
by the end of 2009. The university entered into 3-year contracts with
switchgrass producers to help reduce the financial uncertainty that
farmers face when deciding to grow switchgrass and ensure feedstock
availability for the refinery.
[126] The Biomass Research and Development Board's November 2008
report, which models and projects potentially available feedstock
amounts, does not consider materials from federal lands as eligible.
[127] The 2008 Farm Bill established a $1.01 per gallon tax credit
through 2012 for cellulosic biofuels producers and reduced the VEETC,
which is available for conventional corn starch ethanol, to 45 cents
per gallon.
[128] Biomass Research and Development Board, National Biofuels Action
Plan (Washington, D.C., October 2008).
[129] Total project investment figures are in 2007 dollars and include
plant construction, equipment, installation, site development, and
other costs such as startup costs and permits.
[130] The slow pyrolysis process, which heats biomass in the absence of
oxygen over a longer time period, produces more biochar relative to
pyoil than fast pyrolysis. The distribution of products on a weight
basis for slow pyrolysis is about 30 percent liquid, 35 percent char,
and 35 percent gas.
[131] Biochar may enable the removal of more corn stover and other
agricultural residues from fields than can currently be removed and
therefore increase the productivity of feedstock crops.
[132] Section 211(f)(1)(A) of the Clean Air Act Amendments of 1990
provides that fuel and fuel additives marketed in the United States for
use in light-duty vehicles must be "substantially similar" to the fuels
used by EPA for federal emissions test procedures. Any fuel or fuel
additive with more than 2.7 percent oxygen (by weight) is not
considered to be substantially similar although EPA may grant a waiver
of the substantially similar requirement if certain standards are met.
EPA has granted waivers allowing ethanol concentrations of up to 10
percent of the volume of gasoline--or 3.5 percent oxygen by weight.
[133] National Commission on Energy Policy, Task Force on Biofuels
Infrastructure (Washington, D.C., April 2009).
[134] GAO, Freight Railroads: Industry Health Has Improved, but
Concerns about Competition and Capacity Should Be Addressed,
[hyperlink, http://www.gao.gov/products/GAO-07-94] (Washington, D.C.:
Oct. 6, 2006).
[135] See GAO, Biofuels: DOE Lacks a Strategic Approach to Coordinate
Increasing Production with Infrastructure Development and Vehicle
Needs, [hyperlink, http://www.gao.gov/products/GAO-07-713] (Washington,
D.C.: June 8, 2007).
[136] GAO, Federal Energy Management: Agencies Are Acquiring
Alternative Fuel Vehicles but Face Challenges in Meeting Other Fleet
Objectives, [hyperlink, http://www.gao.gov/products/GAO-09-75R]
(Washington, D.C.: Oct. 22, 2008).
[137] The Emergency Economic Stabilization Act of 2008 (Pub. L. No. 110-
343 § 202 (2008)) provides that all biodiesel fuels are eligible for a
$1 per gallon biodiesel tax credit beginning January 1, 2009.
[138] Biodiesel production results in glycerol (glycerin) as a co-
product. Rising biodiesel production has created a need to find new
uses for it.
[139] B5 is a blend of 5 percent biodiesel and 95 percent petroleum-
based diesel.
[140] Partial equilibrium models study a market for a commodity or
industry in isolation, given the prices and production of all other
commodities or industries in the economy are held constant. General
equilibrium analysis looks at an economic system as a whole and
observes the simultaneous determination of all prices and quantities of
all goods and services.
[141] Although each model in the studies is adapted to the particular
analysis at hand, a brief description of these general economic
techniques is as follows: (1) Econometric analysis seeks to verify
economic theory and measure economic relationships by statistical and
mathematical methods, using such tools as regression analysis, for the
purpose of forecasting future events and choosing desirable policies.
(2) Simulation techniques are a form of forecasting that generates a
range of alternative projections based on differing assumptions about
future events, specifically to answer the question, "what would happen
if" and is often used to assess the likely impacts of various economic
policies. (3) Optimization models are a type of mathematical model that
attempts to optimize (maximize or minimize) an objective function
subject to certain resource constraints; they are also known as
mathematical programming models. (4) Break-even analysis is an
investigation of how changes in volume of production affect costs and
profit, and is a valuable tool in setting price. The break-even point
is the one which insures that all fixed and variable costs are covered,
given a particular selling price. (5) Representative farm models are
typically used to model or simulate the impact on reforms or policy
changes on the individual farmer or household. This type of model
relies on the identification of a typical or representative farm and
production decisions made by the farm subject to resource constraints
are generally modeled for the farm.
[End of section]
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