Federal Subsidies for Biofuels and Biomass Energy

updated reportFederal Subsidies for Biofuels and Biomass Energy

Energy & Natural Resources  | Research & Analysis
Dec 1, 2017  | 43 min read

Biofuels subsidies were created after the 1970s energy crisis as a way to help increase U.S. energy independence.

Since then, the government has nurtured and maintained a wide range of biofuels and biomass subsidies that span numerous federal agencies and the biofuels and biomass supply chains – from research and development (R&D) all the way to the equipment used to dispense higher blends of ethanol (known as blender pumps) at gasoline stations. More recently, subsidies (including the Renewable Fuel Standard (RFS) mandate for blending an increasing amount of biofuels into the nation’s transportation fuel supply) have been aimed at reducing greenhouse gas (GHG) emissions and spurring rural economic development.

However, despite decades of billions of taxpayer dollars of subsidies, special interest tax breaks, taxpayer-backed loan guarantees, grants, mandates, and other supports, the biofuels and biomass industries have failed to achieve their goals.

And several independent analysts have recently questioned whether goals of lower GHG emissions and greater production of advanced biofuels from non-food feedstocks will ever come to fruition.[1]

Aside from billions in federal subsidies, other costs and unintended consequences of biofuel production – particularly corn ethanol, which comprises 80% of the RFS mandate – include the following:  higher food and fuel costs, greater GHG emissions, and the conversion of millions of acres of native grasslands, wetlands, and other sensitive land to corn and other commodity crops. Biofuel and biomass subsidies have allowed the federal government to pick winners and losers, distort energy and agriculture markets, and contribute to expansion and overproduction of certain types of bioenergy that work at cross-purposes with other federal programs. After nearly 40 years of federal backing for biofuels such as corn ethanol, the federal government should be scaling back – not expanding – its role in subsidizing biofuels and biomass production. It is long past time these industries survived on their own two feet without taxpayer support.

History of Biofuels Subsidies

While the largest biofuel subsidy to date – the $6 billion-per-year Volumetric Ethanol Excise Tax Credit (VEETC) – ended in 2011, biofuels subsidies live on in the form of other government mandates, subsidies, tax credits, etc. Below is a timeline of biofuel subsidies, with a description of the largest subsidies and tax breaks following. A full list of federal subsidies (including farm bill energy title subsidies, Dept. of Energy loan guarantees, R&D programs, trade programs, other tax breaks, etc.) can be found in Table 1.

  • Acronyms: billion gallons (BG); Renewable Fuel Standard (RFS); Volumetric Ethanol Excise Tax Credit (VEETC); Environmental Protection Agency (EPA); United States Department of Agriculture (USDA)
  • Ethanol subsidies: Congress began subsidizing ethanol during a fuel shortage in 1978 by exempting gasoline blended with ethanol from gasoline excise taxes and establishing a tax credit for ethanol use. In 2004, the American Jobs Creation Act implemented the VEETC to replace these two historical subsidies as a combined excise tax exemption and tax credit. VEETC continued until the end of 2011, after the U.S. Senate voted to end the $6 billion, 45-cent-per-gallon subsidy for the mature corn ethanol industry.
  • Renewable Fuel Standard (RFS): the RFS mandates that 36 billion gallons of biofuels be blended into gasoline and diesel fuel by 2022. However, this goal will unlikely be met given the failure of the advanced biofuels industry – and particularly cellulosic ethanol – to keep up with government mandates. In 2016, for instance, EPA reduced the mandate from over 22 billion gallons[2] to just over 18 billion gallons due to significantly low production levels of cellulosic ethanol.[3] See RFS section below for more information.
  • Biodiesel tax credit: $1/gallon credit was established in 2004 and expired at the end of 2016. However, Congress has a history of retroactively extending it for the previous calendar year.
  • Cellulosic producer tax credit: $1.01/gallon tax credit was created in the 2008 farm bill and expired at the end of 2016.  However, it has regularly been retroactively extended for the previous calendar year.
  • Ethanol blender pump subsidies: Realizing that the corn ethanol industry had already received its fair share of federal handouts, Congress prohibited corn starch ethanol from qualifying for new energy title spending authorized in the 2008 farm bill, which was reauthorized in 2014. The intent was to allow the next generation of biofuels (advanced fuels made from non-food sources like agricultural residues, wood waste, and perennial grasses) to receive a greater share of grants, loan guarantees, and other subsidies. However, in 2011, USDA began unilaterally subsidizing ethanol blender pumps through its Rural Energy for America Program (REAP), a program intended to support renewable energy projects such as wind and solar. In 2014, Congress stepped in to prohibit this practice. Instead of heeding Congressional intent, in 2015, USDA again began subsidizing blender pumps through a different program – the “Biofuel Infrastructure Partnership,” resulting in TCS awarding USDA the “Golden Fleece” award as a prime example of wasteful government spending.[4] Ethanol blender pump subsidies are also available through a federal tax credit.

Biofuels and Biomass Subsidies Span Several Government Agencies

Federal subsidies for the biofuels and biomass industries span at least six government agencies. Hence, some of the agencies overlap and work at cross purposes with one another. With so many different programs and GHG eligibility standards (or lack thereof in the case of tax credits and farm bill energy title programs, in particular), the subsidies have not achieved their goals of reducing GHG emissions and increasing U.S. energy independence. In fact, the National Academies of Sciences found that biofuels tax credits actually increase – instead of decrease – GHG emissions, not to mention similar findings for the RFS mandate.[5]

Biofuels and biomass subsidy programs are administered through the following federal agencies:  the U.S. Departments of Agriculture (USDA), Defense (DoD), Energy (DOE), Treasury, Transportation (DOT), and the Environmental Protection Agency (EPA). The National Science Foundation also recently funded a project to convert vegetable oils and animal fats into drop-in biofuels.[6] Most subsidy programs, however, are found within USDA, DOE, and Treasury, with the RFS being administered by EPA. Descriptions of these latter four agencies and the primary biofuels and biomass subsidy programs within each can be found below, with more detailed descriptions of 28 biofuels and biomass subsidy programs found in Table 1 below. Please note that while the largest subsidy programs are included here, other smaller programs or others that incentivize biofuels and biomass indirectly may not be included.

Department of Agriculture

Several biomass and biofuels subsidies are administered by USDA – ranging from farm bill energy and rural development title programs to commodity and crop insurance programs. The so-called farm bill, renewed approximately every five years, is a wide ranging piece of legislation that funds everything from nutrition assistance programs and broadband internet to agricultural subsidies for the production of crops such as corn and soybeans. More specifically, the energy title of the farm bill, first introduced in 2002 and reauthorized in 2008 and 2014, provides grants, loans, and other subsidies to energy efficiency, biofuels, and biomass (heat and power) projects. Commodity and crop insurance programs subsidize the underlying crops/feedstocks – primarily corn and soybeans – that are then converted into ethanol and biodiesel, among other biofuels. Rural development and trade programs also promote and subsidize both the biomass and biofuels industries. While not discussed in detail below, the Agricultural Research Service (ARS) and the National Institute of Food and Agriculture (NIFA) also conduct advanced biofuels R&D.[7]

Department of Energy

DOE administers various R&D programs for bioenergy, in addition to its Title XVII Loan Guarantee Program. Created as part of the Energy Policy Act of 2005, the program has $34 billion in authority to provide loan guarantees to various technologies, including nuclear, coal, energy efficiency, or renewables (wind, solar, geothermal, or biofuels). Aside from this authority, a Stimulus add-on known as the 1705 program also had about $2.4 billion in American Reinvestment and Recovery Act funds to pay for credit subsidies for renewable and energy efficiency projects, but those funds expired on September 30, 2011. Only two companies, Abengoa Bioenergy U.S. Holding and POET, LLC, received the final go-ahead for a taxpayer-backed loan on a biofuels or biomass energy project although POET later withdrew from the program and Abengoa went bankrupt. Other biofuels/biomass companies are awaiting final approval of their loan guarantee applications. Given the program’s past defaults, taxpayers could stand to lose even more if additional DOE loan guarantees are granted to risky projects.

Department of the Treasury

The Department of the Treasury administers a maze of biofuels and biomass tax breaks created by various pieces of legislation such as the 2005 and 2007 energy bills and so-called tax extenders packages that have been typically renewed at the end of calendar years with tax breaks for other industries. The main biomass tax break is the production tax credit, though subsidies for ethanol blender pumps, biodiesel, cellulosic ethanol, and many others litter the tax code. While these expired at the end of 2016, they have a history of being renewed in end-of-year tax packages.

Environmental Protection Agency

EPA administers the RFS (see RFS section below for more info), in addition to overseeing future biomass GHG accounting regulations which have been in the works for years but not finalized to date given their controversial nature. In addition, while the Trump Administration rolled back former President Obama’s Clean Power Plan, biomass facilities may also have been allowed to qualify under these regulations although controversy arose over how biomass GHG emissions would be accounted for.

Table 1 includes descriptions of the largest subsidy programs for biofuels and biomass energy, which total billions of dollars per year.

 

Table 1:  Federal Biofuels and Biomass Subsidies
Federal Agency/Farm Bill Title Program/Tax Credit Name Description Types of Projects Receiving Subsidies Estimated or Actual Costs**
U.S. Department of Agriculture (USDA)
Agriculture – Commodity Title Commodity Credit Corporation Traditionally a fund reserved to pay out farm subsidies and farm loans, USDA also used CCC funds to subsidize ethanol In May 2015, USDA announced CCC funding for ethanol blender pumps, which primarily benefit corn ethanol. $100 million in 2015[8]
Commodity programs – Agriculture Risk Coverage (ARC), Price Loss Coverage (PLC), etc. Farm programs that pay farmers for dips in crop prices or revenue (price x yield) over a certain time period Subsidies for crops used in biofuel production – such as corn and soybeans – in addition to wheat, rice, peanuts, etc. Total estimated cost of $9 billion in 2017[9]
Agriculture – Crop Insurance Title Federal Crop Insurance subsidies Crop insurance premium subsidies for yield losses (due to natural disasters) or revenue losses (for dips in income as small as 15%) Subsidies for crops used in biofuel production – such as corn, soybeans, sweet and biomass sorghum, alfalfa, pennycress, and sugarcane – in addition to wheat, rice, peanuts, etc. Total estimated cost of $6 billion in 2017[10]
Agriculture – Energy Title[11] Biomass Crop Assistance Program (BCAP) Payments to individuals and companies for producing, harvesting, collecting, and transporting crops or feedstocks that can be used in bioenergy or biofuels facilities Payments to establish crops, such as fast-growing trees or perennial grasses, in 11 approved project in addition to collection, harvest, storage, and transportation payments for the same types of biomass. Mandatory funding of $25 million from FY14-18
Bioenergy Program for Advanced Biofuels Payments to advanced biofuels facilities to expand annual production Over half of funding goes to mature corn ethanol and soy biodiesel facilities (even though corn ethanol is prohibited from receiving funding), with rest going to other types of biodiesel from animal fats, canola oil, used cooking oil, etc. Mandatory funding of $15 million for FY14-18 and discretionary funding of $20 million annually
Biomass Research and Development Initiative (joint program with DOE) Grants for research, development, and demonstration projects for biofuels and biobased chemicals and products Other than general R&D, feedstocks receiving the most funding include (ordered from most to least):  woody biomass, sorghum, perennial grasses, vegetable oil, energy crops, algae, corn oil and corn starch, and MSW. Mandatory funding of $3 million for FY2014-18 and discretionary funding of $20 million per year
Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program Grants and loan guarantees for advanced biofuels and heat and power facilities Most loan guarantees go to woody biomass, followed by MSW, ag residues, perennial grasses, algae, and corn or soybean oil. Mandatory funding of $100 million in FY14, $50 million in FY15 and FY16, and discretionary funding of $75 million for each year FY2014-18
Repowering Assistance Program Reimbursements for biorefineries to replace fossil fuel power sources with biomass (like wood chips, municipal solid waste, or perennial grasses) Two corn ethanol facilities received taxpayer funding to replace natural gas and fossil energy with a biomass boiler and a biogas digester. Mandatory funding of $12 million for FY2014 to remain available until expended, plus $10 million annually from FY2014-18 in discretionary funding
Rural Energy for America Program Grants and loan guarantees for rural energy efficiency and renewable energy projects, including solar, wind, hydropower, geothermal, and biomass (and note that ethanol blender pumps also received subsidies from 2011-2014) Projects receiving most subsidies include the following (in order from most to least):  solar, energy efficiency and energy audits, grain dryers, anaerobic digester, wind, biomass, hydropower, irrigation, corn ethanol and blender pumps, “other,” geothermal, biodiesel, and tobacco. $50 million in annual funding from FY14-18 and discretionary funding of $20 million for each of those years
Agriculture – Rural Development Title Rural Utilities Service Loans Loans to provide or improve rural energy generation, transmission, or distribution, including rural energy projects such as solar, wind, hydropower, biomass, or geothermal.[12] Biomass facilities converting wood into biofuels, heat, or power receive loans to “acquire, construct, extend, upgrade, and otherwise improve energy generation facilities;” 2012 loans were awarded to facilities in CO, HI, and TX/LA.[13] At least $264 million awarded to woody biomass facilities in 2012[14]
Rural Business Enterprise Grants (RBEG)  Loans for rural economic development projects benefiting small and emerging businesses.[15] Funds to “assist… businesses that produce biomass feedstocks for energy products and specialty chemicals” and “collect data on… woody biomass, the viability of a biomass pyrolysis process and the market for biochar.”[16] $590,052 for biomass projects announced in Aug. 2010, Jul. 2013[17], Jul. 2015[18], & Sept. 2015[19], but due to lack of detail and info provided by USDA, total may be higher.
Agriculture – Trade Title Market Access Program Market trade promotion program designed to expand agricultural exports In FY17, the U.S. Grains Council received $6,670,888 for its overall trade missions, but the amount spent on ethanol specifically is unknown.[20]The Council notes that the Renewable Fuels Association and Growth Energy also accompanied it on ethanol trade missions, but these 2 organizations aren’t direct recipients of MAP subsidies.[21] Unknown
Department of Defense (DoD)
DoD Defense Production Act funding Joint project between U.S. Navy, DOE, and USDA to “construct and commission biorefineries capable of producing “drop-in” biofuels to meet the transportation needs of the military and private sector.”[22] The three facilities – Emerald Biofuels, Fulcrum Bioenergy, and Red Rock Biofuels – receiving funding in 2014 planned to use waste fats, MSW, and woody biomass as feedstocks for drop-in biofuels.[23] $210 million awarded in 2014[24]
Department of Energy (DOE)
DOE AdvancedResearch Projects Agency-Energy (ARPA-E) “Applied research to outside organizations, such asprivate companies and academic institutions”[25] “More than 87 percent of ARPA-E’s advanced biofuel R&D projects are funded as part of the Plants Engineered to Replace Oil (PETRO) program [which funds the conversion of plants into biofuels] and the Transportation EnergyResources from Renewable Agriculture (TERRA) program,” which most recently funded sorghum-based biofuels. [26] $57.9 million from FY13-15[27]
DOE Bioenergy Technologies Office Aside from R&D, office also offers funding for “Pilot- and Demonstration-Scale Manufacturing of Biofuels, Bioproducts, and Biopower”[28] Eligible projects include: “manufacturing of advanced or cellulosic biofuels, bioproducts, refinery-compatible intermediates, and/or biopower in a domestic pilot- or demonstration-scale integrated biorefinery;” most recent projects use woody biomass, industrial waste gases, algae, MSW, industrial wastewater, etc. as feedstocks.[29] $397.5 million from FY13-15[30]
DOE Clean Cities Program Provides “informational, technical, and financial resources to EPAct-regulated fleets and voluntary adopters of alternative fuels and vehicles” in nearly 100 U.S. cities.[31] Works with national parks, municipalities, and state-based incentive programs to promote greater consumption of alternative fuels and the installation of new fueling equipment, including 85 percent ethanol (E85) blender pumps. At least $380 million spent on grants for infrastructure and alternatively fueled vehicles (ethanol and biodiesel), from 2009-17.[32]
DOE Loan Guarantee Program – Title XVII Provides loan guarantees to various energy projects, including nuclear, coal, energy efficiency, or renewables (wind, solar, geothermal,or biofuels). While only one biofuels loan guarantee has been finalized, at least 8 other projects (ranging from those for corn stover cellulosic ethanol to woody biomass-based biofuels) have been considered for taxpayer-backed loans. In particular, ethanol producer POET withdrew its application after being approved for a DOE loan guarantee. $132.4 million loan guarantee finalized in Aug. 2011 for corn stover cellulosic ethanol facility, but Abengoa later went bankrupt.[33]
DOE Office of Science External R&Drelated to advanced biofuels at three bioenergy research centers[34] According to GAO, although DOE continues “toinvestigate cellulosic ethanol, drop-in fuels are more desirable because they are compatible with current engine designs and fueling

infrastructure.”[35]

$424.1 million from FY13-15[36]
DOE State Energy Programs (SEP) “Provide financial and technical [energy] assistance to states through formula and competitive grants”[37] Grants have been awarded for the installation of E85 blender pumps, alternative power sources for ethanol biorefineries, and ethanol promotional events. $3.1 billion of total SEP funding to U.S. states under the 2009 American Recovery and Reinvestment Act (stimulus) legislation
DOE Vehicle Technologies Office “In-house and external R&D related to advanced biofuels,focusing on end-user considerations”[38]such as alternatively fueled vehicles and effects on engines. “Collaborating with Cummins engine company to develop a compression ignition enginecapable of running on ethanol”[39] $10.9 million from FY13-15[40]
U.S. Treasury – Tax Code
U.S. Treasury Alternative Fuel Mixture Excise Tax Credit* (another  similar credit is the Alternative Fuel Excise Tax Credit) $0.50/gallon “of alternative fuel used to produce a mixture containing at least 0.1% gasoline, diesel, or kerosene.”[41] “Qualified alternative fuels are: compressed natural gas…, liquefied natural gas, liquefied hydrogen, propane, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass,”[42] or liquefied fuel derived from biomass.[43] Estimated cost of $794 million in 2016.[44]
U.S. Treasury Alternative Fuel Vehicle Refueling Property Credit* Facilities dispensing certain alternative fuels can receive a refueling property credit in the form of a 30% tax break Eligible facilities include gasoline stations, those installing biodiesel or 85% ethanol (E85) blender pumps, or repowering sites for electric vehicles. Stations dispensing natural gas, liquefied natural gas (LNG), and liquefied petroleum gas (LPG) are also eligible.[45] Estimated cost of $100 million per Fiscal Year (as projected by the Joint Committee on Taxation in 2016).[46]
U.S. Treasury Master Limited Partnerships (MLP) “An MLP is typically a limited liability company (LLC) treated as a partnership for taxation purposes and traded on a public exchange… By avoiding double taxation, MLPs have access to lower cost of capital…”[47] Of the 100 entities benefiting from the MLPs’ special tax treatment, most are in the oil and gas industry, but in 2008, the transportation and storage of ethanol, biodiesel, and other alternative fuels also became eligible.[48] Total projected cost of $9.8 billion (for FY16-25)[49]
U.S. Treasury Renewable electricity production tax credit for biomass* $0.023/kWh for closed-loop biomass facilities not claiming the investment tax credit and $0.012/kWh for open-loop biomass facilities[50] Closed loop biomass feedstocks can be “any organic matter from a plant which is planted exclusively for purposes of being used at a qualified facility to produce electricity” while closed loop feedstocks include: “agricultural livestock manure and litter, including wood shavings, straw, rice hulls, and other bedding material for the disposition of manure.”[51] $1.2 billion projected cost for closed-loop biomass and $100 million for open-loop biomass (from FY16-20)[52]
U.S. Treasury Second generation biofuel (cellulosic) producer tax credit* (cellulosic producers also receive special tax depreciation allowances) $1.01 per gallon producer tax credit “Liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable basis or any cultivated algae, cyanobacteria, or lemna,” such as cellulosic ethanol derived from corn kernel fiber, ag residues, perennial grasses, etc.[53] Estimated cost of $487 million from 2017-26, given projected production levels from the Energy Information Administration (EIA) and assuming the tax credit is extended each year.[54]
U.S. Treasury Volumetric Biodiesel Excise Tax Credit andRenewable Biodiesel Tax Credit* Biodiesel income tax credit of $1 per gallon Eligible feedstocks include “virgin oils, esters derived from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats.”[55] Estimated cost of $21 billion from 2017-26, given projected production levels from EIA and assuming the tax credit is extended each year.[56]
Department of Transportation (DOT)
DOT Congestion Mitigation and Air Quality (CMAQ) Improvement Program Supports “surface transportation projects and other related efforts that contribute air quality improvements and provide congestion relief”[57] and is administered by the Federal Highway Administration and the Federal Transit Administration. The City of Hoover received funding through the Alabama Clean Fuels Coalition for a new E85 tank and dispenser at its Public Safety Center.[58] Unknown amount spent on ethanol projects.[59]
DOT Biobased Transportation Research Program/Sun Grant Initiative Partnership among DOT, USDA, and DOE to advance bioenergy research and foster collaborations in the field and among industry leaders.[60] Supported 5 land-grant universities to research bioenergy, in addition to providing regional grants to various bioenergy projects.  Initiativewas not reauthorized in the 2012 transportation bill, but

DOT funding was available through 2016.

* Note that these tax credits (for biodiesel, cellulosic biofuel, and the alternative fuel refueling property credit) expired at the end of 2016, but they have a history of being extended from year to year.** Cost estimates are primarily from the Joint Committee on Taxation, Government Accountability Office, and the Congressional Budget Office. Farm bill energy title program costs are those set in statute through the 2014 farm bill.

Renewable Fuel Standard Mandate

While not a specific per-gallon subsidy, the federal RFS is still a biofuels subsidy given that it mandates a certain level of biofuels be blended with U.S. gasoline and diesel each year. Since these volumes are larger than what the market would otherwise demand, biofuels producers benefit from this indirect subsidy. This market intervention comes at the expense of consumers, taxpayers, and other industries that rely on corn and soybeans as inputs (such as the livestock industry). While the RFS was intended to incentivize the production of biofuels from non-food feedstocks (such as forest and agricultural residues, perennial grasses, etc.), it has primarily been filled with first-generation, food-based crops.

Table 2: Types of Biofuels Mandated in the RFS
Type of Biofuel Annual Production Mandate by 2022 Definition of Biofuel Examples Minimum Reduction in Greenhouse Gas Emissions
Conventional ethanol 15 billion gallons/year Ethanol derived from corn starch – Corn starch ethanol 20%, but due to a grandfathering clause, nearly every ethanol facility was able to circumvent this minimal requirement
Advanced biofuels (subdivided into other categories – see advanced biofuels table definitions) 21 billion gallons/year “Renewable fuel, other than ethanol derivedfrom corn starch, that has lifecycle greenhouse gas emissions (GHG) that are at least 50% less than baseline GHG emissions” – Cellulosic ethanol– Ethanol from non-corn feedstocks such as sugar

– Ethanol from waste materials such as crop residues, food waste, animal waste, etc.

– Biodiesel from soybeans, other vegetable oil, animal fats, etc.

– Biogas from landfills

– Butanol from renewable biomass such as corn (approved for a certain facility in MN – Gevo)

50%
Table 3: Types of Advanced Biofuels Mandated in the RFS
Type of Biofuel Annual Production Mandate by 2022 Definition of Biofuel Examples Minimum Reduction in Greenhouse Gas Emissions
Cellulosic ethanol 16 billion gallons/year Renewable fuel derived from any cellulose, hemicellulose, or lignin – Ethanol produced from agricultural residues (corn stover for instance), forest residues, food or municipal solid waste, perennial grasses, etc. Note that corn kernel fiber cellulosic ethanol was also approved by EPA. 60%
Biomass-based diesel At least 1 billion gallons/year, set annually by EPA Biodiesel produced from vegetable oil or “a diesel fuel substitute produced from nonpetroleum renewable resources [including] animal wastes, including poultry fats and poultry wastes, and other waste materials, or municipal solid waste and sludges and oils derived from wastewater” – Biodiesel produced from soybeans, other vegetable oil, algae, animal fats, used cooking oil, etc.– Other diesel fuel substitutes produced from municipal solid waste, animal wastes, etc. 50%
“Other” advanced biofuels 4 billion gallons/year Any other fuel that meets the definition of an “advanced biofuel” – Ethanol from non-corn feedstocks such as sugar– Butanol from renewable biomass (including butanol

derived from corn, which was recently approved by EPA for a certain facility – Gevo

– May also include biomass-based diesel (see above)

50%

Several independent analysts question the RFS’s ability to achieve its goals of lower GHG emissions[61], greater energy security, and a shift to non-food-based crops, given that the production of “advanced biofuels” – particularly cellulosic biofuels – has fallen greatly below expectations set in the 2007 energy bill (see Figure 1 below[62]). Meanwhile, the volume of corn ethanol has dominated the RFS and has reached its statutory target of 15 billion gallons (as of 2017).

While corn ethanol was once promised to be a “bridge” to advanced and cellulosic biofuels, it has failed to spur meaningful production non-corn-based biofuels that significantly reduce GHG emissions. This is despite several decades of generous subsidies. And since the U.S. has hit the “blend wall,” or the maximum amount of ethanol that can safely be blended into the current vehicle fleet (without harming older vehicles or small engines), corn ethanol is also crowding out the development of next-generation cellulosic biofuels. Other corn-based biofuels – including corn oil biodiesel, corn butanol, and corn kernel fiber cellulosic ethanol – have also recently made their way into the RFS advanced biofuels mandate despite Congress’s intent to reserve these buckets for next-generation, non-food-based biofuels.

The RFS has resulted in numerous direct and indirect costs to consumers and taxpayers, including but not limited to the following:

  • Higher food[63] and feed costs, particularly for the poor in developing countries, since most RFS biofuel gallons are derived from food/feed crops such as corn, soybeans, and sugar.[64]
  • Higher fuel costs, since EPA estimated $1.6-$3.5 billion in higher fuel costs for consumers just from 2014 to 2016.[65]
  • Higher – instead of lower – GHG emissions since the mandate has primarily been filled with corn ethanol, a biofuel that was largely exempt from RFS requirements to reduce GHG emissions through a grandfathering provision.[66]
  • Costs to replace small engines and older vehicles that cannot run on higher ethanol blends.[67]
  • Environmental, social and public health costs as sensitive land – highly erodible acres, wetlands, and grasslands – are unlawfully converted into corn and soybean production. [68] In particular, corn uses more inputs (such as nitrogen fertilizer and pesticides) than other crops, which contributes to water pollution when they run off into nearby waterways.
  • By promoting food- and crop-based biofuels, the RFS undermines other federal policies aimed at reducing environmental liabilities associated with climate change and water pollution, just to name a few. As an example, mandates promoting corn ethanol encourage more corn plantings on sensitive land while USDA conservation programs pay farmers to retire this same land. These types of programs work at odds with one another, wasting taxpayer dollars in the process.

Conclusion

While proponents have attempted to sell the biofuels and biomass industries as those that would increase U.S. energy independence and reduce GHG emissions, they have failed to meet these goals despite decades of generous subsidies. The wide array of supports, spanning at least seven government agencies, have done more harm than good and have spurred numerous unintended consequences and costs for both taxpayers and consumers. Biofuels and biomass subsidies have also distorted energy markets, raised fuel and food prices, picked winners and losers, and worked at cross-purposes with one another. After nearly 40 years of subsidies for corn ethanol in particular, it is time the biofuels and biomass industries survived on their own two feet without taxpayer support. All types of energy – including biofuels and biomass – should be allowed to compete on a level playing field without government intervention and market distortions. Otherwise, the very goals these industries set out to achieve will fail to be met while billions of taxpayer dollars are wasted each year.

 

For more information, contact Taxpayers for Common Sense at 202-546-8500.

 

[1] https://www.nap.edu/catalog/13105/renewable-fuel-standard-potential-economic-and-environmental-effects-of-us

[2] http://www.ewg.org/research/will-real-ethanol-beneficiaries-please-stand

[3] https://www.epa.gov/renewable-fuel-standard-program/final-renewable-fuel-standards-2017-and-biomass-based-diesel-volume

[4] http://www.taxpayer.net/library/article/golden-fleece-blinders-for-blender-pumps

[5] https://www.nap.edu/catalog/18299/effects-of-us-tax-policy-on-greenhouse-gas-emissions

[6] http://www.gao.gov/assets/690/681256.pdf

[7] http://www.gao.gov/assets/690/681256.pdf

[8] https://www.usda.gov/media/press-releases/2015/05/29/usda-invest-100-million-boost-infrastructure-renewable-fuel-use

[9] https://www.cbo.gov/publication/52150

[10] https://www.cbo.gov/publication/52150

[11] http://docs.house.gov/billsthisweek/20140127/CRPT-113hrpt-HR2642-SOM.pdf

[12] https://www.rd.usda.gov/about-rd/agencies/rural-utilities-service

[13] https://www.rd.usda.gov/about-rd/agencies/rural-utilities-service

[14] http://www.obpa.usda.gov/budsum/FY14budsum.pdf

[15] http://www.rurdev.usda.gov/BCP_rbeg.html

[16] http://www.rurdev.usda.gov/SupportDocuments/rdRBEGAwards2013.pdf

[17] http://www.rurdev.usda.gov/SupportDocuments/rdRBEGAwards2013.pdf; https://www.rd.usda.gov/recovery/rural.html

[18] http://www.rd.usda.gov/files/RBS_REDLG_IRP_RBDGChartJuly29_2015.pdf

[19] https://www.rd.usda.gov/files/RD_RBDGRecipientsSept2015.pdf

[20] https://www.fas.usda.gov/programs/market-access-program-map/map-funding-allocations-fy-2017

[21] http://www.grains.org/news/20141211/usgc-ethanol-assessment-team-finds-growth-potential-philippines

[22] https://energy.gov/articles/departments-navy-energy-and-agriculture-invest-construction-three-biorefineries-produce

[23] https://energy.gov/articles/departments-navy-energy-and-agriculture-invest-construction-three-biorefineries-produce

[24] http://www.renewableenergyworld.com/articles/2014/09/us-navy-doe-usda-award-210-million-to-three-companies-for-drop-in-biofuels.html

[25] http://www.gao.gov/assets/690/681256.pdf

[26] http://www.gao.gov/assets/690/681256.pdf

[27] http://www.gao.gov/assets/690/681256.pdf

[28] https://www.energy.gov/eere/articles/energy-department-announces-six-projects-pilot-and-demonstration-scale-manufacturing

[29] https://www.energy.gov/eere/articles/energy-department-announces-six-projects-pilot-and-demonstration-scale-manufacturing

[30] http://www.gao.gov/assets/690/681256.pdf

[31] https://cleancities.energy.gov/about/

[32] https://cleancities.energy.gov/partnerships/search.csv

[33] https://energy.gov/lpo/portfolio/portfolio-projects

[34] http://www.gao.gov/assets/690/681256.pdf

[35] http://www.gao.gov/assets/690/681256.pdf

[36] http://www.gao.gov/assets/690/681256.pdf

[37] https://www.grants.gov/web/grants/learn-grants/grant-making-agencies/department-of-energy.html

[38] http://www.gao.gov/assets/690/681256.pdf

[39] http://www.gao.gov/assets/690/681256.pdf

[40] http://www.gao.gov/assets/690/681256.pdf

[41] https://www.afdc.energy.gov/laws/laws_expired?jurisdiction=US

[42] https://www.afdc.energy.gov/laws/laws_expired?jurisdiction=US

[43] https://www.gpo.gov/fdsys/pkg/BUDGET-2017-PER/pdf/BUDGET-2017-PER.pdf

[44] https://www.jct.gov/publications.html?func=download&id=4860&chk=4860&no_html=1

[45] http://www.law.cornell.edu/uscode/text/26/30C

[46] https://www.jct.gov/publications.html?func=download&id=4860&chk=4860&no_html=1

[47] http://www.forbes.com/sites/williampentland/2013/06/10/mlp-parity-act-disrupting-distributed-energy/

[48] Kinder Morgan, one of the only owners of a short ethanol pipeline, uses an MLP to lower its tax liability, Valero is considering using one for its ten ethanol plants, and Buckeye Partners and Magellan Midstream Partners, L.P., both current users of MLPs, considered building an ethanol pipeline from IA to NJ.

http://fuelfix.com/blog/2013/05/01/valero-might-form-an-mlp/; https://www.coons.senate.gov/imo/media/doc/MLP%20Parity%20Act%20Summary%20-%20114th%20Congress.pdf

[49] https://www.jct.gov/publications.html?func=startdown&id=4971; http://mlpguy.com/archives/1417

[50] https://energy.gov/savings/renewable-electricity-production-tax-credit-ptc

[51] https://fas.org/sgp/crs/misc/R40529.pdf

[52] https://www.jct.gov/publications.html?func=download&id=4971&chk=4971&no_html=1

[53] https://www.afdc.energy.gov/laws/laws_expired?jurisdiction=US

[54] https://www.eia.gov/outlooks/aeo/data/browser/#/?id=24-AEO2017&cases=ref2017&sourcekey=0

[55] http://www.gpo.gov/fdsys/pkg/BILLS-109hr4756ih/html/BILLS-109hr4756ih.htm

[56] https://www.eia.gov/outlooks/aeo/data/browser/#/?id=24-AEO2017&cases=ref2017&sourcekey=0

[57] http://www.fhwa.dot.gov/environment/air_quality/cmaq/

[58] http://www.afdc.energy.gov/case/1423

[59] http://www.afdc.energy.gov/case/1423

[60]https://cms.dot.gov/sites/dot.gov/files/docs/mission/administrations/assistant-secretary-research-and-technology/282426/sungrantinitiative508.pdf

[61]

[62] http://www.gao.gov/assets/690/681256.pdf

[63] https://www.epa.gov/renewable-fuel-standard-program/approved-pathways-renewable-fuel

[64] https://www.gpo.gov/fdsys/pkg/FR-2016-05-31/pdf/2016-12369.pdf

[65] https://www.gpo.gov/fdsys/pkg/FR-2016-05-31/pdf/2016-12369.pdf

[66] http://www.catf.us/resources/whitepapers/files/20130405-CATF%20White%20Paper-Corn%20GHG%20Emissions%20Under%20Various%20RFS%20Scenarios.pdf

[67] http://www.gao.gov/new.items/d07713.pdf

[68] https://www.npr.org/sections/thesalt/2013/02/14/172021095/pictures-dont-lie-corn-and-soybeans-are-conquering-u-s-grasslands