Posted by: Phillip Fraas
January 22, 2007

In August 2006, Agriculture Secretary Mike Johanns released an energy and agriculture theme paper for use in preparing for the 2007 farm bill debate. The text of the energy and agriculture paper can be located at www.usda.gov/documents/Farmbill07energy.pdf.

Today is a particularly good time to discuss this, the fourth of USDA's five farm bill theme papers. Rumors have been flying in recent days that energy independence will be one of the main themes in the President's 2007 State of the Union address scheduled to be delivered tomorrow night before a joint session of Congress. Some expect the President to propose a dramatic new initiative to substantially increase the production of biomass fuels--and biomass fuel is one of the main focuses of USDA's energy theme paper.

Further, members of Congress have already been talking about including energy provisions in the new farm legislation (the 2002 farm bill was the first to have an energy title). So, if the President does endorse the idea of a major push for biomass-based energy development, the momentum for a major energy title in the new farm bill could be almost unstoppable.

It would be most productive to tell you about the theme paper options for biomass energy that the President discusses in his speech tomorrow, which obviously I can't do today. So, this pre-speech posting, Part I of the energy theme paper posting, consists of excerpts from the theme paper that discuss the situation on the ground today. Part II, which will follow next week, will look to the future and discuss the theme paper's options in light of the President's State of the Union proposals.

So, here are some tidbits from the theme paper that, I hope, provide some context for what the President might talk about tomorrow evening.

--Including hydropower, renewable energy accounted for six percent of U.S. energy consumption in 2004, with energy from biomass contributing almost half of that total. Biomass energy is primarily produced from wood (70 percent) followed by waste (20 percent) and alcohol fuels (10 percent). While wood has provided most of the biomass energy over the years, ethanol has been the fastest growing renewable energy source over the the past 10 years. Page 2 of the theme paper, citation omitted.

--Biodiesel, which is just beginning to establish a market in the United States, is a biofuel substitute from petroleum diesel. Biodiesel is most commonly blended with diesel fuel at levels of 20 percent or lower. The majority of the 91 million gallons of biodiesel produced in 2005 came from soybean oil, although it can also be made from other oilseed crops, animal fats, and grease. Id at 3, citation omitted.

--About 14 percent of the U.S. corn crop was used for ethanol in 2005/06 and USDA projects 20 percent of U.S. corn production will be converted into ethanol in 2006/07. Id. at 5.

--Much of the growth in corn ethanol production can be attributed to government incentive programs that began in the 1970s. The Energy Tax Act of 1978 authorized the motor fuel excise tax exemption for ethanol blends, providing ethanol blends of at least 10 percent ethanol by volume a $0.40 per gallon exemption from the Federal motor fuels tax. Since then, several statutes have extended the tax exemption for ethanol. Currently, Federal law suthorizes a tax credit of $0.51 per gallon for ethanol through 2010. Legislation has also been passed to give income tax credits and loan guarantees to small ethanol producers. Id.

--The American Jobs Creation Act of 2004 granted biodiesel blenders a tax credit of $1.00 per gallon of biodiesel made from oil crops and animal fats and a $0.50 per gallon tax credit for biodiesel made from recycled fats and oils. Id. at 6.

--The Energy Policy Act (EPACT) of 2005 included several provisions to help diversify domestic energy production through the development of renewable fuels. EPACT mandates a renewable fuel phase-in called the renewable fuels standard (RFS), requiring U.S. fuel production to include a minimum amount of renewable fuel each year, starting at 4 billion gallons in 2006 and reaching 7.5 billion gallons in 2012. EPACT also created the Cellulosic Biomass Program to encourage the production of cellulosic ethanol and fund research on conversion technology. Under this program, every one gallon of ethanol made from biomass, such as switchgrass, crop residues, and tree crops, counts as 2.5 gallons towards satisfying the RFS. EPACT also extended the biodiesel fuel excise tax credit through 2008 and authorized a $0.10 per gallon income tax credit to small biodiesel producers. Id.

--Agricultural policy has only recently been directed at energy conservation and renewable energy production. USDA's FY 2000 Appropriations Act authorized the establishment of pilot projects for harvesting biomass on lands enrolled in the Conservation Reserve Program (CRP). In 2000, USDA also initiated the Commodity Credit Corporation (CCC) Bioenergy Program to alleviate crop surpluses and stimulate production of biofuels. The Agricultural Risk Protection Act of 2000 included the Biomass Research and Development Act, which directed the USDA and DOE to cooperate and coordinate policies to promote research and development leading to the production of bioproducts. . . The 2002 Farm Bill energy title authorized a range of programs through 2007 to promote bioenergy and bioproduct production and consumption. Key provisions include the Federal Biobased Products Preferred Procurement Act (FB4P), which requires Federal agencies to procure biobased products. Another program, the Biodiesel Fuel Education Program, awards competitive grants to educate government and private entities with vehicle fleets about the benefits of biodiesel fuel use. The Renewable Energy Systems and Energy Efficiency Improvements Program authorizes loans, loan guarantees, and grants to assist eligible farmers, ranchers, and rural small businesses in purchasing renewable energy systems and making energy efficiency improvements. The Value Added Grant Program (VAGP) was amended to make funds available to farm families and rural businesses to help them develop new value-added products, such as ethanol and biodiesel. The 2002 Farm Bill extended the CCC Bioenergy Program through FY 2006, expanded the CRP pilot biomass authority to a nationwide general authority, and authorized placement of wind turbines on land enrolled in CRP. Id. at 6-7.

That's it for now; stay tuned next week for more about what the farm bill might include in the way of biomass energy programs, based on what the President says tomorrow and the options USDA has already sketched out.

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USDA's Energy and Agriculture Theme Paper, Part I (pre-State of the Union Address)

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