GAO assesses impacts, challenges of mandated biofuels increases

A federal tax credit of 45¢/gal established to help the domestic ethanol industry probably won’t stimulate production beyond levels that new renewable fuels standards specify for this year unless oil prices climb significantly, the Government Accountability Office said.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Oct. 2 -- A federal tax credit of 45¢/gal established to help the domestic ethanol industry probably won’t stimulate production beyond levels that new renewable fuels standards specify for this year unless oil prices climb significantly, the Government Accountability Office said.

The Volumetric Ethanol Excise Tax Credit also may no longer be needed to stimulate US corn-based ethanol production because the industry has matured, its processing is well understood, and its production capacity is already near the effective RFS limit of 15 billion gal/year, GAO said in a report issued on Oct. 2.

A separate $1.01 tax credit is available for producing advanced cellulosic biofuels, it noted.

It noted that in December 2007 Congress passed the Energy Independence and Security Act (EISA), which requires the use of ethanol and other biofuels to rise from 9 billion gal in 2008 to 36 billion gal in 2022. “To meet the RFS, domestic biofuels production must increase significantly, with uncertain effects to agriculture and the environment,” it said.

The report said to meet the RFS, the US Departments of Agriculture (USDA) and Energy (DOE) are developing advance biofuels that use switchgrass, corn stove, and other cellulosic biofuels. The US Environmental Protection Agency administers the RFS, it added. GAO said it extensively reviewed scientific studies, interviewed experts and agency officials, and visited five DOE and USDA laboratories as it prepared the report.

Higher prices
GAO said for agriculture, many experts believe biofuel production has contributed to crop increases as well as higher prices for livestock, poultry, and, to a lesser extent, food. “They believe that this trend may continue as the RFS expands,” it said.

“For the environment, many experts believe that increase biofuels production could impair water quality by increasing fertilizer runoff, and also reduce water availability, degrade air and soil quality, and adversely affect wildlife habitat,” the report said.

“However, the extent of these effects is uncertain and could be mitigated by such factors as improved crop yields, feedstock selection, use of conservation, and improvements in biorefinery processing,” it added.

GAO said except for greenhouse gas emissions, EPA currently is not required by law to assess environmental effects to determine which biofuels are eligible for inclusion in the RFS.

GAO said many researchers interviewed for the report suggested there is general agreement on the approach for measuring biofuels production’s direct effects on lifecycle GHG 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,” it said.

Challenges loom
The US will face several key challenges in expanding biofuels production to achieve the standard’s 36 billion gal requirement in 2022, the report said.

“For example, farmers face risks in transitioning to cellulosic biofuels production and are uncertain whether growing switchgrass will eventually be profitable,” it said, adding, “USDA’s new Biomass Crop Assistance Program may help mitigate these risks by providing payments to farmer through multiyear contracts.”

US ethanol use also is approaching the so-called “blend wall”—the amount of ethanol that most vehicles in the country can use—given EPA’s 10% limit on gasoline’s ethanol content, the report said.

“Research has been initiated on the long-term effects of using 15% or 20% ethanol blends, but expanding the use of 85% ethanol blends will require substantial new investment because ethanol is too corrosive for the petroleum distribution infrastructure and most pipelines,” it said.

“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 US vehicles,” it added.

The report recommended that in addition to the GHG emissions analysis required under EISA, Congress may want to consider requiring the EPA administrator to develop a strategy assessing the effects of increased biofuels environment on all stages of the lifecycle (cultivation, harvest, transportation, conversion, storage, and use) and to use this assessment to determine which biofuels are eligible for consideration under the RFS. “This would ensure that all relevant environmental effects are considered concurrently with lifecycle [GHG] emissions,” GAO said.

Contact Nick Snow at nicks@pennwell.com.

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