The federal government needs to adopt a suite of new policies to spur production in the stalled advanced biofuels industry, according to a report released Monday by the Union of Concerned Scientists (UCS).
Advanced cellulosic biofuels–made from grasses, woodchips, wastes and other non-food sources–release dramatically less pollution than gasoline or corn ethanol. Reforming production tax credits for biofuels and providing new loan guarantees, investment tax credits and other financial incentives would spark investment in cellulosic biofuels, cut oil consumption, reduce global warming pollution, and ultimately save taxpayers money, the report found.
“We need to get advanced biofuels out of the laboratory and into gas tanks,” said Jeremy Martin, author of the report and a senior scientist in UCS’s Clean Vehicles Program. “In the current financial climate, existing federal policies are simply not enough to encourage the investments that will make these fuels a reality.”
Congress set mandates for cellulosic biofuel production when it passed the national Renewable Fuel Standard in 2007. Regardless, production is falling short due to the financial crisis and misguided policies. Increasing production of cellulosic biofuels would reduce U.S. oil dependence and curb the heat-trapping emissions that cause climate change.
The report recommends increasing U.S. cellulosic biofuels production to 1 billion gallons per year through a suite of financial incentives that would help build 10 to 20 commercial scale biorefineries nationwide. Such a “billion gallon challenge” would get advanced biofuels production back on track to meet the requirements of the Renewable Fuel Standard and buoy the industry.
Currently, cellulosic biofuels are falling far short of the mandated levels. In 2010, the standard requires fuel suppliers, largely oil companies, to purchase 100 million gallons of cellulosic biofuel, but the Environmental Protection Agency (EPA) had to lower this target to just 6.5 million gallons due to a lack of supply. This production shortfall will only get worse unless new policies are enacted, Martin said. According to the Department of Energy’s Energy Information Administration (EIA), annual production of cellulosic biofuels will not exceed 1 billion gallons until 2017 and will fall more than 10 billion gallons short of the Renewable Fuel Standard mandate of 16 billion gallons in 2022.
UCS also proposes replacing existing ethanol subsidies with a new “biofuels performance tax credit” that rewards biofuels based upon environmental performance. Currently, taxpayers pay nearly $5 billion per year to fund the Volumetric Ethanol Excise Tax Credit (VEETC), which pays oil companies and other fuel providers to purchase ethanol without requiring any pollution reductions. Since the Renewable Fuel Standard already requires these companies to purchase ethanol, the VEETC essentially pays oil companies to comply with existing law.
“We shouldn’t be paying the oil industry billions of dollars a year to purchase biofuels when it is already required to do so by law,” says Martin. “We need to make smart investments in clean, advanced biofuels that can cut our oil dependence and reduce heat-trapping pollution.”
Existing biofuel tax credits are very expensive. Extending current tax credits would cost nearly $100 billion (in 2009 dollars) over the next 10 years, with more than 60% supporting mature, or “conventional” industries, such as corn ethanol and soybean biodiesel.
UCS recommends that Congress adopt a performance-based biofuels tax credit based on fuels’ energy content and emissions reductions compared with typical corn ethanol. Such a standard would support biofuel producers that go beyond the Renewable Fuel Standard requirement, with larger payments for more energy-dense fuels that displace more oil, and for bigger reductions in heat-trapping pollution. The cleanest biofuels, such as cellulosic biofuel, would get the largest tax credits, as much as $1.15 per gallon of gasoline equivalent for a zero carbon biofuel. But even corn ethanol could qualify for substantial tax credits if producers upgrade their facilities with advanced, low-carbon production technology.
The total cost of government support for the first billion gallons of cellulosic biofuels would be about $4 billion over four or more years, UCS calculates. By comparison, the United States spends $6 billion annually on current tax credits for well-established biofuels such as corn ethanol and soy biodiesel. Additionally, reforming tax credits to make them performance-based would save taxpayers $20 billion from 2011 to 2014 because the subsidy would deliver less unnecessary aid.
“We’re wasting a lot of money to support ethanol that isn’t making us any more energy independent or any less vulnerable to global warming,” Martin said. “We need to make that money work for us by using it to support clean fuels that will do both.”
The "Billion Gallon Challenge" report is available at the link below.
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