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Wednesday, January 19, 2011

Cellulosic Biofuels: Analysis of Policy Issues for Congress

Kelsi Bracmort
Analyst in Agricultural Conservation and Natural Resources Policy

Randy Schnepf
Specialist in Agricultural Policy

Megan Stubbs
Analyst in Agricultural Conservation and Natural Resources Policy

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

Cellulosic biofuels are produced from cellulose (fibrous material) derived from renewable biomass. They are thought by many to hold the key to increased benefits from renewable biofuels because they are made from potentially low-cost, diverse, non-food feedstocks. Cellulosic biofuels could also potentially decrease the fossil energy required to produce ethanol, resulting in lower greenhouse gas emissions.

Cellulosic biofuels are produced on a very small scale at this time—significant hurdles must be overcome before commercial-scale production can occur. The renewable fuels standard (RFS), a major federal incentive, mandates a dramatic increase in the use of renewable fuels in transportation, including the use of cellulosic biofuels—100 million and 250 million gallons per year (mgpy) for 2010 and 2011, respectively. After 2015, most of the increase in the RFS is intended to come from cellulosic biofuels, and by 2022, the mandate for cellulosic biofuels will be 16 billion gallons. Whether these targets can be met is uncertain. In March 2010, the Environmental Protection Agency issued a final rule that lowered the 2010 cellulosic biofuel mandate to 6.5 million gallons. In November 2010, EPA lowered the 2011 mandate to 6.6 million gallons. Research is ongoing, and the cellulosic biofuels industry may be on the verge of rapid expansion and technical breakthroughs. There are no large-scale commercial cellulosic biofuel plants in operation in the United States. A few small-scale plants came online in 2010.

The federal government, recognizing the risk inherent in commercializing this new technology, has provided loan guarantees, grants, and tax credits in an effort to make the industry competitive by 2012. In particular, the Food, Conservation, and Energy Act of 2008 (the 2008 farm bill, P.L. 110-246) supports the nascent cellulosic industry through authorized research programs, grants, and loans exceeding $1 billion. The enacted farm bill also contains a production tax credit of up to $1.01 per gallon for fuels produced from cellulosic feedstocks. Private investment, in many cases by oil companies, also plays a major role in cellulosic biofuels research and development.

Three challenges must be overcome if the RFS is to be met. First, cellulosic feedstocks must be available in large volumes when needed by refineries. Second, the cost of converting cellulose to ethanol or other biofuels must be reduced to a level to make it competitive with gasoline and corn-starch ethanol. Third, the marketing, distribution, and vehicle infrastructure must absorb the increasing volumes of renewable fuel, including cellulosic fuel mandated by the RFS.

Congress will continue to face questions about the appropriate level of intervention in the cellulosic industry as it debates both the risks in trying to pick the winning technology and the benefits of providing start-up incentives. The current tax credit for cellulosic biofuels is set to expire in 2012, but its extension may be considered during the 112
th Congress. Congress may continue to debate the role of biofuels in food price inflation and whether cellulosic biofuels can alleviate its impacts. Recent congressional action on cellulosic biofuels has focused on the definition of renewable biomass eligible for the RFS, which is considered by some to be overly restrictive. To this end, legislation has been introduced to expand the definition of renewable biomass eligible under the RFS.

Date of Report: January 7, 2011
Number of Pages: 27
Order Number: RL34738
Price: $29.95

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