Biomass and Cellulosic Biofuels: A Compendium

Congress will likely be confronted with the ability (or inability) of the U.S. biofuels sector to expand production capacity to meet the ever-increasing RFS mandate. U.S. biofuels production has easily exceeded the RFS since its inception in 2005 and through 2009. However, in 2010 U.S. biofuels production appeared on the verge of bumping up against the so-called “blend wall”—the 10% blending limit of ethanol to gasoline in U.S. transportation fuel—which could challenge the industry’s ability to meet the RFS mandate in the future. Blend wall aside, as the RFS mandate for biofuels steadily increases and becomes binding, it will have important consequences for food and energy markets. The short-lived commodity price spikes of mid-2008 hinted at the potential conflict associated with conversion of domestic food crops to biofuels.

In an attempt to shift biofuels policy distortions away from livestock feed and other markets, both EISA and the 2008 farm bill redirect biofuels research and development emphasis to cellulosic biofuels, since they can potentially be produced from non-food feedstocks such as crop residues, dedicated energy crops, and woody biomass. Under EISA the cellulosic biofuels mandate grows quickly from 100 million gallons per year (mgpy) in 2010 to 16 billion gallons by 2022. As a result, after 2015, most of the increase in the overall RFS is intended to come from cellulosic biofuels rather than corn-starch ethanol. However, the speed of cellulosic biofuels development remains a major uncertainty and currently lags the schedule set in EISA.

Congress might face issues relating to cellulosic biofuels production such as the effectiveness of incentives to spur commercial viability. Under EISA, EPA is required to calibrate annual fuel-use mandates based on expected production capacity. In early 2010, cellulosic biofuels were being produced in the United States on a very small, non-commercial, scale, thus making the 100 mgpy mandate a daunting target. As a result, the EPA announced (Feb. 3, 2010) a reduction in the 2010 cellulosic biofuels RFS to 6.5 million gallons. Then, on Nov. 29, 2010, in its final rule on 2011 RFS mandates, EPA announced a 2011 cellulosic biofuels mandate of 6.6 mgpy, down from the 250 mgpy scheduled in EISA.

Date of Compendium: September 16, 2011
Number of Pages: 117
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Renewable Energy Programs and the Farm Bill: Status and Issues

Randy Schnepf
Specialist in Agricultural Policy

U.S. Department of Agriculture (USDA) renewable energy programs have been used to incentivize adoption of renewable energy projects including solar, wind, and anaerobic digesters. However, the primary focus of USDA renewable energy programs has been to promote U.S. biofuels production and use—including corn starch-based ethanol, cellulosic ethanol, and soybean-based biodiesel.

The 2002 farm bill (Farm Security and Rural Investment Act of 2002, P.L. 107-171) was the first omnibus farm bill to explicitly include an energy title (Title IX). The energy title authorized grants, loans, and loan guarantees to foster research on agriculture-based renewable energy, to share development risk, and to promote the adoption of renewable energy systems. The 2002 farm bill was followed by two major energy bills (the Energy Policy Act of 2005, P.L. 109-58; and the Energy Independence and Security Act of 2007, P.L. 110-140), which established and expanded a national biofuels mandate along with several other renewable energy programs.

The 2008 farm bill (Food, Conservation, and Energy Act of 2008, P.L. 110-246) built on the 2002 farm bill as well as the previous renewable energy legislation, but refocused biofuels policy initiatives in favor of non-corn feedstocks, especially cellulosic-based feedstocks, in response to growing concerns about the emerging spillover effects of increasing corn use for ethanol production. Like the 2002 farm bill, the 2008 farm bill contained a distinct energy title (Title IX) that significantly expanded the number and types of programs available to support renewable energy production and use. In addition, new renewable-energy provisions were included in the rural development (Title VI), research (Title VII), livestock (Title XI), and tax (Title XV) titles of the 2008 farm bill.

The 2008 farm bill authorized $1.1 billion in mandatory funding for energy programs for FY2008 through FY2012, compared with $800 million in the 2002 farm bill (FY2002-FY2007). Mandatory authorization in the 2008 farm bill includes $320 million to the Biorefinery Assistance Program, $300 million to the Bioenergy Program for Advanced Biofuels, and $255 million to the Rural Energy for America Program (REAP). The Biomass Crop Assistance Program (BCAP) is authorized to receive such sums as necessary (i.e., funding is open-ended and depends on program participation). Discretionary funding in the 2008 farm bill totaled $1.7 billion (including $600 million for the Biorefinery Assistance Program), compared to $245 million in the 2002 farm bill. However, all discretionary program funding is subject to the annual appropriations process, which may or may not appropriate funds due to budget constraints. Actual discretionary appropriations to Title IX energy programs have been substantially below authorized levels through FY2011.

Implementation of the farm bill’s energy provisions is ongoing. President Obama, in May 2009, directed USDA and the Department of Energy (DOE) to accelerate implementation of renewable energy programs. Notices, proposed rules, and final rules have appeared in the Federal Register soliciting applications for those programs with available funding. The primary energy-related issue for the next farm bill is the expiration at the end of FY2012 and lack of baseline funding going forward for all major energy-related provisions of Title IX. In addition, the appearance of substantial redundancy across renewable energy programs at USDA and DOE, the slow development of the U.S. cellulosic biofuels sector, and concerns about the emerging spillover effects of increasing corn use for ethanol production are issues that are likely to emerge during the next farm bill debate.


Date of Report: September 20, 2011
Number of Pages: 36
Order Number: R41985
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Biomass Crop Assistance Program (BCAP): Status and Issues

Randy Schnepf
Specialist in Agricultural Policy

The Food, Conservation, and Energy Act of 2008 (P.L. 110-246, 2008 farm bill) created the Biomass Crop Assistance Program (BCAP). BCAP is intended to assist with the bioenergy industry’s hurdle of continuous biomass availability—viewed as a critical deterrent to private sector investment in the cellulosic biofuels industry. To accomplish this, BCAP was charged with two tasks: (1) to support the establishment and production of eligible crops for conversion to bioenergy in selected areas, and (2) to assist agricultural and forest land owners and operators with collection, harvest, storage, and transportation of eligible material for use in a biomass conversion facility.

Under the 2008 farm bill, BCAP was authorized to receive such sums as necessary, meaning that funding is open-ended and depends on program participation. The U.S. Department of Agriculture’s (USDA’s) Farm Service Agency (FSA) implemented one portion of BCAP—the Collection, Harvest, Storage, and Transportation (CHST) matching payment program—on June 11, 2009, through a Notice of Funds Availability in the Federal Register. The partial implementation created a possible unintended consequence of market competition for wood shavings, wood chips, sawdust, and other wood “scraps” between traditional purchasers—namely landscapers and particleboard manufactures—and facilities that convert biomass to energy. The issuance of the BCAP proposed rule on February 8, 2010, suspended CHST program enrollment and proposed rules for the implementation of the remainder of the BCAP program.

USDA issued the BCAP final rule on October 27, 2010, implementing both program components. The two main components of BCAP are split into two forms of payments: annual and establishment payments, which share in the cost of establishing eligible biomass crops and maintaining production; and matching payments, which share in the cost of the collection, harvest, storage, and transportation of biomass to an eligible biomass conversion facility. The payments have different eligibility and sign-up requirements, payment rates, and contract lengths.

Funding for BCAP is mandatory through the Commodity Credit Corporation (CCC) and was originally authorized at a “such sums as necessary” level. Recent congressional actions have capped the program in FY2010 and FY2011. In response to these reductions, USDA has temporarily suspended the matching payment portion of the program through FY2011. The annual and establishment payment portion of BCAP is accepting proposals through September 23, 2011.

While BCAP is in the early stages of implementation, concerns regarding eligibility, sustainability, and funding continue to be discussed. These issues could shape future congressional action on the program in the context of budgetary measures and possible reauthorization in the next farm bill.

In particular, BCAP funding authorization expires in FY2012 with the 2008 farm bill. BCAP does not include “baseline” budget spending beyond 2012. Based on current budgetary requirements, the authorizing committees could potentially need to secure offset funding if BCAP were to be reauthorized in the next farm bill. This could prove difficult given tight budgetary constraints and the more recent and higher projections of the program’s cost compared to its initial cost estimates.


Date of Report: September 19, 2011
Number of Pages: 19
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Environmental Regulation and Agriculture

Megan Stubbs, Coordinator
Analyst in Agricultural Conservation and Natural Resources Policy

As the U.S. and global economies continue to struggle, some inside and outside of Congress have expressed concern about how environmental regulation may stifle growth and productivity. Much of the criticism has focused on environmental regulations promulgated by the Environmental Protection Agency (EPA). Some claim that EPA is overreaching its regulatory authority and imposing costly and burdensome requirements on society. The agriculture community, among others, has been vocal in its concerns, contending that EPA appears to be focusing some of its recent regulatory efforts on agriculture. Environmental advocates, on the other hand, support many of EPA’s overall regulatory efforts to protect public health and the environment. Where agriculture contributes to environmental impairment, these groups say, it is appropriate to consider ways to minimize or eliminate the adverse impacts.

A healthy agriculture industry and a healthy environment are both important to the nation. However, agricultural production can have varying impacts on the environment. The use of both natural resources and synthetic inputs in agricultural production can sometimes create a negative impact on human health and the surrounding ecosystem. The magnitude of these environmental impacts varies widely across the country and changes over time. Given the agricultural sector’s size and potential to affect its surrounding environment, there is interest in tightening environmental policies while also maintaining an economically viable industry. Most recognize the agriculture community’s efforts to protect natural resources while striving to maintain a sustainable and abundant food supply.

The current federal response to environmental issues associated with agriculture is viewed as being both restrictive and supportive. Traditionally, farm and ranch operations have been exempt or excluded from many environmental regulations. The challenges and complexity of regulating numerous crop and livestock operations can be cost-prohibitive for government regulators; thus environmental policies have historically focused on large industrial sources such as factories and power plants, not farms. Much of the current farm policy addressing environmental concerns is through economic incentives to encourage beneficial production practices.

Growing interest in the impact of EPA’s regulatory actions on many sectors of the economy is evident in Congress, which has been examining the roles of EPA and other federal agencies in regulating environmental protection. Among the broad options for Congress, besides conducting general oversight, are reviewing rules under the Congressional Review Act, amending current law to modify an agency’s authority, introducing freestanding legislation, or using appropriations bills to prevent funds from being used for specific actions.

This report covers select environmental regulations that could affect agriculture. The majority of environmental regulations are administered by EPA, though not all. In some cases, agriculture is the direct or primary focus of the regulatory actions. In other cases, agriculture is one of many affected sectors. Of particular interest to agriculture are regulatory actions affecting air, water, energy, and chemicals. Issues associated with air (e.g., dust and emissions) and water quality (e.g., fertilizer and nutrient run-off) are a primary focus of many regulations affecting agriculture because of agriculture’s potential to affect these resources. Changes in energy policy, namely bioenergy, have recently become important to many in the agricultural industry based on the potential of corn-based biofuel production to contribute to the nation’s energy supply. Finally, the risks associated with agricultural chemical use and possible impacts on human health and the environment have led to recent federal regulatory reviews of chemical fertilizer and pesticide use.


Date of Report: August 24, 2011
Number of Pages: 42
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U.S. Farm Income

Randy Schnepf
Specialist in Agricultural Policy

According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at a record $103.6 billion in 2011, up 31% from the previous year’s total of $79 billion and easily surpassing the previous record of $87.4 billion achieved in 2004. Record revenues from strong crop markets, coupled with sharp gains in livestock revenues (also record high), are expected to offset a $32.5 billion increase in input costs to account for the forecast higher net returns.

The major drivers behind strong farm income projections are the outlook for record U.S. agricultural exports in 2011 (projected up 26% to $137 billion), and continued growth (mandated by federal usage requirements) in the U.S. corn ethanol industry. A recovering global economy (bolstered by particularly strong economic growth in China) is expected to support strong demand for cotton, feed grains, oilseeds, and livestock products. Severe drought in Russia, Kazakhstan, and the Ukraine during their 2010 growing seasons lowered export supplies from those traditional feed grain export markets and helped shift market interest to U.S. feed grains. Meanwhile, continued growth in U.S. corn-based ethanol production and strong livestock prices are expected to push corn and other crop prices steadily higher as they compete for a fixed amount of cropland. As a result, market prices for major program crops are approaching the record or near-record levels achieved in 2008, and have improved the earnings outlook in 2011 for most commodities, but especially for corn, wheat, cotton, and soybeans.

Government farm payments are projected down nearly 18% in 2011 at $10.2 billion as high commodity prices shut off payments under the price-contingent marketing loan and countercyclical payment programs.

Farm production expenses are forecast up 11% to a record $318 billion in 2011, led by higher fuel and fertilizer costs, and increasing outlays for crop insurance. Livestock producers face record costs for feed and replacement animals, which could diminish their net return prospects.

Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments—are expected to rise nearly 7% in 2011 to a record $2,324 billion following a 6% rise in 2010. Farm land cash markets in early 2011 suggest that land values will continue to see gains related to strong crop prices in 2011. The farm debt-to-asset ratio had been steadily declining since 1998’s value of 16% to a recent low of 10.4% in 2007, before rising to nearly 12% in 2008 and 2009. The ratio is expected to return to about 10.4% in 2011.

These data suggest a strong financial position heading into the latter half of 2011 for the agriculture sector as a whole relative to the rest of the U.S. economy. However, there is substantial regional variation. In general, the increase in expenses will affect livestock producers more harshly than crop producers. Cash grain farmers in the Corn Belt and Northern Plains are experiencing record revenues. In contrast, livestock and poultry feeders are experiencing record high feed costs that have narrowed profit margins. In addition, a severe drought in the Southwest extending into the Central Plains and the Southeast has limited grazing opportunities and hay production for cattle ranchers in the affected regions and led to substantial herd liquidation.


Date of Report: September 7, 2011
Number of Pages: 27
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