Biofuels:

Potential Effects and Challenges of Required Increases in Production and Use

GAO-09-446: Published: Aug 25, 2009. Publicly Released: Oct 2, 2009.

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In December 2007, the Congress expanded the renewable fuel standard (RFS), which requires rising use of ethanol and other biofuels, from 9 billion gallons in 2008 to 36 billion gallons in 2022. To meet the RFS, the Departments of Agriculture (USDA) and Energy (DOE) are developing advanced biofuels that use cellulosic feedstocks, such as corn stover and switchgrass. The Environmental Protection Agency (EPA) administers the RFS. This report examines, among other things, (1) the effects of increased biofuels production on U.S. agriculture, environment, and greenhouse gas emissions; (2) federal support for domestic biofuels production; and (3) key challenges in meeting the RFS. GAO extensively reviewed scientific studies, interviewed experts and agency officials, and visited five DOE and USDA laboratories.

To meet the RFS, domestic biofuels production must increase significantly, with uncertain effects for agriculture and the environment. For agriculture, many experts said that biofuels production has contributed to crop price increases as well as increases in prices of livestock and poultry feed and, to a lesser extent, food. They believe that this trend may continue as the RFS expands. For the environment, many experts believe that increased biofuels production could impair water quality--by increasing fertilizer runoff and soil erosion--and also reduce water availability, degrade air and soil quality, and adversely affect wildlife habitat; however, the extent of these effects is uncertain and could be mitigated by such factors as improved crop yields, feedstock selection, use of conservation techniques, and improvements in biorefinery processing. Except for lifecycle greenhouse gas emissions, EPA is currently not required by statute to assess environmental effects to determine what biofuels are eligible for inclusion in the RFS. Many researchers told GAO there is general agreement on the approach for measuring the direct effects of biofuels production on lifecycle greenhouse gas 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. The Volumetric Ethanol Excise Tax Credit (VEETC), a 45-cent per gallon federal tax credit, was established to support the domestic ethanol industry. Unless crude oil prices rise significantly, the VEETC is not expected to stimulate ethanol consumption beyond the level the RFS specifies this year. The VEETC also may no longer be needed to stimulate conventional corn ethanol production because the domestic industry has matured, its processing is well understood, and its capacity is already near the effective RFS limit of 15 billion gallons per year for conventional ethanol. A separate $1.01 tax credit is available for producing advanced cellulosic biofuels. The nation faces several key challenges in expanding biofuels production to achieve the RFS's 36-billion-gallon requirement in 2022. For example, farmers face risks in transitioning to cellulosic biofuels production and are uncertain whether growing switchgrass will eventually be profitable. USDA's new Biomass Crop Assistance Program may help mitigate these risks by providing payments to farmers through multi-year contracts. In addition, U.S. ethanol use is approaching the so-called blend wall--the amount of ethanol that most U.S. vehicles can use, given EPA's 10 percent limit on the ethanol content in gasoline. Research has been initiated on the long-term effects of using 15 percent or 20 percent ethanol blends, but expanding the use of 85 percent ethanol blends will require substantial new investment because ethanol is too corrosive for the petroleum distribution infrastructure and most vehicles. 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 U.S. vehicles.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matters for Congressional Consideration

    Matter: Because the RFS allows rapidly increasing annual amounts of conventional biofuels through 2015 and the conventional corn starch ethanol industry is mature, the Congress may wish to consider whether revisions to the VEETC are needed. Options could include maintaining the VEETC, reducing the amount of the tax credit or phasing it out, or modifying the tax credit to counteract fluctuations in crude oil prices.

    Status: Closed - Implemented

    Comments: Congress allowed the Volumetric Ethanol Excise Tax Credit (VEETC) to expire at the end of 2011. The most recent extension of the credit, set at 45-cents-per-gallon in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, expired on December 31, 2011. Fuel blenders that purchase and blend ethanol with gasoline no longer receive the credit. In Marcy 2011, GAO released Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue (GAO-11-318SP). In this report, GAO listed five options for Congress to consider in revising to the ethanol tax credit. One was to allow the VEETC to expire at the end of 2011.

    Matter: In addition to the currently required lifecycle greenhouse gas emissions analysis, the Congress may wish to consider amending the Energy Independence and Security Act of 2007 (EISA) to require the Administrator of the Environmental Protection Agency develop a strategy to assess the effects of increased biofuels production on the environment at all stages of the lifecycle--cultivation, harvest, transport, conversion, storage, and use--and to use this assessment in determining which biofuels are eligible for consideration under the RFS. This would ensure that all relevant environmental effects are considered concurrently with lifecycle greenhouse gas emissions.

    Status: Open

    Comments: As of May 2013, Congress has not taken any action to amend the Energy Independence and Security Act along the lines of what was recommended.

    Recommendations for Executive Action

    Recommendation: To minimize future blend wall issues and associated ethanol distribution infrastructure costs, the Secretaries of Agriculture and Energy should give priority to research and development (R&D) on process technologies that produce biofuels that can be used by the existing petroleum-based distribution storage infrastructure and the current fleet of U.S. vehicles.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: According to DOE, the agency initiated efforts on enabling cost-effective conversion of biomass to advanced biofuels with particular focus on bio-based hydrocarbon fuels such as renewable gasoline and renewable diesel. In particular, the Pacific Northwest Laboratory prepared for DOE a design case study to evaluate the use of fast pyrolysis to convert biomass into infrastructure compatible hydrocarbon biofuels in February 2009. DOE plans to continue to research and develop this pathway to renewable diesel and renewable gasoline as well as other methods of producing infrastructure compatible biofuels. In addition, DOE announced in July 2009 the availability of up to $85 million from the American Recovery and Reinvestment Act for the development of algae based biofuels and advanced, infrastructure-compatible biofuels. Further, DOE has received $35 million in FY 2010 appropriations to conduct R&D on algae based biofuels.

    Recommendation: To improve EPA's ability to determine biofuels' greenhouse gas emissions and define fuels eligible for consideration under the RFS, the Administrator of the Environmental Protection Agency and the Secretaries of Agriculture and Energy should develop a coordinated approach for identifying and researching unknown variables and major uncertainties in the lifecycle greenhouse gas analysis of increased biofuels production. This approach should include a coordinated effort to develop parameters for using models and a standard set of assumptions and methods in assessing greenhouse gas emissions for the full biofuel lifecycle, such as secondary effects that would include indirect land-use changes associated with increased biofuels production.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: According to agency officials, EPA, DOE, and USDA have participated in multi-agency information sharing efforts, such as the intergovernmental Interagency Working Group on Alternative Fuels and the Biomass Research and Development Board, which focus on lifecycle greenhouse gas and indirect land use change analyses of increased biofuels production, among other research topics. In addition, in May 2009, the President established a Biofuels Interagency Working Group, co-chaired by the Secretaries of Agriculture and Energy and the Administrator of EPA. Among the focal areas for this workgroup include identifying new policy options to promote the environmental sustainability of biofuels feedstock production, taking into consideration land use, habitat conservation, crop management practices, water efficiency, and water quality, as well as life cycle assessment of greenhouse gas emissions. In addition, USDA, DOE, and EPA have continued to coordinate on indirect land use and greenhouse gas emissions analyses as EPA was finalizing and implementing the rulemaking for the Renewable Fuel Standard (RFS). Included in this effort was the identification of a body of research and analyses, empirical models, and data that are contributing specifically to current greenhouse gas, indirect land use, and life cycle analyses. More specifically, EPA is coordinating with the Department of Agriculture (USDA) on research to support the evaluation and approval of new feedstocks, such as camelina, energy cane, and grain sorghum. Further, EPA and USDA are currently analyzing new feedstocks that may be included in the RFS program, such as beets, pennycress, and barley. As part of this effort, EPA has worked with USDA to identify at an early stage any new data needs for lifecycle assessment. According to agency officials, EPA and USDA hold monthly conference calls at the Office Director level and periodically at the Assistant Administrator level to assure smooth implementation of the RFS and to identify any key issues that need further resolution. In addition, USDA?s Forest Service Research and Development office has provided information to help inform EPA?s analysis of the effect of woody biomass on greenhouse gases. Further, the Forest Service partners in lifecycle research of wood-based energy with a multi-institutional research consortium. Forest Service also coordinated with DOE and EPA on lifecycle analysis activities through the Woody Biomass Utilization Group and the Biomass Research and Development Board. Further, DOE provided input to EPA staff as they developed the lifecycle analysis of the Renewable Fuel Standard (RFS) for the rulemaking EPA issued in March 2010. DOE has had ongoing efforts in lifecycle analysis and has initiated additional work in the area of assessing indirect effects of biofuels production. Specifically, DOE has supported work to develop the Global Trade Analysis Project (GTAP) model, an alternative approach to modeling land use change; its findings were issued in April 2010.

    Recommendation: To minimize future blend wall issues and associated ethanol distribution infrastructure costs, the Secretaries of Agriculture and Energy should give priority to research and development (R&;D) on process technologies that produce biofuels that can be used by the existing petroleum-based distribution storage infrastructure and the current fleet of U.S. vehicles.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: According to USDA, the Forest Service Research and Development office is leading and partnering in research focused on developing biomass-based drop-in fuels that can be used by the existing petroleum-based distribution storage infrastructure and the current U.S. vehicle fleet. In addition, the USDA National Institute of Food and Agriculture (NIFA) is funding six regionally integrated Coordinated Agricultural Projects focused on the development of regional systems for the sustainable production of advanced infrastructure compatible biofuels and bio-based products from non-food dedicated biomass feedstocks. In addition, NIFA provides funding for the joint USDA-DOE Biomass Research and Development Initiative to support, among other things, technologies necessary for abundant commercial production of biofuels at priced competitive with fossil fuels. Ten of the 25 projects supported by USDA since 2009 are developing 'drop-in fuels' including gasoline, diesel, and jet fuel, that will be compatible with current infrastructure and vehicles. Furthermore, the Agricultural Research Service has initiated a multi-state, multiagency, interdisciplinary, public-private research project to accelerate the development of commercial renewable jest fuels that are compatible with existing plane fleet.

    Recommendation: To improve EPA's ability to determine biofuels' greenhouse gas emissions and define fuels eligible for consideration under the RFS, the Administrator of the Environmental Protection Agency and the Secretaries of Agriculture and Energy should develop a coordinated approach for identifying and researching unknown variables and major uncertainties in the lifecycle greenhouse gas analysis of increased biofuels production. This approach should include a coordinated effort to develop parameters for using models and a standardset of assumptions and methods in assessing greenhouse gas emissions forthe full biofuel lifecycle, such as secondary effects that would include indirect land-use changes associated with increased biofuels production.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: According to agency officials, EPA, DOE, and USDA have participated in multi-agency information sharing efforts, such as the intergovernmental Interagency Working Group on Alternative Fuels and the Biomass Research and Development Board, which focus on lifecycle greenhouse gas and indirect land use change analyses of increased biofuels production, among other research topics. In addition, in May 2009, the President established a Biofuels Interagency Working Group, co-chaired by the Secretaries of Agriculture and Energy and the Administrator of EPA. Among the focal areas for this workgroup include identifying new policy options to promote the environmental sustainability of biofuels feedstock production, taking into consideration land use, habitat conservation, crop management practices, water efficiency, and water quality, as well as life cycle assessment of greenhouse gas emissions. In addition, USDA, DOE, and EPA have continued to coordinate on indirect land use and greenhouse gas emissions analyses as EPA was finalizing and implementing the rulemaking for the Renewable Fuel Standard (RFS). Included in this effort was the identification of a body of research and analyses, empirical models, and data that are contributing specifically to current greenhouse gas, indirect land use, and life cycle analyses. More specifically, EPA is coordinating with the Department of Agriculture (USDA) on research to support the evaluation and approval of new feedstocks, such as camelina, energy cane, and grain sorghum. Further, EPA and USDA are currently analyzing new feedstocks that may be included in the RFS program, such as beets, pennycress, and barley. As part of this effort, EPA has worked with USDA to identify at an early stage any new data needs for lifecycle assessment. According to agency officials, EPA and USDA hold monthly conference calls at the Office Director level and periodically at the Assistant Administrator level to assure smooth implementation of the RFS and to identify any key issues that need further resolution. In addition, USDA's Forest Service Research and Development office has provided information to help inform EPA's analysis of the effect of woody biomass on greenhouse gases. Further, the Forest Service partners in lifecycle research of wood-based energy with a multi-institutional research consortium. Forest Service also coordinated with DOE and EPA on lifecycle analysis activities through the Woody Biomass Utilization Group and the Biomass Research and Development Board. Further, DOE provided input to EPA staff as they developed the lifecycle analysis of the Renewable Fuel Standard (RFS) for the rulemaking EPA issued in March 2010. DOE has had ongoing efforts in lifecycle analysis and has initiated additional work in the area of assessing indirect effects of biofuels production. Specifically, DOE has supported work to develop the Global Trade Analysis Project (GTAP) model, an alternative approach to modeling land use change; its findings were issued in April 2010.

    Recommendation: To improve EPA's ability to determine biofuels' greenhouse gas emissions and define fuels eligible for consideration under the RFS, the Administrator of the Environmental Protection Agency and the Secretaries of Agriculture and Energy should develop a coordinated approach for identifying and researching unknown variables and major uncertainties in the lifecycle greenhouse gas analysis of increased biofuels production. This approach should include a coordinated effort to develop parameters for using models and a standard set of assumptions and methods in assessing greenhouse gas emissions for the full biofuel lifecycle, such as secondary effects that would include indirect land-use changes associated with increased biofuels production.

    Agency Affected: Environmental Protection Agency

    Status: Closed - Implemented

    Comments: According to agency officials, EPA, DOE, and USDA have participated in multi-agency information sharing efforts, such as the intergovernmental Interagency Working Group on Alternative Fuels and the Biomass Research and Development Board, which focus on lifecycle greenhouse gas and indirect land use change analyses of increased biofuels production, among other research topics. In addition, in May 2009, the President established a Biofuels Interagency Working Group, co-chaired by the Secretaries of Agriculture and Energy and the Administrator of EPA. Among the focal areas for this workgroup include identifying new policy options to promote the environmental sustainability of biofuels feedstock production, taking into consideration land use, habitat conservation, crop management practices, water efficiency, and water quality, as well as life cycle assessment of greenhouse gas emissions. In addition, USDA, DOE, and EPA have continued to coordinate on indirect land use and greenhouse gas emissions analyses as EPA was finalizing and implementing the rulemaking for the Renewable Fuel Standard (RFS). Included in this effort was the identification of a body of research and analyses, empirical models, and data that are contributing specifically to current greenhouse gas, indirect land use, and life cycle analyses. More specifically, EPA is coordinating with the Department of Agriculture (USDA) on research to support the evaluation and approval of new feedstocks, such as Carmelina, energy cane, and grain sorghum. Further, EPA and USDA are currently analyzing new feedstocks that may be included in the RFS program, such as beets, pennycress, and barley. As part of this effort, EPA has worked with USDA to identify at an early stage any new data needs for lifecycle assessment. According to agency officials, EPA and USDA hold monthly conference calls at the Office Director level and periodically at the Assistant Administrator level to assure smooth implementation of the RFS and to identify any key issues that need further resolution. In addition, USDA's Forest Service Research and Development office has provided information to help inform EPA's analysis of the effect of woody biomass on greenhouse gases. Further, the Forest Service partners in lifecycle research of wood-based energy with a multi-institutional research consortium. Forest Service also coordinated with DOE and EPA on lifecycle analysis activities through the Woody Biomass Utilization Group and the Biomass Research and Development Board. Further, DOE provided input to EPA staff as they developed the lifecycle analysis of the Renewable Fuel Standard (RFS) for the rulemaking EPA issued in March 2010. DOE has had ongoing efforts in lifecycle analysis and has initiated additional work in the area of assessing indirect effects of biofuels production. Specifically, DOE has supported work to develop the Global Trade Analysis Project (GTAP) model, an alternative approach to modeling land use change; its findings were issued in April 2010.

    Recommendation: To address inconsistencies in existing statutory language, the Administrator of the Environmental Protection Agency should, in consultation with the Secretaries of Agriculture and Energy, review and propose to the appropriate congressional committees any legislative changes the Administrator determines may be needed to clarify what biomass material - based on type of feedstock or type of land can be counted toward RFS.

    Agency Affected: Environmental Protection Agency

    Status: Closed - Implemented

    Comments: Although the proposed updates to the Farm Bill do not include any revised definition of renewable biomass and the Energy Independence and Security Act has not been amended to refine its definition of renewable biomass, the 111th Congress took action to try to rectify the inconsistent definition. Specifically, a bill was proposed in the House of Representatives to expand the definition and make it more flexible to promote feedstock diversification and encourage improved land stewardship on productive lands. Specifically, the American Clean Energy and Security Act of 2009, as passed by the House, put forth a broadened definition of renewable biomass that applies to the Renewable Fuel Standard (RFS). Specifically, the act would have revised the definition of "renewable biomass" for the purposes of the RFS by expanding the amount of biomass from forested land that could be used to produce fuels under the RFS and eliminating the requirement that feedstock crops come from previously cultivated land. The definition of renewable biomass proposed in this act was largely derived from language contained in the 2008 farm bill, and therefore would ensure that the definitions contained in each piece of legislation would be more consistent with one another. Similar legislation was proposed in the 112th Congress; for example, a bill was introduced in the Senate to amend the Clean Air Act to confirm the definition of renewable biomass to the definition given to the term in the Farm Security and Rural Investment Act of 2002. Although these efforts have not resulted in the change recommended, they demonstrate a willingness to comply with the recommendation to the extent there is Congressional support for such action.

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