TITLE IX

ENERGY

**SUMMARY OF SUPPORT OF RENEWABLE**

**ENERGY PRODUCTION IN RURAL AMERICA**

***Recommendation In Brief***

Expand Federal research focused on renewable fuels and bioenergy and
reauthorize, revise, and expand programs that provide valuable tools for
the advancement of renewable energy production and commercialization.

***Problem***

In fiscal year 2005, U.S. ethanol and biodiesel production made from all
sources was nearly 4 billion gallons and 91 million gallons,
respectively. Comparatively, 140 billion gallons of gasoline and over 60
billion gallons of diesel fuel were consumed in the U.S. in 2005.

Even with the success of corn and soybean biofuels, to substantially
reduce America's dependence on imported oil, biofuels will need to be
made from cellulosic processes that use feedstocks such as specialty
crop biomass, switch grass, corn stover, straw, and other woody biomass.
Some cellulosic conversion processes have been scientifically
demonstrated to be capable of producing biofuels and other energy.

Limited government support, in partnership with the private sector, will
help to advance commercial application of these innovations. Government
support of cellulosic energy is needed because the scale of investment
required is very large, the industry is new and thus faces uncertain
risks, and there is an urgent need to diversify energy sources for
economic and security reasons.

In addition to reducing our nation's dependence on oil, renewable energy
is reinvigorating rural America. The agricultural implications of
renewable energy were highlighted repeatedly during USDA Farm Bill
Forums. For example, John from Illinois said, "Producing cellulosic
biomass for base-load renewable energy and other uses will provide
farmers and ranchers with a new crop and many rural communities with new
processing businesses and allied agricultural services opportunities."
Jeffrey of Vermont said, "USDA is uniquely suited to help propel a major
renaissance of agricultural economic prosperity through strong action to
increase the production of farm based renewable energy of all types."

Developing this technology in a way that enables commercialization
depends on quality, highly-focused research. Yet, bioenergy research and
development totals only two percent of USDA's entire research and
development portfolio. This level of support is inconsistent with our
nation's energy supply and security priorities. USDA was repeatedly
encouraged to strengthen investment in renewable energy by people like
Richard, of Nebraska, who said, "We believe the 2007 farm bill should
include a focal point on renewable energy. The energy title should be
strengthened." Chad, of Washington State suggested in his written
comments, "Now we have the opportunity to help provide energy to offset
oil imports. We need to fund the development of renewable energy
sources."

***Recommended Solution***

Funding basic and applied research, as well as sharing the risk through
loan and loan guarantee programs, helps to improve the economic,
technical, and commercial viability of new, high capacity renewable
energy processes. Once a process is recognized as having achieved
commercial viability, the Federal government should refocus support on
other less developed, yet promising processes. To carry out this
approach, the Administration recommends the following:

1.  Initiate a new, temporary program to provide \$100 million in direct
    support to producers of cellulosic ethanol. (see proposal entitled
    "Cellulosic Bioenergy Program" on pages 145 - 146).

2.  Reauthorize the BioPreferred program, revise provisions to improve
    its effectiveness, and invest \$18 million over 10 years to expand
    and improve the program. (see proposal entitled "Expansion of
    Biobased Products Market" on page 147).

3.  Reauthorize the Renewable Energy Systems and Energy Efficiency
    Improvements loan guarantee program. The Administration proposes a
    loan guarantee program funding level of \$210 million, which would
    support \$2.17 billion of guaranteed loans over 10 years. The loan
    cap for funding cellulosic ethanol projects would increase to \$100
    million per project, and these cellulosic projects would be exempt
    from the cap on loan guarantee fees. Further, the Administration
    recommends incorporating these programs into the Business and
    Industry Loan and Loan Guarantee Program. Prioritize funding for the
    construction of biorefinery projects in the Business and Industry
    loan guarantee program. (see proposal entitled "Streamline Rural
    Development Programs" on pages 122 - 123).

4.  Reauthorize the Renewable Energy Systems and Energy Efficiency
    Improvements grant program. The grant program would be funded at
    \$500 million over 10 years. This program will continue to support
    smaller alternative energy and energy efficiency projects that
    directly help farmers, ranchers, and rural small businesses. The
    goals would be consistent with those contained in the Biorefinery
    Development Grants program, which include providing diversified
    markets for agricultural and forestry products, increasing the
    country's energy independence, and enhancing rural development
    opportunities. (see proposal entitled "Streamline Rural Development
    Programs" on pages 122 - 123).

5.  Enhance the Conservation Reserve Program (CRP) by adding a biomass
    reserve program to give priority for whole-field enrollment of lands
    producing biomass for energy production (see proposal entitled
    "Conservation Reserve Program" on pages 51 - 52).

6.  Revise the Biomass Research and Development Act of 2000 to increase
    the annual competitive grant funding for biomass research, focusing
    on cellulosic ethanol, with \$150 million in mandatory funding over
    10 years. (see proposal entitled "Streamline Rural Development
    Programs" on pages 122 - 123).

7.  Expand USDA and university research by authorizing \$500 million in
    mandatory funding over 10 years for the creation of a Bioenergy and
    Bioproducts Research Initiative to increase the cost-effectiveness
    of bioenergy by facilitating collaboration between Federal and
    university scientific experts. The initiative would link USDA Rural
    Development bioenergy activities to hasten technology transfer (see
    proposal entitled "Agricultural Bioenergy and Biobased Products
    Research Initiative" on pages 129 - 130).

8.  Accelerate the development of new technologies to better utilize
    low-value woody biomass by authorizing \$150 million in 10 year
    mandatory funding for Forest Service research (see proposal entitled
    "Forest Wood to Energy" on pages 139 - 140).

    **CELLULOSIC BIOENERGY PROGRAM**

***Recommendation In Brief***

Initiate a new, temporary program to provide \$100 million in direct
support to producers of cellulosic ethanol.

***Problem***

Ethanol produced from corn is growing rapidly, contributing to
diversification of the nation's transportation fuel supply and
increasing economic opportunity for farmers and rural areas. However,
the need for greater production of renewable energy is enormous, but the
ability of corn-based ethanol to supply that need is limited.
Efficiently producing ethanol from cellulosic feedstocks such as
switchgrass, corn stover, wood, waste, and other biomass materials would
provide large, new sources of raw materials for the production of
renewable fuel. Economically feasible cellulosic ethanol production
would enable ethanol to displace much more imported crude oil than
relying on corn-based ethanol alone. In addition, production of the
biomass for cellulosic ethanol production would create economic
opportunities for many farmers in diverse geographic regions across the
United States.

Cellulosic ethanol is not commercially produced in the United States
today. However, the technology of production has been improved greatly
in recent years and demonstration plants are expected to be producing in
the near future. This emerging industry faces start-up risks as new,
costly plants are built and the technology is improved to achieve
commercial-scale production. Targeted government support is needed to
help overcome the initial barriers to commercial production.

***Recommendation***

Initiate a program that would share the cost of biomass feedstocks used
by cellulosic ethanol producers for their increase in production above
their previous year's level of production. The program would be modeled
after the Commodity Credit Corporation (CCC) Bioenergy Program, which
expired in 2006, as authorized by Section 9010 of the 2002 farm bill.
The new cost share program would provide \$25 million annually in
mandatory funding for FY 2009-2012. Eligible biomass feedstocks would
include sugar crop and specialty crop waste products.

***Background***

The CCC Bioenergy Program operated during FY 2001-2006. The initial
purpose of the program was to generate demand for surplus farm products,
expand biofuel production, and support new biofuel production capacity.
The 2002 farm bill funded the program at up to \$150 million annually
for FY 2003-2006. The program made payments to commercial U.S. ethanol
and biodiesel producers. Payments were based on the year-over-year
increase in biofuel production made from eligible commodities. Eligible
commodities included major field crops, such as wheat, corn, grain
sorghum, oats, rice, and soybeans and other oilseeds; cellulosic crops
(such as switchgrass and short rotation trees); and animal fats, oils
and greases, including recycled oils. The new recommended program would
operate similarly to the CCC Bioenergy Program, except that payment
eligibility would be limited to the increase in cellulosic ethanol
produced from biomass feedstocks. The program would include an annual
payment limitation per ethanol producer.

**EXPANSION OF BIOBASED PRODUCTS MARKET**

***Recommendation In Brief***

Reauthorize the Federal Procurement of Biobased Products program, revise
provisions to improve its effectiveness, and invest \$18 million over 10
years to expand and improve the program.

***Problem***

Section 9002 of the 2002 farm bill created the Federal Procurement of
Biobased Products program to encourage Federal government purchases of
biobased products. However, several provisions of the authorizing
legislation have hampered program implementation and are likely to do so
in the future. These provisions include the definition of a biobased
product, the limitations on the use of mandatory funding, the lack of
funding for program administration, and the lack of authority to
designate intermediate production inputs (materials used to create
biobased products) for preferred procurement. To increase the Federal
market penetration of biobased products, these concerns must be
addressed. During USDA Farm Bill Forums, support for biobased products
was frequently expressed by people like Suzy of Iowa who said,
"...renewable energy and bioproducts are all important things to
consider as we head into the 21st Century." Millie, of New Mexico,
stated it simply when she said, "Renewable energy and bioproducts need
to be priorities."

***Recommended Solution***

The Administration recommends that the authority in Section 9002 be
amended to define "biobased products" as a product determined by the
Secretary to be a commercial or industrial product (other than food or
feed) that is composed, in whole or in significant part, of biological
products including renewable domestic agricultural materials (including
plant, animal, and marine materials) or forestry materials. This amends
the current definition so that renewable agricultural materials are not
limited to domestic sources, thus resolving trade restriction concerns
with the current statutory language. The \$1 million in annual mandatory
funding currently provided for testing should be continued and expanded
to include environmental and performance testing for the purposes of
public information as well as for designation of items for procurement.
In addition, \$800,000 in annual mandatory funding would enable USDA to
provide assistance to other Federal agencies in implementing the
procurement program as well as allow USDA to audit and oversee biobased
product manufacturers to ensure that their claims regarding their
products are valid and that criteria are met for using the label
authorized by the program. Finally, materials used to create biobased
products, such as chemical building blocks, should be eligible for
biobased product designation and labeling.

***Background***

The Federal Procurement of Biobased Products program helps develop the
market for biobased products by encouraging the purchase of these
products by the Federal government. Through Federal government
purchases, the commercial viability of these products could be
established and government demand for biobased products increased, thus
leading to wider public acceptance, increased demand, and increased
production of a greater variety of biobased products.