Biofuels Provisions in the 2007 Energy Bill and the 2008 Farm Bill: A Side-by-Side Comparison
Released: 2009-01-26T00:00:00

Introduction

Recent high energy prices, concerns over energy security, and the desire to promote rural business and to reduce air pollutant and greenhouse gas emissions have sparked congressional interest in promoting greater use of alternatives to petroleum fuels. Biofuels—transportation fuels produced from plant and animal materials—have attracted particular interest. Ethanol and biodiesel, the two most widely used biofuels, receive significant federal support in the form of tax incentives, loan and grant programs, and regulatory programs.

The Energy Policy Act of 2005 (EPAct, P.L. 109-58 ) established a renewable fuel standard (RFS). This initial RFS required the increasing use of renewable fuel in gasoline, starting at 4.0 billion gallons in 2006 and increasing to 7.5 billion gallons in 2012. However, the RFS was significantly expanded on December 19, 2007, when President Bush signed the Energy Independence and Security Act of 2007 (EISA). Instead of requiring 5.4 billion gallons of renewable fuel in 2008, the new law requires 9.0 billion gallons. Further, the 2007 law requires that the RFS be expanded to 36 billion gallons of renewable fuel by 2022, as compared to an estimated 8.6 billion gallons under EPAct. Although this is not an explicit ethanol mandate, it is expected that much of this requirement will be met using corn-based ethanol. The U.S. ethanol industry expanded rapidly in response to EPAct, outpacing the required growth in the earlier RFS and leading some proponents of corn-based ethanol to support an increase in the mandated levels of the RFS.

The Food, Conservation, and Energy Act of 2008 (2008 farm bill, P.L. 110-246 ) promotes the development of cellulosic ethanol production through new tax credits, reduces slightly the blender's tax credit for corn-derived ethanol beginning in 2009, and continues the tariff on imported ethanol. It also expands research on agricultural renewable energy and encourages infrastructure development needed for cellulosic ethanol production.

During the final months of the farm bill debate, both food and fuel prices increased dramatically, and the role of corn-based ethanol in food price inflation became the subject of intense debate. Because of the rapid expansion of U.S. corn ethanol capacity—as of December 2008, existing capacity was an estimated at 10.4 billion gallons per year, while an additional 1.8 billion gallons was under construction —some are concerned that the United States will soon reach the limit of ethanol that can be produced from corn. Critics of corn-based ethanol argue that the industry does not need continued government support, and that current corn demand for ethanol is putting a strain on corn and other grain markets, leading to increases in other commodity prices, such as livestock feed, which then leads to higher dairy and meat prices. Critics also argue that the environmental costs of corn-based ethanol may outweigh the benefits. Proponents of corn-based ethanol production assert that increased acreage and upward-trending yields will enable corn producers to satisfy the demand for corn for feed, fuel, and exports.

Advanced biofuels based on non-food feedstocks are generating much interest. Feedstocks that could be grown on marginal land with reduced inputs compared with corn would solve the food versus fuel issue, it has been argued. However, biofuels that rely on other sources of biomass, including agricultural wastes, municipal solid waste, and dedicated non-food energy crops such as perennial grasses, fast-growing trees, and algae are still years from commercial production. Nonetheless, this interest has led to proposals to support and/or mandate biofuels produced from feedstocks other than corn starch through explicit requirements, research, development and extension funding, and/or tax incentives. Non-corn biofuels could include fuels produced from cellulosic material (such as perennial grasses), ethanol produced from sugarcane or beets, and biodiesel or renewable diesel produced from vegetable or animal oils. Under EISA, eligible corn-based ethanol production is capped at 15 billion gallons beginning in 2015. Starting in 2009, the RFS will require that an increasing amount of the mandate be met through the use of "advanced biofuels"—biofuels produced from feedstocks other than corn starch.

Currently, cellulosic ethanol is not produced on a commercial scale. As of July 2008, there was one commercial-scale refinery under construction, with two demonstration-scale plants and three pilot-scale plants completed. Industry sources expect commercial production of cellulosic ethanol to begin in 2010 or 2011. In January 2009, USDA announced funding for a cellulosic biofuels plant under the Biorefinery Program with projected output of 20 million gallons annually, beginning in 2010. The RFS mandates cellulosic ethanol production of 100 million gallons in 2010. For more information on cellulosic ethanol, see CRS Report RL34738, Cellulosic Biofuels: Analysis of Policy Issues for Congress , by Tom Capehart.

Key Elements of EISA and the 2008 Farm Bill

The following table provides a side-by-side comparison of biofuels-related provisions in EISA with the enacted farm bill—the Food, Conservation, and Energy Act of 2008. President Bush signed EISA on December 19, 2007, and the Food, Conservation, and Energy Act of 2008 became law on June 18, 2008, after President Bush's veto was overridden by both the Senate and the House. Both bills cover a wide range of energy and agricultural topics in addition to biofuels.

The table is organized in the same order as EISA, followed by provisions that are exclusively in the enacted farm bill.

Key biofuels-related provisions of EISA and the 2008 farm bill include:

a major expansion of the renewable fuel standard (RFS) established in the Energy Policy Act of 2005 ( P.L. 109-58 ) [EISA]; expansion and/or modification of tax credits for ethanol [farm bill]; grants and loan guarantees for biofuels (especially cellulosic) research, development, deployment, and production [EISA, farm bill]; studies of the potential for ethanol pipeline transportation, expanded biofuel use, market and environmental impacts of increased biofuel use, and the effects of biodiesel on engines [EISA, farm bill]; expansion of biofuel feedstock availability [farm bill]; reauthorization of biofuels research and development at the U.S. Department of Energy [EISA] and the U.S. Department of Agriculture and Environmental Protection Agency [farm bill]; and reduction of the blender tax credit for corn-based ethanol, a new production tax credit for cellulosic ethanol, and continuation of the import duty on ethanol [farm bill].