Increasing dependence on foreign sources of crude oil, concerns over global climate change, and the desire to promote domestic rural economies have raised interest in renewable biofuels as an alternative to petroleum in the U.S. transportation sector. However, energy from renewable sources has historically been more expensive to produce and use than fossil-fuel-based energy. U.S. policymakers have attempted to overcome this economic impediment by enacting an increasing number of policies since the late 1970s, at both the state and federal levels, to directly support U.S. biofuels production and use. Policy measures have included blending and production tax credits to lower the cost of biofuels to end users, an import tariff to protect domestic ethanol from cheaper foreign-produced ethanol, research grants to stimulate the development of new technologies, loans and loan guarantees to facilitate the development of biofuels production and distribution infrastructure, and, perhaps most importantly, minimum usage requirements to guarantee a market for biofuels irrespective of their cost. This report describes agriculture-based biofuels and the evolution of the U.S. biofuels sector with a focus on the role that federal policy has played in shaping its development. In addition, it highlights emerging issues that are critical to the biofuels sector and of relevance to Congress. Any fuel produced from biological materials—whether burned for heat or processed into alcohol—qualifies as a "biofuel." The term is most often used to refer to liquid transportation fuels produced from some type of biomass. The two principal biofuels are ethanol and biodiesel; however, other fuels such as methanol and butanol could also qualify when produced from a qualifying biomass. Biomass is organic matter that can be converted into energy. Common examples of biomass include food crops, energy crops (e.g., switchgrass or prairie perennials), crop residues, wood waste and byproducts, and animal manure. The term biomass has been a part of legislation enacted by Congress for various programs over the past 30 years; however, its explicit definition has evolved with shifting policy objectives. Over the last few years, the concept of biomass has grown to include such diverse sources as algae, construction debris, municipal solid waste, yard waste, and food waste. The exact definition of biomass is critical, since it determines which feedstocks and resultant biofuels qualify for the different federal biofuels programs. For example, the principal biofuels program in effect as of this report is the Renewable Fuels Standard (RFS), which mandates annual usage rates for four nested categories of biofuels—(1) total renewable fuels, (2) advanced renewable fuels, (3) cellulosic biofuel, and (4) biomass-based diesel. Qualifying biofuels under each category are differentiated by their type of feedstock, the land on which the feedstock is produced (e.g., federal versus private, virgin versus previously cultivated soil, etc. ), the production process used both to grow the feedstock and to process it into a biofuel (certain technologies are favored based primarily on environmental considerations), and the estimated amount of greenhouse gas emissions that result from the entire production pathway. The idea of formally defining biomass has evoked criticism. Some argue that by explicitly enunciating qualifying feedstocks, the definition may be excluding new or as-yet-undiscovered feedstocks that may emerge in the future. Also, there appears to be some inconsistency across programs. For example, algae-based biofuels presently do not qualify for inclusion under the RFS cellulosic biofuels mandate, but do qualify for the "advanced other" biofuels mandate, as well as for the cellulosic biofuels tax credit and the depreciation allowance for qualifying cellulosic biofuels plants. These differentiations tend to confuse and may slow or inhibit investments in algae-based biofuels. Ethanol is the principal biofuel produced in the United States ( Figure 1 ). Ethanol, or ethyl alcohol, is an alcohol made by fermenting and distilling simple sugars. As a result, ethanol can be produced from any biological feedstock that contains appreciable amounts of sugar or materials that can be converted into sugar such as starch or cellulose. Sugar beets and sugar cane are examples of feedstock that contain sugar. Corn contains starch that can relatively easily be converted into sugar. Trees, grasses, and most agricultural and municipal wastes are made up of a significant percentage of cellulose, which can also be converted to sugar, although with more difficulty than is required to convert starch. Since its development in the late 1970s, U.S. biofuels output has relied almost exclusively on ethanol produced from corn starch. Small amounts of ethanol have also been produced using sorghum, wheat, barley, and brewery waste. This contrasts with Brazil, the world's second-largest ethanol producer behind the United States, where sugar cane is the principal feedstock. In 2012, the United States and Brazil accounted for 88% of the world's ethanol production. Approximately 13.3 billion gallons of ethanol were produced in the United States in 2012, over 95% from corn starch. Because of concerns over the significant expansion in corn production for use as an ethanol feedstock, interest has grown in spurring the development of motor fuels produced from cellulosic biomass materials. Since these biomass sources do not compete with traditional food and feed crops for prime cropland, it is thought that their use would result in substantially fewer unintended market effects. However, the technology needed for the conversion of cellulose into its constituent sugars before conversion to biofuels, while successful in laboratory settings, is thought to be expensive relative to corn ethanol and has yet to be replicated on a significant commercial scale. Many uncertainties remain concerning both the viability and the speed of commercial development of cellulosic biofuels. After ethanol, biodiesel is the next most significant biofuel in the United States. Biodiesel is an alternative diesel fuel that can be produced from any type of organic-based oil, including vegetable oils, animal fats, and waste restaurant grease and oils. In the United States and Brazil, biodiesel has traditionally been made from soybean oil. In the European Union, rapeseed oil is the primary feedstock, while Canada relies primarily on canola oil. In recent years persistently high vegetable oil prices have pushed biodiesel producers to increase the share of much cheaper animal fats (especially poultry fat) and tropical palm oil; however, soybean oil remains the largest single source of biodiesel feedstock in the United States, with a share of over 56% in 2012. Other biofuels with the potential to play a role in the U.S. market include diesel fuel substitutes and other alcohols (e.g., methanol and butanol) produced from biomass. The value of a biofuel is determined by its end use. Ethanol is primarily used as a substitute for gasoline; however, it has some additional properties (i.e., as an oxygenate and an octane enhancer) that provide value as a gasoline additive. Biodiesel's primary use is as a substitute for petroleum-based diesel transportation fuel; however, biodiesel can also be used as a direct substitute for home heating oil and as a blend in jet fuel. Also, both ethanol and biodiesel may derive additional value as an additive to meet federal usage mandates under the Renewable Fuel Standard (RFS) depending on market conditions. The RFS requires the blending of renewable fuels (including ethanol and biodiesel) in U.S. transportation fuel. The RFS includes specific quotas for total renewable biofuels, as well as nested subcategories for advanced biofuels (i.e., non-corn-starch ethanol), cellulosic biofuels, and biomass-based diesel fuel. The RFS also includes a cap on the eligible volume of corn-starch ethanol. The RFS is administered by EPA. Qualifying biofuels must meet explicit criteria on lifecycle greenhouse gas (GHG) emissions and feedstock production pathways (including restrictions on the land on which feedstocks are produced, feedstock production methods, and the biofuels plant processing technology). Federal policy that mandates the use of a minimum volume of biofuel creates a source of demand that is not based on price, but rather on government fiat. As long as the consumption of biofuels is less than the mandated volume, its use is obligatory. With respect to ethanol, there is no difference to the end user between corn-starch ethanol, sugarcane ethanol, and cellulosic ethanol, although their production processes differ substantially in terms of feedstock, technology, and cost. As a result, all three share the same value determinants. In the presence of government policy, demand for ethanol derives from four potential uses: as an oxygenate additive in gasoline to help improve engine combustion and cleaner burning of fuel; as an additive to gasoline to enhance its octane level and engine performance; as an additive to gasoline at blend ratios of up to 10% ethanol and 90% gasoline (known as E10), to meet federally mandated minimum usage requirements under one of the RFS categories for qualifying ethanol biofuels; or as a substitute for gasoline at ethanol-to-gasoline blend ratios greater than E10. In the presence of government policy, demand for biodiesel derives from the following potential uses: as a substitute for petroleum-based diesel transportation fuel; as a substitute for home heating oil; as a blend in jet fuel; and as an additive to petroleum-based diesel to meet federally mandated minimum usage requirements under one of the RFS categories for qualifying biofuels.