The 2002 Farm Bill includes several energy related provisions (U.S. Congress, 2002). The biobased procurement program (Section 9002) requires federal agencies, contractors, and Congress to give preference to products meeting price, availability, and performance standards. Annual funding from 2002 to 2007 is $1 million, and the proposed funding for FY 2007 was $2.5 million.
Section 9004 of the Farm Bill provides $1 million per year for fiscal years 2003 through 2007 to conduct a biodiesel fuel education program. The program is targeted toward government and private vehicle fleet managers and the public, and focuses on the benefits of biodiesel.
The USDA Office of Rural Development provides grants, loans, and loan guarantees to farmers, ranchers, and rural small businesses for the development of renewable energy projects and energy efficiency improvements (Section 9006). Projects must occur in rural areas, may not be used for research and development, and 75% of the project cost must be provided by the applicant. While originally funded at $23 million/year for fiscal years 2003 through 2007, the Deficit Reduction Act of 2005 reduced the funding authorization for this program to $3 million (in discretionary funding) for fiscal year 2007.
Section 9008 provides for biomass research and development funding. This program has been reauthorized twice and current authorization is contained in the Energy Policy Act of 2005 (P.L. 109-190). Authorized funding is $200 million/year for fiscal years 2006 through 2015, but the administration’s FY2007 budget proposal is $12 million.
The USDA Commodity Credit Corporation (CCC) bioenergy program (Section 9010 of the 2002 Farm Bill) reimburses ethanol and biodiesel producers for the purchase of commodities to expand existing production. In order to be eligible, bioenergy must be produced from qualified agricultural commodities including barley, corn, grain sorghum, wheat, oat, rice, soybean, canola, sunflower seed, rapeseed, safflower, flaxseed, mustard, crambe, sesame seed, and cottonseed; from fats, oils, and greases; or from cellulosic commodities like switchgrass or hybrid poplars. Payments are calculated based upon annual production and the amount of feedstock used. Its intent is to encourage small producers since it can often be difficult to profit in the first year. Program funding was up to $150 million/year for FY 2004 through 2006 with a phasedown of the percent of costs covered. The administration’s FY2007 budget proposal did not include funds for this program.
The USDA bioeconomy grant program assists small biobased businesses with the marketing and certification of their products. Grants also support development associations and land grant institutions in efforts to improve regional bioeconomies and farmer-owned enterprises, and includes demonstrations of processing and harvesting innovations. Education and outreach programs provide training and technical assistance to feedstock producers regarding processing needs, and consumer education materials about biobased products and fuels.
Estimated costs of federal biofuels subsidies
Under existing policies, on a per gallon of gasoline equivalent basis, it is estimated that ethanol subsidies will range from $1.44 and $1.96/gallon annually until 2012, and biodiesel subsidies will range between $1.24 to $1.70/gallon. The low and high values represent differences due to the inclusion of state subsidy programs which differ by state and include increased production required to meet the federal Renewable Fuel Standard (RFS). For comparison, the direct and indirect costs associated with only the national security costs of imported oil are estimated to exceed $300 billion annually, equivalent to more than $1.00 per gallon of liquid fuel consumed.