Ethanol Provisions of the Energy Policy Act of 2005

Transcription

1 RESEARCH, DEVELOPMENT, DEMONSTRATION AND DEPLOYMENT (RDD&D) The following provisions include the key RDD&D programs authorized under the Energy Policy Act of These authorizations total more than $3.25 billion between Section 932 and 941 are the primary research and demonstration program vehicles in the act, and are existing U.S. Department of Energy and U.S. Department of Agriculture programs. However, appropriations for these two programs in FY 05 totaled about $94 million ($80 million for the DOE bioenergy program and $14 million for the USDA program). The large difference between authorizations and appropriations is not unusual, but should be kept in mind when reviewing the sections below. Section: 932 Bioenergy Program Purpose: Subsections b, c, and d, emphasize cellulosic biofuels and co-product RD&D including integrated biorefinery demonstrations. Authorization: n/a (grants) Comments: This program is an important mechanism to conduct the R&DD activities associated with the Governors Ethanol Coalition recommendations. Of particular interest is the biorefinery demonstration provision. The U.S. Department of Energy has issued a Notice of Public Interest (NOPI) to determine the level of interest from the private sector in cost-shared biorefinery demonstrations. Results of the NOPI are pending. Section: 941 Amendments to the Biomass Research and Development Act Purpose: RD&D Authorization: $2 billion (grants) Period: Appropriations Jurisdiction: Agriculture (see comments below) Primary Implementing Agency: U.S. Department of Agriculture Comments: This program is one of the vehicles for research and development included in the Governors Ethanol Coalition recommendations. The primary implementation agency for this effort is USDA and most funding has been provided from agriculture appropriations. The program, jointly operated by USDA and DOE, receives some funds from DOE. The language in this section sets particular funding categories (e.g., overcoming the recalcitrance of biomass) and sets the percentage of funding to be directed toward each category. Section: 946 Preprocessing and Harvesting Demonstration Purpose: Demonstration of pre-processing and harvesting of cellulosic feedstocks Authorization: $25 million (grants) Period: Appropriations Jurisdiction: Agriculture Primary Implementing Agency: U.S. Department of Agriculture Comments: The program requires a 20% match. Funds can be used for either production of ethanol or electricity. Section: 1510 Commercial Byproducts from Municipal Solid Waste and Cellulosic Biomass Loan Guarantee Program

2 Purpose: Ethanol and Byproducts from Cellulosic Feedstocks and MSW Authorization: Such funds as necessary (loan guarantee) Period: 10 years Comments: Assurance of 20% repayment with a 20 year term Section: 1511 (b) Cellulosic Biomass and Municipal Solid Waste Loan Guarantee Purpose: Establishing Four MSW Cellulosic Ethanol and/or Sucrose-Derived Ethanol Demonstrations Authorization: Not more than $250 million for any one project (loan guarantee) Period: Comments: N/A Section: 1511 (c) Resource Center Purpose: Establishing a Resource Center for Biomass-Based Energy at MS State University and OK State University to further bioconversion technology for the production of ethanol Authorization: $12 million (grant) Period: Comments: N/A Section: 1511 (d) Renewable Fuel Production Research and Development Purpose: Renewable fuels R&D in RFG states with low rates of ethanol production Authorization: $125 million (grant) Period: Appropriations Jurisdiction: Interior and Environment Appropriations Primary Implementing Agency: U.S. Environmental Protection Agency Comments: N/A Section: 1512 Conversion Assistance for Cellulosic Biomass, Waste-Derived Ethanol, Approved Renewable Fuels (new program) Purpose: Merchant Cellulosic Ethanol, Waste derived Ethanol, and Approved Renewable Fuels Authorization: $750 million (grants) Period: Comments: N/A Section: 1514 Advanced Biofuel Technologies Program Purpose: Demonstration of Advanced Technologies for the Production of Alternative Transportation Fuels Authorization: $550 million (grants) Period: Appropriations Jurisdiction: Interior and Environment Primary Implementing Agency: U.S. Environmental Protection Agency 2

3 Comments: The program is to be coordinated with USDA s Biomass R&D Technical Advisory Committee Section: 1516 Sugar Ethanol Loan Guarantee Program Purpose: Demonstration of the Viability of Producing Ethanol Using Sugarcane, Sugarcane Bagasse, and other Sugarcane Byproducts Authorization: N/A Period: Appropriations Jurisdiction: Interior and Environment Primary Implementing Agency: U.S. Environmental Protection Agency Comments: The program is to be coordinated with USDA s Biomass R&D Technical Advisory Committee 3

4 ALTERNATIVE FUEL VEHICLE RDD&D These provisions of the Energy Policy Act include grants for alternative fuel vehicles (AFVs), as well as changes in policies to promote greater use of AFVs. Authorizations for these provisions total more than $620 million. Section: 706 Joint Flexible Fuel/Hybrid Vehicle Commercialization Initiative Purpose: Improve Technologies for the Commercialization of Hybrid/Flexible Fuels Vehicles and Plug-in Hybrid/Flexible Fuel Vehicles Authorization: $40 million Period: Comments: N/A Section: 721 Pilot Program, Clean Cities - Alternative Fuel Vehicle and Infrastructure to States and Local Governments Purpose: Provide grants for alternative fuel vehicles or fuel cell vehicles and acquisition of infrastructure Authorization: $200 million Period: N/A Comments: 50% cost share required Section: 741 Clean School Bus Program Purpose: Provide grants to state and local governments for clean fuel (ethanol, natural gas, biodiesel, ultra low sulfur diesel etc) school buses with priority given to replacement of buses manufacturer before 1977 Authorization: $110 million for two years, and such sums as necessary thereafter Period: ; Appropriations Jurisdiction: Interior and Environment Primary Implementing Agency: U.S. Environmental Protection Agency Comments: 50% and 25% cost share depending on activity. Infrastructure acquisition costs are also eligible. Section 701: Use of Alternative Fuel by Dual-Fueled Vehicles This section amends the Energy Policy Act of to require federal agency dualfueled vehicles acquired to satisfy federal fleet AFV purchase requirements to actually use alternative fuels unless they qualify for a waiver. Waivers would be granted if the fuel is not readily available or is too expensive. Section 702: Incremental Cost Allocation This section amends the Energy Policy Act of 1992 to require GSA and other federal agencies that procure alternative fuel vehicles to spread the incremental cost across all vehicles. Section 704: Review of Energy Policy Act of 1992 Programs Requires the U.S. Department of Energy to report to Congress within 180 days of enactment of the provision on the effect of Energy Policy Act Alternative Fuel Vehicle (AFV) programs, incentives, etc. The Department is to measure benefits in terms of increased vehicles and fuels, as well as the cost of compliance, and shall make 4

5 recommendations on changes to the act. Issues that must address in the report include the number of AFVs acquired by covered fleets, amount of alternative fuels used in AFVs acquired by covered fleets, amount of petroleum displaced, cost of compliance, and obstacles to increased use of alternative fuels. Sec. 759: Fuel Economy Incentive Requirements This section requires automobile manufacturers to put a label on all dual-fuel (bi-fuel and flex-fuel) vehicles to inform owners that the vehicle can be operated on an alternative fuel. Applies to all autos manufactured after September 1,

6 RENEWABLE FUEL STANDARD The Renewable Fuel Standard included in the Energy Policy Act of 2005 is a primary driver of the expansion of ethanol production and use and includes an important, albeit modest, cellulosic component. This portion of the Act is somewhat complex and will require close cooperation with the U.S. Environmental Protection Agency (EPA), industry, environmental organizations, and others to implement effectively. Section 1501: Renewable Content of Gasoline (Renewable Fuel Standard) Purpose: Requires at least 4 billion gallons of ethanol and biodiesel be used in 2006, increasing up to at least 7.5 billion gallons in 2012, with an annual increase of approximately 700 million gallons each year. The Energy Information Administration estimates the 7.5 billion gallons a year RFS will reduce oil consumption by 80,000 barrels of oil a day by EPA will be responsible for implementing and enforcing the RFS program. After 2012, EPA must, each year, establish a new RFS, based on the amount of ethanol expected to be sold into commerce each year. The use of ethanol and biodiesel in 2013 shall not be less than the percentage of 7.5 billion gallons to the total volume of the U.S. gasoline supply in The RFS must include a separate element calling for at least 250 million gallons of cellulosic ethanol starting in There is a provision for states to seek waivers from the RFS. If one or more states petition the EPA Administrator to waive the RFS in whole or in part, EPA must consult with the U.S. Department of Agriculture and U.S. Department of Energy with respect to waiver petitions. In order to grant a waiver request, the EPA Administrator must determine that a strict test has been met by concluding that implementation of the RFS would severely harm the economy or environment of a state, a region, or the U.S., or that there is an inadequate domestic supply, within 90 days, and only after public notice and comment. The waivers terminate after one year, but can be renewed. One of the important features of the RFS will be a credit trading program providing refiners the flexibility to use ethanol where it makes the most geographic and economic sense. The rules for issuing and trading credits will be established by the EPA by August The RFS section also provides for cellulosic-derived ethanol and related ethanol to receive 2.5 credits per gallon until Ethanol produced from agricultural residues, woody biomass, fibers, municipal solid waste, switchgrass, etc., and ethanol produced at facilities where animal wastes or other waste materials are digested or otherwise used to displace 90 percent or more of the fossil fuel normally used in the production of ethanol qualify for enhanced credit. One gallon of ethanol generated from these cellulosic and other feedstocks qualifies as 2.5 gallons towards satisfying the RFS. Post-2012, a separate RFS calling for at least 250 million gallons of cellulosic ethanol shall be implemented (and the enhanced 2.5 credits per gallon granted to cellulosic ethanol eliminated). Because more credit will be given to cellulosic-based ethanol, one important feature relating to the implementation and enforcement of the RFS will be to see how EPA distinguishes between ethanol produced from corn or other traditional feedstocks and ethanol produced from cellulosic and related sources. 6

7 INCENTIVES AND TAX CREDITS The Energy Policy Act of 2005 includes incentives and tax credits for both the production and use of ethanol. The section 942 provision provides a cellulosic-incentive and is among the recommendations made by the Governors Ethanol Coalition earlier this year. Section: 942 Production Incentives for Cellulosic Biofuels Purpose: Production incentive for first billion gallons of cellulosic biofuels by 2015 and ensure that small feedstock producers and rural small businesses are full participants in the development of biofuels industry) Authorization: $250 million (incentives-reverse auction) Period: 10 years Comments: DOE is to establish the program in consultation with USDA, DoD, and EPA. Not more than 25% of the incentive for any one auction can be provided to any one project. Not more than $100 million may be provided in any year, and not more than $1 billion total may be provided. Title XIII: Energy Policy Tax Incentives: Creates a 30% Federal Income Tax Credit, up to $30,000 to Establish Alternative Fuel Infrastructure. The provision permits taxpayers to claim a 30% credit for the cost of installing clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer or installed at the principal residence of the taxpayer. Under the provision clean fuels are any fuel at least 85% of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, and hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel. The provision is effective for property in service December 31, January 1, Small Producer Tax Credit Eligibility Increased to Plants Capable of 60 million gallons a year. The adoption of the Volumetric Ethanol Excise Tax Credit (VEETC) in October of 2004 included provisions improving the Small Ethanol Producer Tax Credit by allowing the$1.5 million credit to be passed-through to farmer owners of ethanol cooperatives for the first time. However, the bill did not include language to modernize the definition of a small ethanol producer from one that produces from 30 million gallons of ethanol to one that produces 60 million gallons of ethanol a year. The Energy Policy Act allows facilities that produce up to 60 million gallons in annual capacity to take advantage of the small producer credit of 10-cents-per-gallon for up to 15 million gallons of renewable fuel. Virtually all ethanol plants under construction will eventually qualify for the tax credit and over 30 ethanol facilities in operation will become eligible for the credit as a result of the new definition. These tax revisions sunset on December 31, Alternative Motor Vehicle Credit. Provides a tax credit to the buyer for the purchase of a new, dedicated alternative fuel vehicle of 50% of the incremental cost of the vehicle, plus an additional 30% if the vehicle meets certain tighter emission standards. These credits range from $2,500 to $32,000 depending on the size of the vehicle. For non-taxpaying entities, the seller of the vehicle can take the credit. The credit is effective on purchases made after December 31, 2005 and expires December 31, This provision also makes credits available for the acquisition of light-, medium- and heavyduty fuel cell vehicles, hybrids and dedicated propane, hydrogen and M85 alternative fuel vehicles, and light-duty lean-burn diesel vehicles (less than 8500 lbs.). 7

8 REQUIRED STUDIES The Energy Policy Act of 2005 includes an extraordinarily large number of studies on a wide array of energy topics. The ethanol-related studies called for by the Act are included below. Seasonal Variation. For each year, from 2006 to 2012, EIA must conduct a study to determine if whether there are excessive seasonal variations in the use of renewable fuel. If such a determination is made, the Administrator of EPA shall promulgate regulations to ensure that 25 percent or more of the renewable fuel necessary to meet the RFS less is used in either of the two periods; April September, and, January March and October December. California is exempt from the seasonality provision, however, this does not impact the overall requirement of refiners to use ethanol. Waiver for Initial Year of Program. Not later than 180 days after enactment (6 months, or January 2006), the Department of Energy must conduct a study to determine whether the RFS requirements will likely cause adverse effects on customers. Based on the study, the Secretary of Energy must make recommendations to EPA as to whether the RFS in whole or in part should be waived. The EPA Administrator must act on the recommendations within 270 days of the date of enactment (9 months, or May 2006). Small Refineries. Small refineries, defined as a refineries in which the average daily aggregate crude oil throughput for a calendar year does not exceed 75,000 barrels, are exempt from the RFS requirement for 5 years. By December 31, 2008, the Secretary of Energy must conduct a study to determine if the RFS will impose disproportionate hardships on small refiners. Based on the results of the study, the EPA Administrator may extend the small refiner exemption for not less than 2 additional years. Ethanol Market Concentration. Not later than 180 days after the date of enactment (6 months or January 2006), the Federal Trade Commission must perform a study of market concentration in the ethanol industry using the Herfindahl-Hirschman Index. This report must be submitted to Congress by December 1, 2005, and annually thereafter. Survey of Renewable Fuel Market. By December 1, 2006, the EPA Administrator must conduct a study of RFG markets and conventional gasoline markets to determine market shares of different types of gasoline and whether they contain a renewable fuel and specifically whether they contain ethanol. The report must be submitted to Congress. Study of Certain Fuel Additives. Within 2 years of the date of enactment, the EPA Administrator must conduct a study of the effects on public health, air quality, and water resources, of increased use of substitutes for MTBE, including ETBE, TAME, diisopropyl ether, tertiary butyl alcohol, other ethers, ethanol, iso-octane, and alkylates. The study must be submitted to Congress. Analysis of Motor Vehicle Fuel Changes. Within 4 years of the date of enactment, the EPA must publish for comment a draft analysis of the changes in emissions of air pollutants and air quality due to the use of motor fuel and fuel additives resulting from implementation of the energy bill. This study must be published in its final for not later than 5 years after the date of enactment. 8

9 Permeation Effects Study. Not later than 1 year after the date of enactment, EPA must conduct a study, and report to Congress, on the effects of ethanol in gasoline on permeation, the process by which fuel molecules migrate through the rubber and plastic parts that make up fuel and fuel vapor systems in cars and trucks. The study must estimate the effects of ethanol use on evaporative emissions. Renewable Fuels Survey. The EPA Administrator must conduct and publish the results of a survey of the monthly renewable fuels demand in the motor vehicle fuels market in the U.S., nationally and regionally, including market price data. Fuel System Harmonization Study. EPA and the Department of Energy must jointly conduct a study of federal, state, and local fuel requirements and the effect of these requirements on national, regional, and local air quality goals, domestic refiners, the fuel distribution system, industry investment in new capacity, and the feasibility of developing national or regional motor vehicle fuel formulations that could enhance flexibility and fuel fungibility, lower prices, and enhance fuel quality, consistency and supply. The study must also consider the impacts of a number of new fuel requirements on air quality and the price of motor fuel. The study must be submitted to Congress no later than June 1,

10 ENVIRONMENTAL ISSUES There are a number of important ethanol-related environmental elements of the Energy Policy Act, and many of these are a part of other provisions. Below are some of the key provisions. Opt-In. States in the Ozone Transport Region (northeast U.S.) can opt to use reformulated gasoline (RFG) throughout their entire states. Elimination of the RFG Oxygen Standard. The current oxygen standard of the reformulated gasoline program (RFG) is repealed for California upon enactment of the bill and is repealed for other RFG areas 270 days after enactment (9 months or May 2006). It should be noted that California law already prevents degradation in air quality as a result of the elimination of RFG, and the state s toxics anti-backsliding requirements allows the federal RFG oxygen standard to be repealed for California upon enactment. For the remainder of the country under the RFG program, it will take EPA 270 days to establish anti-backsliding provisions. Thus, within 270 days of the date of enactment, the U.S. EPA is required to promulgate rules to ensure that future RFG does not contain any more toxics than the levels measured in RFG in The elimination of the oxygen requirement provides flexibility for refiners to use ethanol where it makes the most sense, while air quality continues to be protected. The 12 month limits on the life of credits generated under the RFS program to safeguard the ethanol market. Anti-Backsliding. EPA must ensure that the oil companies cannot use more toxic chemicals in RFG after eliminating oxygen standard than were used during season. This is very important because once the oxygen requirement is eliminated there will no longer be a requirement to blend an oxygenated gasoline additive like MTBE or ethanol into each gallon of RFG. Refiners and blenders will need to find a new means of meeting the octane requirements of premium blends and will have an incentive to use toxic chemicals like benzene and toluene, instead of ethanol. By preventing any increases in the use of toxics in gasoline, the program protects air quality and creates a strong incentive to use ethanol in premium blends of RFG. As a result of this provision, and the basic RFS requirement, it is likely that Northeastern states will continue to use ethanol after the RFG oxygen mandate has been repealed. One-Pound Waiver. Allows States to apply to the EPA Administrator to eliminate the one-pound waiver for E10 blends upon a showing that the waiver will increase emissions that contribute to air pollution. This does not affect the amount of ethanol sold into the market each year, which is set by the RFS schedule. Minimum Seasonal Use Requirement of 25 Percent. Requires EPA to ensure that at least 25 percent of the ethanol used in any year is used during each of the two six month seasons (April-September and March-October), as long as it does not interfere with attainment of national ambient air quality standards. California is exempt from the seasonal requirement. The U.S. Energy Information Administration is required to conduct an annual study of seasonal variations in ethanol use across the country. No Liability Protection for MTBE. Allows MTBE liability suits to be moved to federal court. 10

11 Key Ethanol Research, Development, Demonstration, and Incentive Provisions of the Energy Policy Act of 2005 Section Mechanism Target Limits Period Authorization Sec. 932 Sec. 941 Sec. 942 Sec. 946 Sec Sec Sec Sec Sec (USDA and DOE) Reverse auction (USDA) Loan guarantee Loan guarantee (EPA) Demonstrations of integrated biorefineries Research development and demonstration (significant detail on goals and targets) 50% R&D, 50% demonstration First billion gallons of cellulosic biofuels production Demonstration of preprocessing and harvesting of cellulosic feedstocks Ethanol from cellulosic feedstocks and MSW Ethanol from cellulosic feedstocks and MSW minimum 1 from cereal straw and 1 from MSW R&D into renewable fuels in RFG states Merchant cellulosic ethanol, waste derived ethanol, and approved renewable fuels Demonstrate at least 4 cellulosic ethanol conversion technologies and 5 biodiesel coproduction technologies $100 million per project, demonstrate profitability post construction 20% match for R&D, 50% match for commercial applications None specified N/A - >100M $2 billion Not more than 25% in any auction to any project; not more than $100 million in any year; not more than $1billion in total 10 years $250 million 20% match $25 million 2010 Assurance of 20% repay; 20 year term. 10 years Such funds as are necessary Extensive assurances; 30 million gallon capacity, $250 million/80% limit N/A N/A - >250M Academic $125 million institutions 2010 N/A $750 million 2008 Coordination with USDA and Biomass R&D Technical Advisory Committee $540 million Total >$4 billion