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Study shows tax payers subsidizing ethanol at $4.18 per gallon

2010-03-10T20:58:52Z

A new study by University of Missouri Food and Agricultural Policy Research Institute (PDF) reveals that the current corn ethanol tax credit is effectively costing tax payers $4.18 per gallon and is driving up grain prices. The study estimates that the tax credit, which would cost about $5.85 billion next year if extended, will lead to 1.4 billion gallons above the 12.6 billion gallons required by law through the Renewable Fuel Standard (see page 64).

In other words, next year the oil companies will be required to buy 12.6 billion gallons of conventional corn ethanol, but because tax payers are giving them $5.85 billion they'll consume 1.4 billion more than required. That works out to $4.18 per extra gallon.

As I've written before, having the tax credit on top of the RFS is like paying drivers to obey the speed limit. (Tip of the hat to Rapier for the analogy.) Some in the industry may be inclined to point to the additional 1.5 billion gallons as a justification for the tax credit, but the price tag should make that argument just silly. Taxpayers have been subsidizing the corn ethanol industry far too long at the expense of developing cleaner, more renewable biofuels.

Plus the FAPRI study also points out that the tax credit is leading to higher prices for corn and other grains--$0.18 per bushel of corn, $0.28 for soy, and $0.15 for wheat. And lest anyone argue that the tax credit is a good way of supporting farmer income, think about this: if we gave farmers an extra $0.15, $0.28, and $015 per bushel for every single one of the corn, soy, and wheat bushels they'll grow next year, it would cost just $3.56 billion. And we'd still have enough of the tax credit money left over to subsidies the extra 1.4 billion gallons to the tune of $1.64.

The FAPRI study's analysis of how the tax credit effects commodity crop prices also confirms the underlying economic truth of indirect land-use change. Higher prices for commodities mean that farmers here in the US and around the world will want to grow more. In those parts of the world where its cheaper to increase production by bringing new land into cultivation than increasing yields on existing lands, that's going to lead to land-use change. Not surprisingly, EPA's analysis, which uses the FAPRI model, finds that the emissions from this land-use change is one of the largest sources of emissions associated with corn ethanol.

Yesterday, Growth Energy had the audacity to argue that the tax credit lowers the price of gasoline. It's a cynical, shell-game claim, meant to earn support from drivers who are actually subsidizing this well established industry every April 15.

The simple fact of the matter is the current corn ethanol tax credit is a huge waste of money. We don't need an additional 1.4 billion gallons of corn ethanol, or the higher prices for grains and more deforestation that come with it. And we sure as heck don't need to be spending $4.18 per gallon to get it. The corn ethanol tax credit (and the biodiesel tax credit too) needs to end!

We have to be smarter about how we use our tax dollars. NRDC has proposed a greener biofuel tax credit that encourage competition among the technologies and only pay for real performance. It's time to transition from corn ethanol's pollution and pork to a new generation of more sustainable biofuels that brings us closer to real energy independence.

The must, can and should of bioenergy

2010-03-05T16:24:07Z

This little article focuses on my friend John Sheehan and his take on biofuels and land-use. He proposed reframing the issue in an interesting way:

"We need to not look at land use as a biofuels problem, we need to look at biofuels as (being part of) a mix of solving our land use problem," he said.

John's proposal makes me think of three questions that I was recently discussing with folks in Delft, the Netherlands, as part of the Global Sustainable Bioenergy Project. For the purpose of these questions let's define sustainability as encompassing hunger, economic security, climate, water, and biodiveristy. Lot's that one could add to that list, but it get's at a lot. Here are the three questions I've been thinking about:

Given a global commitment to achieving some minimum level of sustainability by, say, 2050, is there a minimum amount of bioenergy that we must use?
Given the same global commitment to a minimum level of sustainability by 2050, what's the maximum amount of bioenergy we can use?
And if we committed to maximizing our global sustainability, what's the amount of bioenergy we should use?

I'm not going to try to answer these questions here, nor do I think I even come close to having the answers. That's what I think the GSB Project is all about. I'm heading down to Brazil in a few weeks to continue the discussion. If you have thoughts and ideas to add to the discussion, come to the meetings. Here's the schedule.

Not just more, but smarter bucks for advanced biofuels

2010-03-04T20:08:03Z

This post by Steven Mufson reports on the advanced biofuels industry wanting addition incentive and particularly an investment tax credit. Last year, NRDC proposed a "Billion Gallon Challenge" program linking rich incentives for the first billion gallon of produciton capacity of advanced biofuels to very strict environmental performance standards. I still think this makes a lot of sense.

At a minimum though, rather than just adding an investment tax credit to the existing hodge-podge of incentives, I suggest the following simple step in the right direction: let's extend the existing $1.01 cellulosic tax credit for 5 years, make it refundable for the first 1 billion gallons of capacity, and requirement the producers to meet the RFSII GHG standard for cellulosic fuels (60% better than gasoline). As it is the tax credit expires in 2012 so it's all but useless to the industry, which will be doing well if it produces 6.5 million gallons this year and refundability makes the incentive as good as cash. So this would be one small step towards performance-base tax credits and one big leap forward for the industry.

Must-read on biofuel tax credit reform

2010-02-19T17:14:08Z

Robert Rapier has a great blog on the redundant and ridiculous biofuels tax credits, which given our huge Renewable Fuel Standard pay the oil companies to do what they’re legally obliged to do. I’ve written about the need to reform the biofuel tax credits (here, here, and here), especially the Volumetric Ethanol Excise Tax Credit (VEETC)—the main tax credit that overwhelmingly goes to corn ethanol. But Rob does a great job of crystallizing the wasteful situation we find ourselves in. He likens having the tax credit for fuels that are already mandated to paying people to obey the speed limit.

Not surprisingly, Rob’s original essay on this was targeted by Growth Energy with some wonderfully weak counter arguments, which he shreds in the blog. I say not surprising, because the ethanol industry has made it clear (PDF, see toward end) that extending this tax credit is its highest priority for the year.

At the end of his blog, Rob challenges Growth Energy to a debate the following resolution:

Resolved: The ethanol mandates enacted by the U.S. federal government have eliminated the purpose of the ethanol subsidies.

I hope that the industry will take Rob up on his challenge. It would be entertaining. But his resolution highlights a slight difference between my take away from the current silliness. I certainly agree that the tax credits as currently structured are just wasteful, but I think they should be reformed to actually provide tax payers with some real value. To my mind, the tax credits (all of them—biodiesel, cellulosic, small producer, VEETC—all of them) should be reformed to a technology-neutral, performance based credit that pays half for climate benefits and half for ecosystem services.

By definition, paying for performance is going to put farmers more in the picture here; their performance growing crops is critical to the lifecycle performance of biofuels. As Rob points out, even the ethanol industry has acknowledged (when convenient to them) that farmers don’t benefit from the current tax credits, but oil companies or biofuel refiners had to buy better grown biomass to get higher tax credits, they would have to negotiate with the farmers to get it.

So, let’s use tax credits to drive dramatic improvements and new and better biofuels and do it in a way that we’re getting money to farmers instead of paying oil companies to obey the law.

EPA publishes final RFSII rule: a tool to move biofuels forward

2010-02-03T19:59:32Z

Today EPA Administrator, Lisa Jackson, sign the final regulations to implement the renewable fuel standard as amended in the Energy Independence and Security Act of 2007 (a.k.a. RFSII). With the tools that EPA has developed, we can finally start to hold biofuels corporations accountable.

The final rule came out Just before a White House release of a package of efforts intended to speed up the development of advanced biofuels. More on this package later.

The final RFSII rule confirms that there are major differences between different types of biofuels. Some reduce global warming and some pollute more than gasoline and diesel. The RFSII rule builds on a robust, science based process and lays out a clear plan to further refine these tools through an NAS study that EPA has requested.

With EPA’s tools, we can have greater energy independence, create good American jobs, and we don’t have to sacrifice our health, climate or the environment.

The lower cellulosic volumes (6.5 million gallons instead of the original 100 million target set for 2010) and the significant public health and air quality impacts identified in the rule reinforce the urgency of starting to hold the industry accountable and moving beyond the dirty, old corn ethanol that dominate today’s markets. The RFSII is not enough; we need to reform the biofuel tax credits so that tax payers get real clean energy for their money, we need to focus government incentives on American innovation and jobs so we get the first billion gallons of the best biofuels into the market, and ultimately we need to evolve to a Low Carbon Fuel Standard like the one adopted in California.

A. What does the final rule say about indirect land-use?

EPA’s final rule confirms that for some biofuels, emissions from chopping down forests and plowing up wild places—so called “indirect land-use change”—are still the most significant source of emissions. And EPA’s rule holds businesses that cause these emissions accountable.

Through the incorporation of new data, EPA’s central value for emissions from land-use change has actually gone down since the proposed rule, but if the high end of the range is considered several fuels would not qualify for the RFS and would come close to having higher GHG emissions than petroleum fuels.

So the question is not whether this is a significant impact of certain biofuels, but how significant. Building on a peer-review process and extensive stakeholder comments, EPA’s methodology has held up. More data was incorporated into that existing methodology to get more accurate answers and further review including the proposed NAS study will further refine it over time.

Despite the uncertainty, the analysis confirms that advanced biofuels are the path to greater energy independence, better protecting our health and deep GHG reductions. That’s why we need to go build on the RFSII through reforming the biofuel tax credits, focusing incentives on the first billion gallons of the best biofuels, and eventually adopting an LCFS. These measures will move us beyond uncertainty and controversy if they are designed to develop biofuels of indisputable environmental merit.

B. How do EPA’s results compare to CA’s?

EPA and California Air Resource Board analyzed different things, but once you dig into the numbers, EPA’s findings reinforce CARB’s findings. This convergence further confirms the idea that there are good biofuels and bad biofuels, we have the tools to hold the industry accountable, and we need to be focused on getting the good biofuels into the market.

EPA focused on very optimistic assumptions about what biofuels will look like in 2022. CARB asked what biofuels are like today. EPA also had the advantage of almost a year of additional data and findings.

Digging into EPA’s analysis, their findings on the critical issue of emissions from land-use change are very close to California’s even though they used different methods, and CARB’s land use change results are well within the range of values EPA found in its uncertainty analysis for almost all biofuels.

C. Why did EPA’s numbers change so significantly from the NPRM?

EPA’s numbers changed because they got better data. The three most important updates were to the economics of yields, the value of coproducts that are produced along with biofuels, and higher definition satellite data.

The final GHG emissions numbers still make it clear that emissions from indirect land-use change is a hugely important issue that we cannot afford to ignore.

D. What does EPA’s regulatory impact assessment show?

EPA’s impact assessment (see page 6 for a summary table) shows that rushing blindly forward with the RFS threatens our health and water. Achieving the mandated future renewable fuel requirements will increase the risk of premature mortality in portions of the U.S as well as increase water pollution unless we move beyond corn ethanol and take steps to avoid these impacts. The biggest public health impact is from particulate matter emissions associated with the production of biofuels to achieve the mandated future renewable fuel requirements. More ethanol will also mean using more water and polluting more water.

Fortunately, these impacts can be avoided or at least minimized. EPA should implement the anti-backsliding requirements in EISA to address these impacts. These are exactly the sort of unintended consequences that provision was intended to address.

Clamping down on the air pollution from ethanol refineries is a critical first step that EPA can take on its own. Congress should follow up by reforming the biofuel tax credits so that they reward cleaner, greener biofuels and hold the dirty, old refiners accountable. Getting refineries to reduce their air pollution and water consumption is easy technologically; it’s just a matter of providing the right regulations and incentives.

Congress, California and tax payers that are subsiding the biofuels industry should not be swayed by the efforts of the dirty, old corn ethanol to shirk responsibility for threatening our health, destroying the rainforests, and polluting the climate. We can create better jobs, greater energy independence, and protect the climate if we start holding the industry accountable. EPA’s RFSII rule is a good start.

USDA sets BCAP on horrid path

2010-01-26T21:18:11Z

Biomass is a bit like Longfellow’s little girl with a curl: when it is good, it can be very, very good, and when it is bad, it’s horrid. Done right, converting biomass to heat or fuel can reduce global carbon emissions, enhance energy security, reward innovation, and create jobs. Done wrong, it spews new carbon into the atmosphere, destroys forests, crowds out food producers, distorts markets, and wastes fabulous sums.

Right now, the U.S. Department of Agriculture is bent on doing biomass wrong. The most glaring example could well be the Biomass Crop Assistance Program. BCAP came from the 2008 Farm Bill’s Title IX, in which Congress threw money and perks at biomass energy. Our solons included modest sideboards, but mostly left it to the US Department of Agriculture to figure out how who gets what.

BCAP was supposed to kick start renewable biomass cropping. Its “primary focus,” Congress said, was “crops that show exceptional promise for producing highly energy-efficient bioenergy or biofuels, that preserve natural resources, and that are not primarily grown for food and animal feed.” Congress put some plants and lands off limits itself, but charged USDA with making eligibility decisions based on resource impacts, economic factors, and “any additional information, as determined by the Secretary.” In short, sweeping discretion.

Mostly, BCAP was supposed to pay farmers to establish new biomass crops. It also contains, however, a little paragraph authorizing subsidies for delivery of other types of biomass to energy producers. A real sleeper, in part because it covers not just agro-products, but wood as well. This “CHST” provision (for “collection, harvest, storage, and transportation”) offers to match – in effect to double – the price processors pay for biomass.

It would be hard to overstate BCAP’s possible impacts on the environment and the economy. Congress didn’t set a limit on BCAP spending. Instead, it directed that for the next five years USDA use as many funds from the Commodity Credit Corporation “as are necessary.” The CCC has a $30 billion line of credit with the U.S. Treasury. That’s right. With a “b.”

USDA has produced a token draft environmental review for BCAP. Its crabbed and weak consideration of the potential impacts caused by different possible implementation rules has occasioned sharp criticism. We’re waiting to see how the agency responds, but if this exchange between the thoughtful Loni Kemp and a testy FSA economist is any indication, I’m not optimistic. (See Loni’s initial post with his comment and her response.)

In the meantime, though, it’s off to the races in a huge way on CHST subsidies. In the first quarter of this year alone, USDA plans to spend more than $500 million dollars underwriting that little paragraph. And the agency has added almost no safeguards to the bare bones requirements of the statute. It will pay for biomass that:

Comes from clearcutting national forests in the name of “preventive treatment;”
Strips agricultural land of leaves and stalks that stop erosion and replenish the soil;
Results from converting native forests to tree farms;
Displaces food production into more marginal and sensitive land and drives up prices;
Industries like cabinetmaking need, creating new pressure to wildlife habitat;
Stored carbon for decades or centuries, mitigating climate change.

USDA has put the cart way out in front of the horse. With good reason our national look-before-you leap law, the National Environmental Policy Act, requires federal agencies to review the potential impacts of such programs, and consider how best to administer them, before making such investments. Why hasn’t USDA done so? The agency says it has no choice but to fund all comers who ask for CHST money. That couldn’t be more wrong. The statute says USDA “may provide matching payments.” If there is discretion about what to pay for, there’s discretion to pay only for biomass that is in the public interest. Instead, the agency has opened up the trough and filled it to the brim, blind to the consequences. And a nation staggering under debt will soon be billions more in the hole.

Now that’s horrid.

George Woodwell: Climate crisis calls for swift action on Cape Wind

2010-01-13T18:15:45Z

As my colleague, Brandi Colander, wrote last week the trails for Cape Wind continue, but finally Secretary Salazar is personally engaged in the offshore wind projects permitting process and has committed to reaching a final decision by March 1. Today Salazar is meeting for the first time with a core group of stakeholders to see if he can’t wrangle some sort of consensus.

Back in November, NRDC called on Salazar to move quickly to find a way to permit the project, and I hope that the Secretary and everyone else in the meeting today understands how urgent the challenge of climate change is and how important moving forward with carefully sited renewables such as Cape Wind is to stopping global warming.

Today in an email, long-standing NRDC trustee George Woodwell put it concisely and forcefully. George founded the Woods Hole Research Center, is Director Emeritus and Senior Scientist there, and is a deep expert on impacts of climate change. Here’s what George had to say:

It is very important as I see the world to emphasize that we have a crisis, a present disaster underway with climate moving out from under this civilization rapidly and no national or international plan yet proportional to the need for correcting the trend. This step, the Cape Wind project, is essential, both in relieving the pressure on fossil fuels for the region and in showing that the US is seriously concerned about the crisis. And it is essential for the country to learn that progress is possible, that this wind farm plus other wind-based and solar panel-based installations will make a significant region of the Northeast substantially independent of fossil fuels for electrical power. The trend will be contagious ...and essential. Soon we shall have electric-powered vehicles charged regularly with locally produced renewable and inexpensive energy!

And one might notice conspicuously that the opposition is heavily represented and financed by interests invested in the fossil fuel business who have unabashedly prolonged their programs of poisoning the earth for profits as long as possible. It is the purpose of government to protect the public from such corruption of the general welfare and it is time for our government to rise to the challenge.

Editorials similar conclusions in major publications in the past several days including the New York Times, Wall Street Journal, USA Today, Boston Globe and Providence Journal.

Northeast Governors move forward with LCFS MOU

2009-12-30T15:07:02Z

Technically, I'm on vacation, and I hope everyone out there is enjoying at least some R&R this holiday season. Fortunately for all of us, the good people in the Governors' offices of 11 Northeast and Mid-Atlantic states have been busy. Earlier today they released a memorandum of understanding (PDF) signed by the Governors of the 11 states committing the states to a schedule for all the analysis, evaluation and design necessary for the eventual adoption of a regional low carbon fuel standard.

While California was the first to adopt a LCFS (and Governor Schwarzenegger was quick to praise the Governors for moving forward), this is still a big deal. A federal LCFS was dropped from the House climate bill, leaving the states once again to lead on ways to reduce the global warming pollution from our transportation fuels. While there are certainly lots of complexities to getting a LCFS right, it's still the best way to stop the advance of high carbon fuels such oil from the Canadian tar sands and speed up the deployment of low carbon transportation energy such as electrificiation and truly low carbon biofuels.

That's why NRDC has been working with an impressive coalition of organizations to move the 11 state effort along since the states' environmental commissioners signed a letter of intent last December. As a New Yorker, I'm particularly pleased that Governor Patterson signed the MOU, and I know his staff pressed hard to make the MOU as big a step forward from the letter as possible.

So happy New Years to them and to the Massachusetts staff that coordinated the MOU and to the Governors and staff from all 11 of the states that worked hard while some of us (i.e. me) mostly worked hard at ignoring work.

Here's our coalition's press release on the MOU:

Contacts:

Jeremy McDiarmid, ENE (Environment Northeast), 617-429-0677, jmcdiarmid@env-ne.org

Sue Reid, Conservation Law Foundation, 617-669-2182, sreid@clf.org

Nathanael Greene, Natural Resources Defense Council, 212-254-0160, ngreene@nrdc.org

Jan Jarrett, PennFuture, 717-214-7920, jarrett@pennfuture.org

Rob Sargent, Environment America, 617-747-4317, rsargent@environmentamerica.org

For Immediate Release

Environmental Organizations See Progress Toward Cleaner Fuel Future in New Agreement Signed by Northeast and Mid-Atlantic States

December 30, 2009 -- Today eleven Northeast and mid-Atlantic states took another step toward reducing the region’s dangerous dependence on oil and fostering the growth of clean fuel alternatives when their governors signed a Memorandum of Understanding (MOU) to develop a mandatory, multi-state Low Carbon Fuel Standard (LCFS).

The LCFS is a market-based, technology-neutral policy requiring gradual reductions in the carbon content of fuel. An LCFS will promote a regional market for cleaner alternative fuels, delivering greenhouse gas (GHG) reductions, local economic development, and technological innovation. California was the first state to adopt an LCFS in April 2009, requiring all distributors of transportation fuels to achieve 10% lower carbon intensity by 2020.

“An LCFS is a pivotal tool to reduce global warming pollution from cars and trucks and yet again provides a model from the Northeast for the federal government to follow,” said Jeremy McDiarmid, Staff Attorney at ENE (Environment Northeast). McDiarmid noted that it was ten of these same eleven states that implemented the Regional Greenhouse Gas Initiative (RGGI) last year, the first mandatory cap and trade energy emissions reduction program in the country and now an important model for federal climate legislation under development.

Conservation Law Foundation (CLF), Environment America, Natural Resources Defense Council (NRDC), PennFuture and ENE have been actively promoting the development of the LCFS in the Northeast.

“Clean alternative fuels have the potential to be an economic engine in the Northeast while addressing the threat of climate change,” said CLF Senior Attorney Sue Reid. “We need to adopt policies such as the LCFS that discourage high carbon fuels like tar sands and build markets for new, cleaner fuels, with meaningful choices for consumers. We are encouraged by the governors’ commitment to move forward,” Reid added.

“An LCFS must be a key strategy in our efforts to reduce the pollution that causes global warming as well as other health-threatening forms of air pollution,” said Jan Jarrett, President and CEO of PennFuture. “The switch to cleaner fuels for our cars and trucks will help clean our air while it creates new choices to diversify and increase the reliability of our fuel supplies.”

“The states are now well-positioned to address this key component of global warming pollution,” noted Nathanael Greene, Director of Renewable Energy Policy for NRDC. “We anticipate that this initiative will help speed the adoption of clean fuel alternatives such as electric vehicles, advanced biofuels and compressed natural gas, to name a few, producing significant reductions in carbon emissions from vehicle use throughout the region.”

“We are counting on officials to stand strong against special interests who are intent on blocking an effective program,” said Rob Sargent, Energy Program Director, Environment America. “We look forward to working with the states over the course of the next year to develop a program that sets a firm target for reducing the carbon intensity of fuels by 10% by 2020 and which includes provisions to ensure that that the life-cycle greenhouse gas impacts of fuels are accounted for.”

ENE, CLF, NRDC, PennFuture, Environment America and other environmental advocacy organizations have joined other stakeholders in urging the governors to move with greater urgency, developing a program framework by the end of 2010 and committing to a 10% reduction in the carbon intensity of fuels. While the MOU stops short of laying out a program framework with specific targets, the groups see the MOU as a step forward, reaffirming and elevating the states’ commitment to implement a regional LCFS.

ENE (www.env-ne.org) is a non-profit organization that researches and advocates innovative policies that tackle our environmental challenges while promoting sustainable economies. ENE is at the forefront of state and regional efforts to combat global warming with solutions that promote clean energy, clean air and healthy forests.

The Conservation Law Foundation (www.clf.org) works to solve the most significant environmental challenges facing New England. CLF’s advocates use law, economics and science to create innovative strategies to conserve natural resources, protect public health and promote vital communities in our region. Founded, in 1966, CLF is a nonprofit, member-supported organization with offices in Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

PennFuture (www.pennfuture.org) is a statewide public interest membership organization. Working from the premise, “Every environmental victory grows the economy,” PennFuture has successfully advocated for landmark environmental legislation, including passage of the largest-ever environmental funding bond, investment in green energy and energy savings programs, the Alternative Energy Portfolio Standards Act, the Clean Vehicles Program and adoption of a regulation that restricts mercury pollution from coal-fired power plants. PennFuture has offices in Pittsburgh, Harrisburg, Philadelphia, Wilkes-Barre and West Chester, Pennsylvania.

The Natural Resources Defense Council (www.nrdc.org) is a national, nonprofit organization of scientists, lawyers and environmental specialists dedicated to protecting public health and the environment. Founded in 1970, NRDC has 1.3 million members and online activists, served from offices in Washington, Chicago, Los Angeles, San Francisco and Beijing.

Environment America (www.environmentamerica.org) is a federation of state-based, citizen-funded environmental advocacy organizations in 28 states, including most of the Northeast and Mid-Atlantic States. It combines independent research, practical ideas and tough-minded advocacy to overcome the opposition of powerful special interests and win real results for the environment.

# # #

Khosla and Searchinger on bioenergy GHG accounting

2009-11-23T22:48:11Z

Today in the Boston Globe, two of the biggest, but very different, names in biofuels have coauthored an op-ed on the importance of getting the GHG accounting right for bioenergy. I’ve written and done a video on this critically important topic, so after reading the op-ed check those blogs out if you have more questions.

If you don’t know, Vinod Khosla is one of the most aggressive VC investors in a whole array of low-carbon and other environmental technologies. Some have criticized Vinod as too much of a biofuel booster, but Vinod has made a lot of money and he's not shy about putting it where his mouth is. He talks eloquently about the challenge of finding climate solutions that will scale not just in rich countries, but in developing countries.

Tim Searchinger, in contrast is known for taking a hard look at the challenges to getting biofuels right. The lead author of the seminal study of GHG emissions from indirect land-use in 2008 and more recently an essential analysis of the the accounting for GHG emissions from bioenergy in the climate bill.

The op-ed strikes a nice balance in stating the problem with assuming that all biomass is carbon neutral clearly but also pointing out the very really opportunity to reduce GHG emissions that bioenergy provides if we do it right.

Here are a few choice quotes:

Although bioenergy does not significantly change the carbon dioxide released by tailpipes and smokestacks, bioenergy can offset these releases by stimulating higher rates of plant growth, which absorb carbon dioxide from the atmosphere in a recycling effect. The use of fast-growing plants on abandoned and degraded farmland provides a great opportunity because they can not only generate additional biomass for energy but simultaneously restore carbon to the soils. Such areas could produce most of the world’s biofuels.

…

Yet the earth’s plants and soils store three times as much carbon as the atmosphere holds today, and if bioenergy uses or displaces this carbon it too adds carbon to the air. Some ways of thinning forests may stimulate faster tree growth that rapidly replaces the lost wood (and lost carbon), but broader clear cuts to make wood chips for electricity will generally reduce forest carbon stocks for decades, which reduces or eliminates the benefits of displacing coal.…

[Here I would just add that some amount of forest residues are also needed to provide critical nutrient and wildlife habitat values and that I think it's an open question as to whether thinning increases carbon sequestration rather than just speeding it up.]

Because of these very different consequences, treaties and laws that place limits on carbon dioxide need to distinguish bioenergy by its source and production process.

…

If the error continues globally, it gives oil firms or electric utilities that must reduce their greenhouse gas emissions a false incentive to switch to those forms of bioenergy that result from clearing forests.

Hats off to these guys for coming together on a thoughtful and helpful piece.

The WSJ tries to use biofuels fear factor to urge climate inaction

2009-10-31T17:40:00Z

Recently, I posted a video and a narrative explanation about a critical accounting error that threatens to turn climate legislation into a big incentive for deforestation. Put as simply as possible, the House climate bill and the Boxer-Kerry Senate bill both assume that burning most biomass is exactly carbon neutral, meaning that it doesn’t result in an increase or decrease in atmospheric levels of global warming pollution. Burning biomass to replace coal or natural gas or oil can be good for the climate or bad for it depending on the source of biomass, but it will almost never be exactly neutral, and the climate bill can’t encourage better bioenergy if we refuse to count the emissions. In fact, a climate bill that assumes all biomass has no emissions won’t be able to achieve its goals.

In a recent editorial the Wall Street Journal got right the basic idea that this loophole is a big deal but then jumped to the wrong conclusion, suggesting that rather than fix this biomass loophole we should just be afraid of the future. As a friend of mine put it, it’s like we’re tied to the tracks with the coal powered steam engine of climate change barreling towards us. The loophole will make it harder for us to get off the tracks, most people are focused on how to make getting off the tracks as profitable as possible, but the WSJ would just have us throw up our hands in despair. But, hey, 50% right is pretty good for the WSJ editorial board.

Sadly, the idea that we shouldn’t fully and scientifically account for the pros and cons of biofuels has become a theme for the industry as of late. As part of another one of the infamous last minute deals in the House climate bill, the corn ethanol industry lobbied successfully for a provision that would prohibit EPA from fully accounting for land-use change emissions from biofuels when implementing the RFS. As mentioned earlier, the industry has also been attacking the definition of renewable biomass, expanding that to the point where it doesn’t provide any meaningful protections. And in parallel with all of this, the industry has been lobbying to force EPA to approve the use of blends of ethanol and gasoline with more than 10% ethanol even though the health and safety testing of such blends hasn’t been completed.

The driving force behind all of this? The corn ethanol industry’s plan to increase their market from 15 billion gallons to around 25 billion. The corn growers are already planning to production and just trying to knock down the barriers one at a time. This from Philip Brasher’s blog:

It’s too early, the growers said, to know when they’ll ask Congress to raise the 15-billion-gallon mandate.

“Basically we’re trying to take care of those hurdles one at a time,” [Darrin] Ihnen [president of the National Corn Growers Association] said.

The specter of gutted biofuels policies opening the door to lots more corn ethanol is worthy of the WSJ fears, but we are not helpless victims here. I wrote on Thursday about a proposal to reform the biofuels tax credits to pay for performance rather than the current norm, which just pays for volume. But to make this change, we have to start actually measuring the real performance of biofuels. That’s the bottom line here: we can’t get biofuels right if we don’t start counting it right.

Biofuels and climate: first step to getting them right is counting them

2009-10-31T17:39:42Z

Last Monday, I posted a video about a critical accounting error that threatens to turn climate legislation into a big incentive for deforestation. Here’s a narrative version of the same description. If you’ve seen the video this should sound and look familiar.

Let’s start just thinking about a basic bioenergy plant—it could be turning corn into ethanol, but let’s imagine one turning trees into electricity. The carbon in those trees ends up in the atmosphere as CO2.

The problem is that the climate bill passed by the House and the one being debated by the Senate Environment and Public Works Committee assumes that as long as those trees are “renewable biomass” then we can just ignore those emissions. Renewable biomass is a term used in the RFS to preclude the most destructive sources of biomass from being used to make biofuels. It’s about avoiding habitat and ecosystem destruction and really has little to do with carbon accounting. Furthermore, the final deals in the House basically expanded the renewable biomass definition to include everything. So essentially the House climate bill ignores all emissions from biomass.

But if we compare the carbon flows from our hypothetical biopower plant, we can see that they are essentially the same as those from a coal plant (or an oil refinery if we were imagining an ethanol plant. In both cases, carbon that wasn’t in the atmosphere yesterday is ending up there today to make our energy.

To justify this incorrect accounting, many look to the past absorption of carbon by the trees to justify the carbon neutral claims. But if we add the past absorption into the picture, we can see that that doesn’t really change anything. Still carbon that wasn’t in the atmosphere yesterday (because it was in the trees) is ending up there today to make our energy.

For bioenergy to be better than fossil fuels, we have to a) be honest and account for this initial release of carbon and b) look to the future. If we simply regrow our forest (or crop) maintaining the carbon balance on the land, we can start to amortize this initial release over more and more bioenergy. But we have to keep a number of things in mind. For instance, even mature forests still absorb carbon, so we need to account for the fact that the forest or field would have been absorbing carbon anyway. Also, forests take a long time to grow back. So between foregone sequestration and slow growth, carbon neutrality would take decades and maybe centuries to achieve—much longer than scientists tell us we have if we’re going to preserve life as we know it.

Furthermore, if the forest or field used to provide the biomass burned was being used before for other purposes, we have to recognize that the prior demand for food or fiber doesn’t simply disappear. Especially in the face of population growth and rising incomes around the world, we need to understand where that demand goes and what are the emissions impacts of displacing that demand. This is the infamous indirect land-use change issue.

There’s lots of nuts and bolts in understanding these absorption and releases on the land over time, but two things should be obvious to us all: 1) biopower might be good or bad for climate, but the assumption of neutrality is almost always going to be wrong; and 2) greenhouse gas emissions cause global warming whether they come from fossil fuels or biofuels, but we can’t reduce emissions that we won’t admit are happening.

To understand why this so important, think of a balloon. If the balloon represents all of our greenhouse gas emissions, we want our climate policies to push down on the balloon and reduce our pollution. But if our policies only push down on part of the balloon, industry has a strong incentive to simply shift the emissions from the regulated fossil fuel emissions to the unregulated bioenergy emissions. That part of the balloon swells up, our climate keeps warming, and we lose all our forests and grasslands while we’re at it.

Another less publicized article in Science recently looked at this balloon effect and came to the conclusion that exempting emissions from bioenergy will have major impacts on forests around the world. Interestingly, this analysis finds bioenergy playing a big role under both scenario (A) that ignores biomass emissions and scenario (B) that includes these emissions. The difference is the type of land used to grow biomass—pastures verse forests.

The ideal approach would be to simply account for the emissions from burning biomass at the smokestack or tailpipe just like any other emissions, and credit or debit sequestration or emissions at the landscape level. Unfortunately, the science of accounting of emissions and sequestration on the land is not as solid as accounting for emissions at smokestacks and tailpipes. As a result putting land under the cap at this point would weaken the certainty of the cap. (This is why it’s so important that EPA play a lead role in overseeing agricultural carbon offsets, but that’s a different blog.)

Instead, we recommend directing EPA working with USDA and DOE to figure out a way to assign different emissions factors to different sources of biomass based on how the land is being managed and the expected net GHG balance.

Unfortunately, some in the biofuels industry have responded to the idea that a climate bill intended to reduce our carbon emissions should at least try to count those emissions accurately with all too predictable pleas that they be exempted (subscription required). Earlier in October, a group of biofuel industry organizations issued a statement complaining about potential “double regulation.” Beyond the climate bill, the other regulation in question? The Renewable Fuel Standard, a huge government mandate for 15 billion gallons of corn ethanol, 16 billion gallons of cellulosic biofuels, and 5 billion gallons of other advanced biofuels. As long as these biofuels are being produced, oil companies have to buy them regardless of cost. Now I have no love-loss for the oil companies, but this amounts to a huge subsidy to the biofuels industry, and in return for this government largess the qualifying fuels are supposed to provide real GHG benefits. This doesn’t seem too much to ask, but if the RFS is such a burden on the biofuels industry that it can’t comply with a climate law, there can only be one conclusion: let’s end the RFS.

However, we need low-carbon fuels and electricity, and if we do it right biofuels and biopower can play an important part in helping to stop global warming. But we can’t get biofuels right if we don’t start counting them right.

A Greener Biofuels Tax Credit

2009-10-29T23:30:46Z

Two weeks ago, I wrote about how Loni Kemp won a Farm Foundation contest for an essay laying out a greener biofuel tax credit. Today in DC, this reward was given with appropriate fanfare. Jeremy Martin at UCS also deserves lots of credit for helping to shape this idea. Here now for your reading pleasure is a short summary of how I would like to see the biofuel tax credits reformed based on all of Loni and Jeremy’s great work.

Summary of a Greener Biofuel Tax Credit Proposal

Policies designed to encourage development of the first generation of biofuels—ethanol from corn and biodiesel from soybeans—were supported with the goals of advancing national energy security, jobs and rural economic development, improved air quality, and superior life-cycle greenhouse gas performance compared to gasoline. Yet actual delivery of those benefits has been vigorously debated and unintended environmental effects of intensive corn and soybean production on polluted waters and degraded soils are well documented.

A growing consensus acknowledges that the next generation of biofuels—from cellulose and eventually from algae—has potential to deliver higher levels of benefits. We expect better life-cycle greenhouse gas performance, improved fossil energy balance, expanded land areas to grow feedstocks within the US, more sustainable farming practices leading to cleaner water and healthier soils, and less effect on food prices. These benefits are by no means guaranteed, however. Policies are needed to ensure that promised benefits materialize and to prevent unintended adverse environmental effects.

Support for corn ethanol tax credits has dwindled because of concerns that promised climate benefits are not guaranteed, because of the recent irrational exuberance in expansion, and because current tax credits duplicate the Renewable Fuel Standard which mandates a minimum market for biofuels. At the same time there is considerable support for tax incentives for cellulosic biofuels based on expectations of superior performance. Thus, guiding the biofuels industry along a green path will also ensure its economic and political survival.

What is missing from current tax policy is a requirement for actual performance in delivering expected environment and climate benefits. To remedy this, we propose to reform the mix of existing federal biofuel tax credits—including the ethanol blender’s credit—into one performance-based tax credit. The actual level of the payment per gallon will vary, according to the sustainability performance scores of the biofuels each biorefinery produces.

This reformed biofuel tax credit will:

Be technology neutral—apply to all fuels (ethanol, biodiesel, butanol, etc.) and all feedstocks (corn, cellulose, algae, vegetable oils, etc).
Be performance based—reward better environmental performance with higher tax credit payments.
Protect the climate—reward lifecycle carbon emission reductions beyond those required by the Renewable Fuel Standard.
Protect the environment—reward soil, water, and wildlife conservation on the farm where feedstocks are produced.
Be streamlined—use workable reporting systems for farmers, biofuel refiners, and the Internal Revenue Service.
Be budget neutral—use savings from phasing out current production tax credits to fund the new greener biofuels tax credit.

The new tax credit will have a value of up to $1 per 76,000 Btu (the energy content of one gallon of ethanol), half of the credit will reward lower carbon fuels, and half will reward other ecosystem services. To make it easier for the value of the credit to get back to the farmers and biorefiners that have to change practices to get higher tax credit payment, the credit will shift the from the blenders—the oil companies and refineries which blend ethanol into gasoline—to the biorefineries which produce biofuels.

Corn ethanol and soy biodiesel producers will be eligible if they employ advanced processes such as renewable power and purchase feedstocks from farmers who are building soil quality and minimizing polluted runoff. Next generation biofuels could earn even more if they vastly reduce their greenhouse gas emissions and rely on perennial feedstocks which require little land disturbance, fertilizer or irrigation.

Climate performance

The half of the new tax credit which rewards carbon performance will be paid in direct proportion to reductions in greenhouse gas emissions, based on the EPA’s calculation of lifecycle greenhouse gas emissions currently being developed for the Renewable Fuel Standard. The refinery’s choice of feedstocks, technology, and management of the direct emissions of the refinery itself will determine their lifecycle emissions. A zero carbon biofuel (100% reduction) will be eligible for the full carbon tax credit of $.50 per gallon. Tax credits will ramp down to $0.00 per gallon for biofuels achieving no reduction of greenhouse gas emissions compared to gasoline. If a facility is grandfathered from the RFS GHG standards and therefore does not have a EPA certified emissions level, then it would be assumed to provide no emissions reductions.

Environmental performance

National biofuels policies currently ignore environmental performance, beyond the minimum greenhouse gas metric in the Renewable Fuel Standard. What is missing is recognition of feedstock farming systems that are kinder to soil, water and wildlife. To earn the second half of the greener tax credit—up to $.50—refineries will want to optimize conservation on the land, and will purchase more sustainable feedstocks. It is critical that the industry not be motivated solely by low price feedstocks, which forces growers to cut corners and ignore conservation opportunities. A performance-based tax policy telegraphs incentives to minimize tillage, fertilizer use, erosion and runoff all the way through the system down to the farmer.

The key environmental elements on which farmers have an effect—soil quality, water quality and wildlife habitat—will be scored for feedstocks.. A simple evaluation tool has been developed by USDA where data is easily entered by farmers or their technical advisors, and scores are determined. The Conservation Measurement Tool will be streamlined to apply specifically to biofuels feedstocks. USDA will develop certification criteria for independent, third-party professionals to assess and annually spot check feedstock environmental scores. Similar evaluations will be developed for forests, wastes and algae feedstocks. Scores must be above a minimum stewardship threshold, and will be averaged for each biorefinery.

The IRS will simply plug in the annual greenhouse gas score and the annual average feedstock environmental scores overseen by EPA and USDA and determine a total tax credit rate per eligible gallon of annual production, up to the maximum of $1.00 per gallon equivalent.

Convertible Tax Credits

Because many innovative biofuel technologies are being advanced by startup companies with limited revenues, allowing conversion of production tax credits to investment tax credits or a direct grant for the first billion gallons of advanced and cellulosic biofuels will facilitate the rapid scale-up of this industry. This approach will also help with the difficult investment climate currently facing this fledgling industry.

Eligible Biofuel Production:

Feedstocks are contained in the definition of renewable biomass
Feedstock comes from farms meeting USDA Conservation Compliance requirements (erosion, wetlands and grassland conversion)
Feedstock comes from lands not converted from perennial species to annual crops
Feedstock is not from intact ecosystems like forest, wetland and grassland
Feedstock is not irrigated
No invasive or noxious species
Crop residue is removed at sustainable levels
Biorefineries meet the greenhouse gas reduction threshold for the category of renewable fuel
Feedstocks meet the environmental performance threshold score

Conclusion

U.S. biofuels policy must provide clear and strong incentives for bringing advanced biofuel production on line very quickly. It must provide enough support to the first generation of biofuels to stabilize the industry, but without supporting environmental harm. Policy should reward farmers who grow energy crops, and encourage them to switch from corn and soybeans to perennial biomass. All of this must be done while also strongly steering the entire agriculture sector toward excellence in soil and water protection. A performance-based universal Greener Biofuels Tax Credit is the policy we need.

Video: Science on must-fix biomass carbon accounting error

2009-10-26T19:42:19Z

Last Thursday, Science published a very important article by a group of prominent scientists and ecologist about a common error in accounting for carbon from biomass and bioenergy. This might seem really boring at first but it's critically important to stopping global warming and protecting our wild forests and grasslands.

My colleague, Dan Lashof, did a great blog on this report last week. In an effort to explain the accounting error in a potentially more gripping format and suggest some solutions, I prepared the the following video. Homemade, you bet! Watch out for bad lighting and bad drawing. But I hope that it helps.

In the video, I mentioned how many make the common error of pointing to past carbon absorption by plants as an excuse to assume that all biomass emissions are carbon neutral. Here's a timely example in a statement released last week by Bio.

I also talk about how getting this wrong threatens all the world's wild forests and grasslands. Another study in Science from earlier this year (here's a bit more info with a key graphic), actually modeled the balloon effect I demonstrate so vividly.

Wondering what I'm talking about? Check out my video below:

Time to reform biofuel tax credits; Say hello to the GBTC

2009-10-07T17:41:23Z

Yesterday, the Farm Foundation announced the winning essays for it's 30-Year Challenge Policy Competition. One of two winners in the "Climate Change" category is Loni Kemp of Kemp Consulting, whose winning essay is titled: Greener Biofuels Tax Credits: A Policy to Drive Multiple Goals. As Loni kindly acknowledges in her essay, she developed the ideas in the essay while working with yours truly. Jeremy Martin over at UCS also deserves lots of credit.

As I wrote about earlier this week, the GAO released a report last Friday that points out the multiple environmental risks posed by biofuels in general and corn ethanol in particular and how the existing ethanol tax credit is probably unnecessary. What I have proposed in the past and what Loni has gone a long way to making concrete is reforming the myriad biofuel tax credits into a single, technology-neutral, performance based tax credit.

Read Loni's essay for details but the basic idea is very simple:

Replace existing biofuel tax credits that simply pay more money for more volume, with a new tax credit that would pay up to $1.00 per 76000 Btu (the number of Btu in a gallon of ethanol) of fuel for any fuel that receives top ranks in two performance categories--GHG reductions and ecosystem services.
For GHG reduction, a 100% reduction compared to the petroleum alternative would win a fuel $0.50/76000 Btu; obviously a lot can be said about how this would be measured, but ideally this would be based on the same methodology that EPA is developing to implement the RFS2.
For ecosystem services, a perfect score would win a fuel another $0.50/76000Btu, it is challenging to find a single existing tool, but through research that Loni did, we propose using the Soil and Water Evaluation Tool as the core metric. This was developed by USDA for the 2008 Conservation Security Program. It would need to be augmented with monitoring and verification and features to account for forest management and wildlife--currently it is a purely voluntary, self reporting tool that only looks at soil and water impacts on crop land. Algae's performance would also need to be worked in.

Again read Loni's essay for more details, but that's the basics--technology neutral, pay for GHG and ecosystem service performance. It's time we stop throwing tax payer money at mature technologies that in many if not most cases are doing more harm then good. If we're going to give out subsidies in addition to the huge federally mandated market created through the RFS2, it's time that tax payers got something more for their money. It's time to reform the biofuels tax credits to a greener biofuels tax credit.

If clarity of Loni's essay, the simplicity of the idea of paying for performance, or the wastefulness of mandating and bribing at the same time aren't enough to convince you of the urgency of reforming our biofuel tax credits, then I leave you with one more powerful image that I hope will. Below is an image from the Environmental Law Institute at the Wilson Center that shows the balance of energy subsidies between fossil fuels, corn ethanol, all other renewables, and carbon capture and storage from 2002-2008. Corn ethanol alone got 40% more than all other traditional renewables. We can and must get more for out money!

GAO: corn ethanol is risky and tax credit unnecessary

2009-10-05T13:33:31Z

On Friday, the Government Accountability Office released a major report largely about the risks of expanded corn ethanol: Biofuels: Potential Effects and Challenges of Required Increases in Production and Use. Unfortunately, as the report points out, beyond lifecycle GHG emissions, EPA is not required to evaluate any environmental impacts as it implements the 36 billion gallon RFS2 mandate. Perhaps most disturbingly, the nonpartisan investigative arm of Congress points out that as we blindly rush ahead with this huge federal mandate, we're also giving corn ethanol and the oil companies a huge tax credit to bring us the ethanol they are supposedly mandated to bring us. That's right; last year we, the tax payers, gave up $4 billion to oil companies and the corn ethanol industry so that they would force feed us ethanol that they were legally required to to force feed us. It's a mandate and a bribe, and by 2015 the tax credits will cost us about $6.7 billion a year.

And here's the best part: the report says that bribe--I mean tax credit--isn't even doing any thing. Per the report: the tax credit "may no longer be needed to stimulate conventional corn ethanol production because the domestic industry has matured." And the industry has a mandate for its product.

Here's a little bit of what the GAO report has to say about biofuels:

For agriculture, many experts said that biofuels production has contributed to crop price increases as well as increases in prices of livestock and poultry feed and, to a lesser extent, food. They believe that this trend may continue as the RFS expands. For the environment, many experts believe that increased biofuels production could impair water quality--by increasing fertilizer runoff and soil erosion--and also reduce water availability, degrade air and soil quality, and adversely affect wildlife habitat; however, the extent of these effects is uncertain and could be mitigated by such factors as improved crop yields, feedstock selection, use of conservation techniques, and improvements in biorefinery processing.

Of course the folks over at Growth Energy--the new super aggressive lobbying arm of the corn ethanol industry--are desperately afraid that Congress will start to wonder why they are mandating the oil companies buy corn ethanol and bribing them to buy it too. Here's one of my favorite quotes from an article on the GAO report over the weekend:

The tax credit “isn’t up for renewal until next year, and we believe that discussion is best left for then,” Chris Thorne, director of public affairs for pro-ethanol group Growth Energy...

So here's a simple proposal: let's end the Volumetric Ethanol Excise Tax Credit and the biodiesel tax credit and the alternative alcohol fuel tax credit and the ethanol import tariff (which is now more than ever just a subsidy for corn ethanol) and even the cellulosic biofuel tax credit. All of these tax credits just give tax dollars away for volumes of fuel that are already required by law under the RFS2. Instead let's create a new technology-neutral tax credit that pays for better environmental performance. As I mentioned earlier, under the RFS2, EPA can only look at GHG impacts of biofuels, but as the GAO report makes clear, biofuels can be damaging across the board. However, the GAO report also makes clear that there are things we can do to reduce these impacts, and I think maybe even make biofuels a beneficial part of our land-use.

I mentioned this basic idea when I testified before the Senate on the RFS2 a year ago, and I'm going to write more about it here soon. Taking money away from the oil and corn ethanol industries is probably near impossible, but maybe the tax credits are so wasteful at this point that reforming them is an impossibly obvious idea.*

*My second favorite quote regarding the report come from an industry analysts hack in this article who suggests that taking the tax credit away will hurt "consumers" forgetting that the $4-6 billion has to come from somewhere. That would be us tax payers, who are also shockingly enough consumers!