|February 11, 2014|
Previously published on February 7, 2014
After extensive negotiations, Congress passed the $956 billion Agricultural Act of 2014 (“Farm Act 2014”), and President Obama signed it into law on February 7, 2014 at Michigan State University. The Farm Act 2014 provides $881 million in mandatory funding for the Title 9 energy programs and amends the Food, Conservation, and Energy Act of 2008 (“Farm Act 2008”), among other provisions, to provide incentives for biochemicals and biobased product manufacturing for the first time, to include pellets in the definition of “forest products,” to provide for a tiered application process for the Rural Energy for America Program, and to provide specifications for eligible projects under the Biomass Crop Assistance Program.
Biobased Markets Program (Section 9002 of The Farm Security And Rural Investment Act Of 2002)
The Biobased Markets Program defines the federal procurement process employed by the Department of Agriculture (“USDA”) in purchasing biobased products. The Farm Act 2014 establishes target biobased-only procurement requirements for federal agencies. Such biobased products include forest products - defined as pulp, paper, paperboard, pellets, lumber, other wood products, and any recycled products derived from forest materials - whether the market for such product is new or emerging and without regard to the market share or age of the forest product.
It remains to be seen how federal agencies will implement the targets. However, the new inclusion of forest products in the Biobased Markets Program is likely to provide additional incentives to the pellet and woody biomass industries.
The Biobased Markets Program received mandatory funding of $3 million for each of fiscal years (“FY”) 2014 through FY 2018. Discretionary funding is $2 million for each of FY 2014 through FY 2018.
Biorefinery Assistance Program (Section 9003 of The Farm Security And Rural Investment Act Of 2002)
The Biorefinery Assistance Program is intended to support the advanced biofuels industry to develop new and emerging technologies.
The definition of “advanced biofuel” remains unchanged in the Farm Act 2014. As before, advanced biofuel means “fuel derived from renewable biomass other than corn kernel starch” and it includes (i) biofuel derived from cellulose, hemicellulose, lignin, sugar, starch (other than ethanol derived from corn kernel starch), waste material (including crop residue, animal waste, food waste, and yard waste); (ii) biodiesel-equivalent fuel derived from renewable biomass, vegetable oil, and animal fat; (iii) biogas (including landfill gas and sewage waste treatment gas), butanol, and other alcohols produced through the conversion of organic matter from renewable biomass; and (iv) other fuel derived from cellulosic biomass.
It is a successful program that historically has assisted numerous advanced biofuels projects to be built and operated. The program also has paved the way for private capital to invest in innovative advanced biofuel projects. In the recent past, the program has generated approximately $10 of private capital for each $1 of federal investment.
The Farm Act 2014 expands the universe of eligible advanced biomass material under the Biorefinery Assistance Program to include: (i) “renewable chemicals,” defined as “a monomer, polymer, plastic, formulated product, or chemical substance produced from renewable biomass”; and (ii) “biobased product manufacturing,” defined as “the development, construction, and retrofitting of technologically new commercial-scale processing and manufacturing equipment and required facilities that will be used to convert renewable chemicals and other biobased outputs of biorefineries into end-user products on a commercial scale.”
The inclusion of biochemicals in the Biorefinery Assistance Program is welcome news for the industry, as it will provide incentives for a much broader application of biochemicals and bioproducts than has been available in the past. Biochemical and bioproduct project developers will have incentives to produce innovative advanced chemicals and products from biomass including but not limited to, solvents, paints, other industrial and pharmaceutical chemicals, fibers and polymers for 3-D printing and light-weight cars, latex-based athletic gear, cold-water detergents, compostable food utensils, latex-based medical devices, and other high-technology products.
Mandatory funding for the Biorefinery Assistance Program is $100 million for the FY 2014 and $50 million for each of FY 2015 and FY 2016. No mandatory funding is available for FY 2017 and FY 2018. These funds are available until expended. This mandatory funding amount of $100 million for FY 2014 may be subsidy-scored between 3 to 1 and 4 to 1 by the Office of Management and Budget (“OMB”) (based upon past program subsidy scoring) to permit potentially $300 million to $400 million (plus any carry-over from earlier years) of loan guarantee authority. Discretionary funding is set at $75 million for each of FY 2014 through FY 2018. However, since the program’s inception, Congress has never appropriated additional funds to it in any fiscal year.
The Secretary of Agriculture (“Secretary”) is authorized to allocate up to 15% of the total mandatory funds to biobased product manufacturing projects for each of FY 2014 and FY 2015. Under the express statutory language of this restricted funding allocation, biochemical facilities and equipment seemingly are eligible to the extent that they are used to further convert the already manufactured biochemicals and/or biobased products on a commercial scale into even higher-value biochemicals and biobased products, as provided in the definition of “biobased product manufacturing.” However, it appears from the express statutory language that the first commercial production of biomass feedstock (and seemingly including corn kernel starch feedstocks unlike the express prohibition for advanced biofuels) into biochemicals and/or biobased products would not be subject to this 15% funding restriction.
In addition, one major amendment to the Biorefinery Assistance Program is the elimination of grants for this program altogether in favor solely of loan guarantees. Notwithstanding, the Farm Act 2008 never provided any mandatory funds, nor did Congress later appropriate any discretionary funding, for the earlier grant provision in this program which is now rescinded. The amendment further provides for a new selection criterion for loan guarantees to require the Secretary to select diverse projects “to ensure that as wide a range as possible of technologies, products, and approaches” are included in the Biorefinery Assistance Program.
Repowering Assistance Program (Section 9004 of The Farm Security And Rural Investment Act Of 2002)
The Repowering Assistance Program supports biorefineries to replace fossil fuels used to produce heat or power with new renewable biomass systems.
Mandatory funding for the Repowering Assistance Program is $12 million for FY 2014, with no mandatory funding provided thereafter. Discretionary funding is $10 million for each of FY 2014 through FY 2018.
Bioenergy Program for Advanced Biofuels (Section 9005 of The Farm Security And Rural Investment Act Of 2002)
The Bioenergy Program for Advanced Biofuels incentivizes producers to expand the production of advanced biofuels. Unlike Section 9003, this program does not include renewable chemicals and/ or biobased product manufacturing.
Mandatory funding for the Bioenergy Program for Advanced Biofuels is $15 million for each of FY 2014 through FY 2018, to remain until expended. This amount is considerably lower than the $105 million in mandatory funding provided for FY 2012. In fact, since both the House and the Senate authorized no mandatory funding for this program in their respective amendments to the Farm Act 2014, Congress may be signaling a political shift away from the program. Discretionary funding is $20 million for each of FY 2014 through FY 2018.
Biodiesel Fuel Education Program (Section 9006 of The Farm Security And Rural Investment Act Of 2002)
The Biodiesel Fuel Education Program is a competitive grant program that serves to educate governmental and private entities that operate vehicle fleets and the public about the benefits of biodiesel fuel use.
The program is extended through the FY 2018, with mandatory funding set at $1 million for each of FY 2014 through FY 2018. There is no discretionary funding provided for in this program.
Rural Energy for America Program (Section 9007 of The Farm Security And Rural Investment Act Of 2002)
The Rural Energy for America Program provides incentives for agricultural producers and rural small businesses to develop energy efficient and renewable energy systems.
This program is amended by the Farm Act 2014 to add a new three-tiered application process for loan guarantees and grants for projects based on their cost, which is expected to reduce the cost of doing business for the rural producers covered under the program. The program is intended to assist renewable energy producers of power and advanced biofuels, rather than entities engaged in the delivery of fuels. Therefore, Congress expressly removed renewable fuel blender pumps and other fuel dispensing mechanisms from this funding program. The ability to fund such delivery systems was part of the Farm Act 2008.
The three-tiered application process includes separate applications for projects where the cost of activity is (i) less than $80,000; (ii) more than $80,000 but less than $200,000; and (iii) more than $200,000. The applications will be simplified for the lowest tier and increase in complexity based on the tier in which a project may fall.
The amendment deletes the provision clarifying the type of renewable energy systems that may be purchased under this program. The Joint Explanatory Statement of the Committee of Conference further states that the amendment “strikes the $500,000 cap on grants for renewable energy systems and energy efficiency improvements.”
Mandatory funding for projects under the Rural Energy for America Program is $50 million for FY 2014 and each fiscal year thereafter. This mandatory funding amount of $50 million for FY 2014 may be subsidy-scored by the OMB, as in earlier years, at approximately 5 to 1, providing potentially $250 million plus any carry-over funds from earlier years for loan guarantee and grant authority. Discretionary funding is $20 million for each of FY 2014 through FY 2018. Furthermore, Congress did not include renewable chemicals and/or biobased product manufacturing, as it did for the Biorefinery Assistance Program.
Biomass Research and Development Program (Section 9008 of The Farm Security And Rural Investment Act Of 2002)
The Biomass Research and Development Program aims to promote research and development in the production of biofuels and biobased products. Some of the initiatives available to advanced manufacturing facilities under this program include research and development in reducing the cost of producing sugars from cellulosic biomass.
Mandatory funding for the Biomass Research and Development Program is $3 million for each of FY 2014 through FY 2017. No mandatory funding is available for FY 2018. The discretionary funding is $20 million for each of FY 2014 through FY 2018.
Feedstock Flexibility Program for Bioenergy Producers (Section 9010 of The Farm Security And Rural Investment Act Of 2002)
The Feedstock Flexibility Program for Bioenergy Producers supports marketers of raw or refined sugar who sell such sugar to ethanol and other biofuel producers.
This program is extended through FY 2018. The Secretary is authorized to use the “funds, facilities, and authorities of the Commodity Credit Corporation, including the use of such sums as are necessary, to carry out this program.”
Biomass Crop Assistance Program (Section 9011 of The Farm Security And Rural Investment Act Of 2002)
The Biomass Crop Assistance Program provides support to producers of eligible crops who convert such crops to bioenergy and to agricultural and forest land owners and operators who collect, harvest, store, and transport eligible material for use in a biomass conversion facility. This program is amended significantly to provide for specifications on eligible areas, contract acreage, and other parameters.
The definition of “eligible material” is amended to include (i) crop residue from any crop (other than whole grain) eligible to receive payments under Title I of the Farm Act 2014, (ii) woody material harvested as a byproduct of a preventative treatment to reduce hazardous fuel or to reduce or contain disease or insect infestation, (iii) woody material delivered to a biomass conversion facility to be used for heat, power, biobased products, research, or advanced biofuels.
However, “eligible material” specifically excludes (A) residue from whole grain crop, such as (i) barley, corn, grain sorghum, oats, rice, wheat; (ii) honey; (iii) mohair; (iv) oilseeds (such as canola, crambe, flaxseed, mustard seed, rapeseed, safflower seed, soybeans, sesame seed, and sunflower seed); (v) peanuts; (vi) pulse; (vii) chickpeas, lentils, and dry peas; (viii) dairy products; (ix) sugar; (x) wool and cotton boll fiber; (B) animal waste and byproducts, such as fat, oil, grease, and manure; (C) food waste and yard waste; (D) algae; (E) ineligible woody material; (F) bagasse.
The Biomass Crop Assistance Program enables the Secretary to provide technical assistance with collection, harvesting, storage, and transportation of eligible material. The mandatory funding for this program is $25 million for each of FY 2014 through FY 2018, of which the Secretary must use between 10% and 50% towards collection, harvest, storage, and transportation payments. Commencing with FY 2014, the mandatory funding under this program is available for the provision of technical assistance.
Repeal of the Forest Biomass for Energy Program (Section 9012 of The Farm Security And Rural Investment Act Of 2002)
The Forest Biomass for Energy Program is repealed by the Farm Act 2014. This program was previously funded at $15 million for each of FY 2009 through FY 2012.
Community Wood Energy Program (Section 9013 of The Farm Security And Rural Investment Act Of 2002)
The Community Wood Energy Program is a competitive grant program to enable governmental entities to acquire or upgrade community wood energy systems.
The amendment authorizes grants of up to $50,000 to biomass consumer cooperatives that provide consumers with services or discounts for biomass heating systems or products, including their delivery and storage. Each grant must be matched by at least 50% by the cooperative that receives the grant. The amendment authorizes an appropriation of $5 million for each of FY 2014 through FY 2018.
Repeal of the Biofuels Infrastructure Study (Section 9002 of The Farm Act 2008)
The Biofuels Infrastructure Study is repealed by the Farm Act 2014.
Repeal of the Renewable Fertilizer Study (Section 9003 of The Farm Act 2008)
The Renewable Fertilizer Study is repealed by the Farm Act 2014.
Energy Efficiency Report for USDA Facilities
USDA must submit a report to the House and Senate Agricultural Committees on energy use and energy efficiency projects at USDA facilities within 180 days after the date of the enactment of the Farm Act 2014.