U.S. Policies to Promote Biofuels for Transport

Biofuels are “Hot” Featured in 2006 State of the Union Address as having major potential to displace oil imports. Featured in 2006 State of the Union Address as having major potential to displace oil imports. Biofuel Targets in Energy Policy Act of 2005 Biofuel Targets in Energy Policy Act of 2005 APEC Leaders endorsed Biofuels Task Force. APEC Leaders endorsed Biofuels Task Force. G8 Global Bioenergy Initiative soon to be signed. G8 Global Bioenergy Initiative soon to be signed. Today’s higher oil prices change the paradigm to make biofuels cost-effective. Today’s higher oil prices change the paradigm to make biofuels cost-effective. Studies show cost advantage for ethanol where world oil prices exceed $45 or $50 per barrel. Studies show cost advantage for ethanol where world oil prices exceed $45 or $50 per barrel. Energy Information Administration projects prices to stay above $50 per barrel for the long-term. Energy Information Administration projects prices to stay above $50 per barrel for the long-term.

Some Key Biofuel Policy Issues How much potential? (Why bother developing biofuel technology unless resources are large?) How much potential? (Why bother developing biofuel technology unless resources are large?) Approach: Resource Assessment Approach: Resource Assessment How to dispense? (Is it worth the cost of modifying gas stations to dispense E85?) How to dispense? (Is it worth the cost of modifying gas stations to dispense E85?) Approach: Infrastructure Incentives Approach: Infrastructure Incentives How to use? (How fast should the automobile fleet become gasoline-E85 fuel-flexible?) How to use? (How fast should the automobile fleet become gasoline-E85 fuel-flexible?) Possible Approach: Labeling Requirements Possible Approach: Labeling Requirements

NREL: Current Resource 423 Mt Agricultural residues Agricultural residues Plant-based (crop residues) [157 million tons] Plant-based (crop residues) [157 million tons] Animal-based (methane from manure) [ 2 million tons] Animal-based (methane from manure) [ 2 million tons] Wood residues Wood residues Forest residues [ 57 million tons] Forest residues [ 57 million tons] Mill residues [ 80 million tons] Mill residues [ 80 million tons] Urban wood residues [ 31 million tons] Urban wood residues [ 31 million tons] Municipal discards Municipal discards Methane emissions from landfills[ 12 million tons] Methane emissions from landfills[ 12 million tons] Methane from wastewater treatment Methane from wastewater treatment Dedicated Energy Crops (case studies) Dedicated Energy Crops (case studies) Conservation Reserve Program lands [ 84 million tons] Conservation Reserve Program lands [ 84 million tons] Abandoned mine lands Abandoned mine lands

Potential Biofuels Resources: ORNL Assumptions Grain yields (corn, wheat) increase 50% Grain yields (corn, wheat) increase 50% Soybean residue:grain ratio up to 2:1 Soybean residue:grain ratio up to 2:1 75% of crop residues recovered by harvest technology where sustainable 75% of crop residues recovered by harvest technology where sustainable All cropland managed by no-till methods All cropland managed by no-till methods 55 M acres for perennial bioenergy crops 55 M acres for perennial bioenergy crops All excess manure used for biofuel All excess manure used for biofuel All available residues utilized All available residues utilized

U.S. Potential Over 1.3 Billion tons

Enough to Displace 1/3 of Oil Use Oil use about 150 billion gallons in Oil use about 150 billion gallons in billion t would displace over 50 Bgal. 1.3 billion t would displace over 50 Bgal. Does not count potential for improved automotive fuel efficiency (a 50% efficiency improvement would mean that half of U.S. oil use could be displaced). Does not count potential for improved automotive fuel efficiency (a 50% efficiency improvement would mean that half of U.S. oil use could be displaced). Does not count potential for grassy feedstocks (such as corn stalks and switchgrass) which could grow on other lands. Does not count potential for grassy feedstocks (such as corn stalks and switchgrass) which could grow on other lands.

How About Biofuel Resources Around the World? Could cooperate on similar resource assessments in China and India through APP. Could cooperate on similar resource assessments in China and India through APP. Would like to know about resources in other APP countries too (Korea, Japan, Australia). Would like to know about resources in other APP countries too (Korea, Japan, Australia). Proposing a survey of biomass resource assessment capability through APEC EWG. Proposing a survey of biomass resource assessment capability through APEC EWG. May propose biomass resource assessments through G8 Global Bioenergy Initiative. May propose biomass resource assessments through G8 Global Bioenergy Initiative.

Ethanol Infrastructure Incentives Energy Policy Act of 2005 provides up to a $30,000 tax credit for an E85 fueling station. Energy Policy Act of 2005 provides up to a $30,000 tax credit for an E85 fueling station. State Infrastructure Programs are diverse: State Infrastructure Programs are diverse: New York State Thruway will have renewable fuel pumps (ethanol or biodiesel) at all 27 service areas. New York State Thruway will have renewable fuel pumps (ethanol or biodiesel) at all 27 service areas. Illinois program yielded 100 new E85 stations for just $500,000, or $5,000 per station (plus $2,000 private contribution for $7,000 per station total) Illinois program yielded 100 new E85 stations for just $500,000, or $5,000 per station (plus $2,000 private contribution for $7,000 per station total) Iowa and Minnesota also very active (corn states). Iowa and Minnesota also very active (corn states). Now have 600 stations (1/3 of 1% of 180,000). Now have 600 stations (1/3 of 1% of 180,000). Will be interesting to see EPAct credit impact. Will be interesting to see EPAct credit impact.

Fuel-Flexible Vehicles Perhaps up to 5 million on the road, most not labeled: proposals to require FFVs be labeled. Perhaps up to 5 million on the road, most not labeled: proposals to require FFVs be labeled. U.S. auto industry promoting actively, with full-page print ads and TV commercials. U.S. auto industry promoting actively, with full-page print ads and TV commercials. Some senators have suggested requiring that all new vehicles be fuel-flexible after allowing a period for assembly line retooling. Some senators have suggested requiring that all new vehicles be fuel-flexible after allowing a period for assembly line retooling. But FFVs cost just $30 extra and are easy to sell, so they may enter the market voluntarily. But FFVs cost just $30 extra and are easy to sell, so they may enter the market voluntarily.

EPAct Biofuel Targets The Environmental Protection Agency will issue regulations to ensure that gasoline sold contains at least a certain amount of renewable fuels each year, which will gradually increase. The Environmental Protection Agency will issue regulations to ensure that gasoline sold contains at least a certain amount of renewable fuels each year, which will gradually increase. 4 billion gallons (0.26 million bpd) in billion gallons (0.26 million bpd) in billion gallons (0.49 million bpd) in billion gallons (0.49 million bpd) in Amounts thereafter set by EPA, in consultation with Departments of Energy and Agriculture. Amounts thereafter set by EPA, in consultation with Departments of Energy and Agriculture. Assisted by phase-out of MTBE as octane booster, for which ethanol is a fine substitute. Assisted by phase-out of MTBE as octane booster, for which ethanol is a fine substitute.

Environmental Regulations Boost Ethanol as an Oxygenate in Fuel Carbon Monoxide: 1990 Amendments to Clean Air Act require regions with high levels of CO to use oxygenated fuels – such as ethanol blends – in the winter. The regulation affects 16 regions in 10 states. Carbon Monoxide: 1990 Amendments to Clean Air Act require regions with high levels of CO to use oxygenated fuels – such as ethanol blends – in the winter. The regulation affects 16 regions in 10 states. Smog and Ground-Level Ozone: Clean Air Act Amendments require reformulated gasoline to minimize ozone production in about 30% of gasoline sold. In 2001, 87% of RFG used methyl tertiary butyl ether (MBTE), but it contaminates groundwater and will be banned. Ethanol can substitute for MBTE. Smog and Ground-Level Ozone: Clean Air Act Amendments require reformulated gasoline to minimize ozone production in about 30% of gasoline sold. In 2001, 87% of RFG used methyl tertiary butyl ether (MBTE), but it contaminates groundwater and will be banned. Ethanol can substitute for MBTE.

Federal Excise Tax Exemption Encourages Ethanol Blends Since 1979, federal government has exempted 5.3 cents per gallon of 10% ethanol blend (equivalent to 53 cents/gallon of ethanol) of the 18.3 cent per gallon excise tax on gasoline. Since 1979, federal government has exempted 5.3 cents per gallon of 10% ethanol blend (equivalent to 53 cents/gallon of ethanol) of the 18.3 cent per gallon excise tax on gasoline. Cost may be more than offset by reduced agricultural support payments; Department of Agriculture estimated in 2001 that sale of corn for ethanol production boosted corn prices by $0.25 to $0.30 per bushel (about 12 percent). Cost may be more than offset by reduced agricultural support payments; Department of Agriculture estimated in 2001 that sale of corn for ethanol production boosted corn prices by $0.25 to $0.30 per bushel (about 12 percent).

State Production Credits (2001) N. Dakota, Wyoming: $0.40/gallon ethanol N. Dakota, Wyoming: $0.40/gallon ethanol Montana: $0.30/gallon ethanol Montana: $0.30/gallon ethanol Minnesota, Missouri, Oklahoma, Wisconsin: $0.20/ gallon ethanol Minnesota, Missouri, Oklahoma, Wisconsin: $0.20/ gallon ethanol Nebraska: $0.18/gallon ethanol for new capacity, $0.075/gallon for expanded capacity. Nebraska: $0.18/gallon ethanol for new capacity, $0.075/gallon for expanded capacity. Kansas: $0.075/gallon for new capacity, $0.05/gallon for existing capacity. Kansas: $0.075/gallon for new capacity, $0.05/gallon for existing capacity.

EPAct Biofuels R&D Substantial R&D Appropriations for Biofuels: Substantial R&D Appropriations for Biofuels: $213 million for FY2007 $213 million for FY2007 $251 million for FY 2008 $251 million for FY 2008 $274 million for FY 2009 $274 million for FY 2009 Of which about half is for biorefineries: Of which about half is for biorefineries: $100 million in FY2007 $100 million in FY2007 $125 million in FY 2008 $125 million in FY 2008 $150 million on FY 2009 $150 million on FY 2009 Plus $45 million annually for biofuels science Plus $45 million annually for biofuels science

Demonstration of Cellulosic Ethanol Key to Meeting Resource Potential Breakeven at about $80 per barrel of oil today, but technology rapidly evolving to bring costs down. Breakeven at about $80 per barrel of oil today, but technology rapidly evolving to bring costs down. EPAct authorizes $650 million in loan guarantees. EPAct authorizes $650 million in loan guarantees. DOE would issue loan guarantees for up to 4 projects to demonstrate commercial feasibility of producing ethanol from sucrose or cellulosic biomass or MSW. DOE would issue loan guarantees for up to 4 projects to demonstrate commercial feasibility of producing ethanol from sucrose or cellulosic biomass or MSW. Each project would produce at least 30 million gallons of ethanol per year and could receive a loan guarantee for up to 80% of its cost or $250 million. Each project would produce at least 30 million gallons of ethanol per year and could receive a loan guarantee for up to 80% of its cost or $250 million.

Integrated Biorefineries Biorefinery projects up to $100 million each to demonstrate enzyme-based processing systems for a wide variety of lignocellulosic feedstocks. Biorefinery projects up to $100 million each to demonstrate enzyme-based processing systems for a wide variety of lignocellulosic feedstocks. Encourage a wide variety of uses, including: Encourage a wide variety of uses, including: Liquid transportation fuels Liquid transportation fuels High-value biobased chemicals High-value biobased chemicals Substitutes for oil-based feedstocks and products (such as plastics and polymers) Substitutes for oil-based feedstocks and products (such as plastics and polymers) Energy as electricity or heat Energy as electricity or heat

Can we grow our way out of oil?