Federal Policies

The biobased economy has been impacted by key Federal legislation related to alternative fuels and biobased products. This section will analyze the policies that have contributed to the growth of production and consumption of biofuel, renewable chemicals and biobased products.

Biofuel Policies

Federal policies dating back to 1975 relating to biofuels include the following: fuel economy standards, tax incentives, alternative fuels, biomass and bioenergy, and energy conservation (see timeline).

The Energy Policy and Conservation Act of 1975 established what is known as the Corporate Average Fuel Economy (CAFE) standards. The CAFE standards regulate how far vehicles must travel on a gallon of fuel. The motion also requires consumers be given fuel economy information.

Three years later, the Energy Tax Act of 1978 was created as part of the National Energy Act. It provides tax incentives, such as the tax credit of 15 percent of the energy conservation expenditures up to a maximum of 2,000 dollars, to those who conserve energy or substitute alternative sources of energy for oil and gas.

A decade later, the Alternative Motor Fuel Act of 1988 was enacted to establish vehicle manufacturer incentives through CAFE credits.

The Energy Policy Act of 1992 sets regulation requirements for Federal, State, and alternative fuel provider fleets to increase the amount of alternative fuel vehicles.

In 2000, the Biomass Research and Development Act authorized 49 million dollars in founding to: develop crops and systems that improve production and processing; use cellulosic biomass to produce biobased fuels and products; improve production technologies of biofuels and bioproducts; and analyze the impact of biomass technologies.

The Biomass Research and Development Act of 2000 was amended by the Food, Conservation and Energy Act of 2008, and created the Biomass Research and Development initiative to further develop the biomass industry in the United States. The program provided grant funding (35 million dollars each fiscal year, 2009 to 2012) for projects addressing research, development, and demonstration of biofuels and bio-based products and the methods, practices, and technologies for their production.

The 2002 Farm Bill directed 115 million dollars of funding toward agricultural subsidies. The purpose was to encourage the production of energy on farms, as well as to promote the use of renewable energy sources and an increase in energy efficiency.

The Rural Energy for America Program (REAP) of 2002 provides ethanol infrastructure grants and loan guarantees to agricultural producers and rural small businesses to purchase renewable energy systems or make energy efficiency improvements. The maximum loan guarantee is 25 million dollars, and the maximum grant funding is 25 percent of total project costs. At least a fifth of the grant funds awarded must be for grants of 20,000 dollars or less. REAP is funded through fiscal year 2018, and it is essential for those making energy efficiency improvements for renewables, feasibility studies, and energy audits.

The goal of the American Jobs Creation Act of 2004 was to help the agricultural and energy sectors, in addition to supporting domestic and multinational manufacturers. The act offers tax cuts while also aiming to increase revenue for the United States economy in the following years.

The Energy Policy Act of 2005 provides tax incentives and loan guarantees for energy production of various types. Entities using innovative technologies avoiding the by-production of greenhouse gases can receive loan guarantees. The act also increased the amount of biofuel required to be mixed in with gasoline sold in the United States.

The Energy Policy Act of 2005 introduced the Renewable Fuels Standards (RFS) to increase the production of alternative fuels. The program, which was amended by the Energy Independence and Security Act of 2007, ensures that transportation fuel sold in the United State contains a minimum volume of renewable fuel. The standards set requirements for cellulosic biofuel, biodiesel, advanced biofuel, and total renewable fuel. These standards apply to all gasoline and diesel produced or imported.

Energy conservation is a main goal for legislation and funding pertaining to biofuels. Legislation has been passed and grants used for incentivizing and promoting greater energy independence and security for the United States, in addition to improving energy performance and reducing energy-related greenhouse gas emissions. The Energy Independence and Security Act of 2007 was established with the goals of: increasing the production of clean renewable fuels; reducing the dependence on fossil fuels; reducing greenhouse gas emissions; and increasing energy security.

The Energy Improvement and Extension Act of 2008 provides incentives for energy production and conservation. The act made revenue enhancements as well. Those who invest in new clean renewable energy bonds can get a tax credit for the operation of renewable energy facilities.

Repowering Assistance of 2008 and the Bioenergy Program for Advanced Biofuels 2008 both promote advanced biofuel production. Repowering Assistance provides payments to existing biorefineries to replace fossil fuels, used for heating or electricity, with renewable biomass. On the other hand, the Bioenergy Program for Advanced Biofuels provides payments to eligible agricultural producers to support and ensure an expanding production of advanced biofuels. Nearly every other type of biofuel besides corn starch ethanol is eligible for the program. This includes ethanol, biogas, butanol, or biodiesel derived from cellulose, sugar or starches, waste materials, sugarcane, or woody biomass.

The Farm Bill of 2008 was enacted to provide increased support for the production of cellulosic ethanol and also funding for the research of pests, diseases and other agricultural problems. The Biomass Crop Assistance Program of 2008 was then authorized by the 2008 Farm Bill to support the establishment and production of crops for conversion to bioenergy and assist with the collection, harvest, storage and transportation of materials for biomass conversion. Qualified feedstock producers are eligible for a reimbursement of 50 percent of the cost of establishing a biomass feedstock crop, as well as annual payments for up to five years for herbaceous feedstocks and up to 15 years for woody feedstocks. This program is funded through fiscal year 2018.

The American Recovery and Reinvestment Act of 2009 was enacted to appropriate nearly 800 billion dollars towards job creation, economic growth, tax relief, improvements in education and healthcare, infrastructure modernization, and investments in energy independence and renewable energy technologies. The act supports a variety of alternative fuel and advanced vehicle technologies through grant programs, tax credits, research and development, fleet funding, and other measures.

The Renewable Fuels for America’s Future Act of 2011 extended, through 2016, and modified credits for alcohol used as a fuel and other purposes. It required a reduction in the income and excise tax credits for alcohol used for fuel by the amount of alcohol used to meet the taxpayer’s renewable fuel obligation under the Clean Air Act. The Dual Fuel Vehicle Act of 2011 increased demand of ethanol to ensure the availability of dual fueled automobiles and light duty trucks. Under this act, automobile manufacturers are required to ensure that at least 50 percent of 2014 and 2015 model year automobiles and light duty trucks manufactured for sale in the United States are dual fueled, capable of operating on alternative fuel and on gasoline or diesel fuel or a mixture of biodiesel and diesel fuel. In 2013, the Biofuels Market Expansion Act revised ethanol content requirements for renewable fuel and increased manufacturing of dual fueled vehicles. The act requires automobile manufacturers to ensure that at least 50 percent of 2015 and 2016 model year automobiles and light duty trucks manufactured for sale in the United States are dual fueled. It increased the minimum to 90 percent for 2017 and subsequent model years and excluded automobiles and light duty trucks that operate only on electricity.

The H.R. 1149 of 2011 includes algae as a biofuel. It amended the Clean Air Act to include algae biofuel in the renewable fuel program and amends the Internal Revenue Code of 1986 to include algae biofuel in the cellulosic biofuel producer credit.

The American Tax Payer Relief of 2012 was effective through December 31, 2013 and increased the demand of biofuels by extending discretionary funding for the United States Department of Agriculture’s Advanced Biofuel Production Grants and Loan Guarantees, Advanced Biofuel Production Payments, Biodiesel Education Grants, Biomass Research and Development Initiative, and Ethanol Infrastructure Grants and Loan Guarantees. In addition to the American Tax Payer Relief of 2012, both the Tax Increase Prevention Act of 2014 and the Consolidated Appropriations Act of 2016 reinstated alternative fuel tax incentives. When in effect, the following incentives were reinstated: alternative fuel infrastructure tax credit, excise tax credit for alternative fuels, tax credit for second generation biofuel production, income and excise tax credit for biodiesel and renewable diesel fuel mixtures, the special depreciation allowance for second generation biofuel plant property, tax credit for second generation biofuel production, and the fuel cell motor vehicle tax credit. The Consolidated Appropriations Act of 2016 also reinstated many alternative fuel tax incentives.

The Farm Bill of 2014 is a continuation of critical programs such as Supplemental Nutrition Assistance Program (SNAP), specialty crops, organic farmers, and bioenergy. With the 2014 Farm Bill, the USDA is allowed to continue to record accomplishments and expand the agricultural product market. The benefits include the following: makes major changes in commodity programs; adds new crop insurance options; streamlines conservation programs; modifies some provisions of SNAP; and expands programs for specialty crops, organic farmers, bioenergy, rural development, and beginning farmers and ranchers.

Executive Order 13693 of 2015 looks to reduce the governmental footprint with national greenhouse gas emissions reduction. Planning for Federal sustainability in the next decade includes cutting the government’s greenhouse gas emissions by 40% in next decade (2008 levels) and increasing the share of electricity the government consumes from renewable energy to at least 30 percent by fiscal year 2025.

In addition to the policies analyzed above, there are other programs and initiatives such as taxes, tax credits, grants and bonds to promote the production and use of biofuels.

Tax credits and grants are given to businesses for their fuels and blends. A value-added producer grant is a competitive grant program administered by the Rural Business-Cooperative Service of USDA that will help to generate new products, create and expand marketing opportunities, and increase producer income. The grant is available to help independent agricultural producers enter or expand value added activities, including innovative uses of agricultural projects, such as biofuels production.

The alternative fuel infrastructure tax credit allowed for fueling equipment for natural gas, propane, liquefied hydrogen, electricity, E85 (an ethanol fuel blend consisting of 15 percent gasoline and 85 percent ethanol), or diesel fuel blends containing a minimum of 20 percent biodiesel installed through December 31, 2017, to be eligible for a tax credit of 30 percent of the cost, not to exceed 30,000 dollars. Fueling station owners who install qualified equipment at multiple sites are allowed to use the credit towards each location. Consumers who purchased qualified residential fueling equipment prior to December 31, 2017 may receive a tax credit of up to 1,000 dollars.

The biodiesel mixture excise tax credit authorizes an alternative fuel blender, registered with the Internal Revenue Service, to be eligible for a tax incentive on the sale or use of the alternative fuel blend. The credit is in the amount of 0.50 dollars per gallon of alternative fuel used to produce a mixture containing at least 0.1 percent gasoline, diesel, or kerosene. Compressed natural gas, liquefied natural gas, liquefied hydrogen, propane, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass are qualified alternative fuels.

The second generation biofuel producer tax credit allows for a second generation biofuel producer, registered with the Internal Revenue Service, to be eligible for a tax incentive in the amount of up to 1.01 dollar per gallon of second generation biofuel that is: sold and used by the purchaser in the purchaser’s trade or business to produce a second generation biofuel mixture, sold and used by the purchaser as a fuel in a trade or business, sold at retail for use as a motor vehicle fuel, used by the producer in a trade or business to produce a second generation biofuel mixture, used by the producer as a fuel in a trade or business.

The alternative fuel and advanced vehicle technology research and demonstration bonds promote qualified energy conservation projects by offering competitive rates on bonds to fund capital expenditures. Qualified state, tribal, and local governments may issue Qualified Energy Conservation Bonds subsidized by the United States Department of Treasury at competitive rates to fund capital expenditures on qualified energy conservation projects.

Advanced biofuel production grants and loan guarantees promote the increase of biorefineries that produce advanced biofuels. The Biorefinery Assistance Program provides loan guarantees for the development, construction, and retrofitting of commercial-scale biorefineries that produce advanced biofuels. Grants for demonstration scale biorefineries are also available. Eligible applicants include individuals, state or local governments, farm cooperatives, national laboratories, institutions of higher education, and rural electric cooperatives. The maximum loan guarantee is 250 million dollars, and the maximum grant funding is 50% of project costs.

To support and ensure an expanding production of advanced biofuels, advanced biofuel production payments are given to biofuel producers for their finished advanced biofuel products. Any entity that produces and sells advanced biofuel is eligible to apply.

Biodiesel education grants educate people on the benefits of biodiesel use. Competitive grants are available through the Biodiesel Fuel Education Program to educate governmental and private entities that operate vehicle fleets, the public, and other interested entities about the benefits of biodiesel use. Eligible applicants are non-profit organizations and institutes of higher education that have demonstrated knowledge of biodiesel fuel production, use, or distribution.

Diesel emissions reduction is a priority for those looking to reduce pollution. There are more than two million agricultural diesel engines in operation within the United States. The agricultural sector contributes nearly one-quarter of the nitrogen oxides and one third particulate matter of all land-based, non-road diesel emissions. Two innovative programs – the Clean Construction USA and Clean Agriculture USA – are part of the National Clean Diesel Campaign, working at reducing pollution emitted from diesel engines from construction and agricultural equipment.

Several programs have been created to promote better air quality via cleaner fuels. These programs include the Voluntary Airport Low Emission Program, the Air Pollution Control Program, the Clean Cities, and the Clean Ports USA/ Ports Initiative:

  • The Voluntary Airport Low Emission Program of 2004 improves airport air quality and provides air quality credits for future airport development. Through this program, airport sponsors can use Airport Improvement Program funds and Passenger Facility Charges to finance low emission vehicles, refueling and recharging stations, gate electrification, and other airport air quality improvements.
  • The Air Pollution Control Program aims to prevent and control air pollution by assisting state, tribal, municipal, intermunicipal, and interstate agencies in planning, developing, establishing, improving, and maintaining adequate programs for the continuing prevention and control of air pollution and/or in the implementation of national primary and secondary air quality standards.
  • Clean Cities advances the energy, economic, and environmental security of the United States by supporting local initiatives to adopt practices that reduce the use of petroleum in the transportation sector.
  • Clean Ports USA/Ports Initiative was created to promote the replacement of old diesel engines with new technologies and use cleaner fuels. Port authorities and terminal operators can retrofit and replace older diesel engines with new technologies and use cleaner fuels.

Grants are used to incentivize developing new, advanced technology that will increase fuel efficiency and reduce dependence on foreign energy imports. Advanced energy research project grants are developing new advanced energy technologies for reducing dependence on foreign energy imports and reducing the United States energy-related emissions. Grants ensure that the United States maintains its leadership in developing and deploying advanced energy technologies.

Both the Air Force and the Navy have tested jet biofuel in their aircraft. Together with the Departments of Energy and Agriculture, the Navy has launched a project to invest up to half a billion dollars in biofuel refineries. It is estimated that 50 percent of the Navy’s fuel for aircraft and surface ships will come from renewable sources by 2020. The Great Green Fleet, which began in 2009, is an internal program beginning to use biofuel options for energy innovation. The Department of the Navy initiative demonstrates the sea service’s efforts to transform its energy use. Maritime vessels also utilized alternative fuel sources, including nuclear power for aircraft carriers and a blend of advanced biofuel and traditional petroleum for escort ships.

Biobased Products Policies

A focus on the bioproduct industry has led to an increase of policies supporting the production of biobased products. Many programs and executive orders have stressed the development of biobased products within the United States economy (see timeline).

Under Executive Order 13101 (1998), federal agencies must comply with executive branch policies for the acquisition and use of environmentally preferable products and services. The agencies implement cost-effective procurement preference programs that favor the purchase of these products and services. In order to achieve “Greening the Government,” pollution prevention must be activated whenever feasible. This includes the actions of waste prevention and recycling. Use of environmentally preferable products and services is recommended and the pollution that cannot be prevented or recycled should be treated in an environmentally safe manner.

Executive Order 13134 (1999) was created to develop and promote biobased products and bioenergy with research, development, and private sector incentives used to stimulate the creation and early adoption of technologies needed to make biobased products and bioenergy cost-competitive in large national and international markets.

In 2002, the USDA BioPreferred Program was created by the 2002 Farm Bill to focus on new and emerging markets, further supported by the 2008 Farm Bill, and then reauthorized and revised by the 2014 Farm Bill. The goal of the 2014 Farm Bill was to increase the purchase and use of biobased products, such as biobased chemicals, enzymes, bioplastics, forest products and textiles. The USDA BioPreferred Program uses the mandatory federal purchasing initiative and voluntary “USDA Certified Biobased Product” label. Federal agencies are required to purchase biobased products designated for mandatory federal purchasing under the BioPreferred program.

Projects eligible for the Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program of 2014 include biorefineries and biobased manufacturing facilities. A project loan guarantees up to 250 million dollars for the development, construction and retrofitting of new and emerging technologies for advanced biofuels, renewable chemicals and biobased products.