2012 Ends With Mostly Positive Bioenergy News from Congress and the EPA

Congress extended production tax credits for cellulosic biofuel and biodiesel producers, expanded the credit to algae-based biofuel producers, and agreed to allow the Defense Department to move ahead with its biofuel initiative. Biomass power producers also received a new boost from changes in the criteria for receiving renewable energy production tax credits in 2013, and the EPA modified its hazardous air pollution control rules in ways that will reduce compliance costs for most boiler operators that use biomass fuels. However, although Congress reauthorized rural energy programs for another nine months with a temporary extension of the Farm Bill, it provided no funding.

Congress allowed the Department of Defense (DOD) to proceed with an interagency initiative to accelerate development of advanced biofuels at commercial scale. Congress passed the National Defense Authorization Act for Fiscal Year 2013 (H.R. 4310) on December 20. As the largest consumer of liquid transportation fuels in the U.S., the DOD could play a transformative role in fulfilling the nation’s long-term commitment to developing competitively-priced, domestically-produced, more sustainable, renewable advanced biofuels. For additional background on this issue, see our previous post "Defense Bill May Make or Break Military Biofuels Initiative; Thousands of New Jobs May Be at Stake" . Click here for related news coverage in The Hill .

On December 20, the EPA released a revised final rule for the regulation of hazardous air pollutants from boilers. While setting a higher bar to protect air quality and public health, the EPA’s revised rule significantly reduces the costs of compliance for most biomass-fueled boilers. Uncertainty over the costs of compliance and the potential regulation of clean biomass fuels has been an impediment to expanded investment in renewable biomass boilers that are used for heat and power at commercial, institutional, and industrial settings. For more information from the EPA, click here .

Congress renewed, extended, and amended a number of tax incentives for advanced biofuel and biopower producers. The American Taxpayer Relief Act of 2012 (H.R. 8) included the following energy tax incentives:

• The cellulosic ethanol production tax credit ($1.01/gallon) was extended for one year. Eligibility for the credit was expanded to include advanced biofuels made from algae. This will help the first commercial-scale producers that will be coming on line in 2013 (but offers no assurance of help for producers coming on line in later years).
• The biodiesel and renewable diesel production tax credit ($1.00/gallon) was made retroactive for 2012 and extended through 2013. This will preserve tens of thousands of jobs in the industry.
• The small agri‐biodiesel producer production tax credit ($0.10/gallon) was made retroactive for 2012 and extended through 2013.
• Section 45d of the tax code, which provides renewable energy production tax credits of $0.022 / KWH for ten years for closed loop biomass power plants, was amended to cover new plants based upon their construction start dates rather than the dates plants are placed in service. Construction must start before the end of 2013 for the plant to receive the credit. Many renewable energy producers (such as in biomass power, geothermal power, etc.) require much more than twelve months to construct and bring into service new plants. By changing this provision, these producers will have more time to complete their projects. This will likely stimulate significant new investment by biomass power producers.
• Section 45d of the tax code, which provides renewable energy production tax credits of $0.011 / KWH for ten years for open loop, landfill gas, and waste-to-energy facilities, was likewise amended to cover new plants based upon their construction start dates rather than the dates they start producing power. Construction must start before the end of 2013.

Bad news for Farm Bill energy programs. On a negative note, also appended to H.R. 8 was a nine-month extension of the major provisions of the 2008 Farm Bill. The extension did not include any mandatory funding for several rural bioenergy and other renewable energy and energy efficiency programs. Affected programs include the Bio-based Markets Program, Biorefinery Assistance Program, Repowering Assistance Program, Bioenergy for Advanced Biofuels, Rural Energy for America Program, Biomass Research and Development Program, Biomass Crop Assistance Program, Forest Biomass for Energy Program, and the Community Wood Energy Program.

These programs are key to expanding the development of low-carbon, advanced biofuels and other types of bioenergy and to deploying other rural renewable energy resources and energy saving technologies. Many market barriers remain to expanding the use of clean, renewable energy and energy efficiency technologies today, including: high up-front capital costs; the lack of private financing; and the lack of low-cost, sustainably-produced, biomass feedstocks and related supply chains and technologies. These are the kinds of challenges that these programs were designed to address.

While H.R. 8 authorized these programs to continue through September 30, 2013, no funds were provided, and thus, future funding will be subject to the discretion of appropriators. Congress has yet to agree on appropriations for this fiscal year (FY13) and soon must begin the annual process of drafting appropriations bills to fund federal programs for FY14. Given the ongoing partisan debates and gridlock over tax and spending priorities, the deficit, and the debt, and the many mounting and costly challenges facing the nation, 2013 will likely be an uphill struggle to build political support for these priorities.

For additional information about these programs, see our previous SBFF post "Farm Bill Energy Programs and Bioenergy Tax Cut Extenders Still Hanging in the Balance" .

Finally, the five-year Farm Bill reauthorization bill is going to have to be rewritten and renegotiated in 2013, but this time in a much more difficult funding environment. Efforts to defend and advance rural renewable energy and energy efficiency and conservation priorities will have to be re-doubled to assure positive outcomes.