GAO-09-446, Biofuels: Potential Effects and Challenges of Required Increases in Production and Use


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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

August 2009: 

Biofuels: 

Potential Effects and Challenges of Required Increases in Production 
and Use: 

GAO-09-446: 

GAO Highlights: 

Highlights of GAO-09-446, a report to congressional requesters. 

Why GAO Did This Study: 

In December 2007, the Congress expanded the renewable fuel standard 
(RFS), which requires rising use of ethanol and other biofuels, from 9 
billion gallons in 2008 to 36 billion gallons in 2022. To meet the RFS, 
the Departments of Agriculture (USDA) and Energy (DOE) are developing 
advanced biofuels that use cellulosic feedstocks, such as corn stover 
and switchgrass. The Environmental Protection Agency (EPA) administers 
the RFS. 

This report examines, among other things, (1) the effects of increased 
biofuels production on U.S. agriculture, environment, and greenhouse 
gas emissions; (2) federal support for domestic biofuels production; 
and (3) key challenges in meeting the RFS. GAO extensively reviewed 
scientific studies, interviewed experts and agency officials, and 
visited five DOE and USDA laboratories. 

What GAO Found: 

To meet the RFS, domestic biofuels production must increase 
significantly, with uncertain effects for agriculture and the 
environment. 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. Except for 
lifecycle greenhouse gas emissions, EPA is currently not required by 
statute to assess environmental effects to determine what biofuels are 
eligible for inclusion in the RFS. Many researchers told GAO there is 
general agreement on the approach for measuring the direct effects of 
biofuels production on lifecycle greenhouse gas emissions but 
disagreement about how to estimate the indirect effects on global land 
use change, which EPA is required to assess in determining RFS 
compliance. In particular, researchers disagree about what 
nonagricultural lands will be converted to sustain world food 
production to replace land used to grow biofuels crops. 

The Volumetric Ethanol Excise Tax Credit (VEETC), a 45-cent per gallon 
federal tax credit, was established to support the domestic ethanol 
industry. Unless crude oil prices rise significantly, the VEETC is not 
expected to stimulate ethanol consumption beyond the level the RFS 
specifies this year. The VEETC also may no longer be needed to 
stimulate conventional corn ethanol production because the domestic 
industry has matured, its processing is well understood, and its 
capacity is already near the effective RFS limit of 15 billion gallons 
per year for conventional ethanol. A separate $1.01 tax credit is 
available for producing advanced cellulosic biofuels. 

The nation faces several key challenges in expanding biofuels 
production to achieve the RFS’s 36-billion-gallon requirement in 2022. 
For example, farmers face risks in transitioning to cellulosic biofuels 
production and are uncertain whether growing switchgrass will 
eventually be profitable. USDA’s new Biomass Crop Assistance Program 
may help mitigate these risks by providing payments to farmers through 
multi-year contracts. In addition, U.S. ethanol use is approaching the 
so-called blend wall—the amount of ethanol that most U.S. vehicles can 
use, given EPA’s 10 percent limit on the ethanol content in gasoline. 
Research has been initiated on the long-term effects of using 15 
percent or 20 percent ethanol blends, but expanding the use of 85 
percent ethanol blends will require substantial new investment because 
ethanol is too corrosive for the petroleum distribution infrastructure 
and most vehicles. Alternatively, further R&D on biorefinery processing 
technologies might lead to price-competitive biofuels that are 
compatible with the existing petroleum distribution and storage 
infrastructure and the current fleet of U.S. vehicles. 

What GAO Recommends: 

GAO suggests that the Congress consider requiring EPA to develop a 
strategy to assess lifecycle environmental effects of increased 
biofuels production and whether revisions are needed to the VEETC. GAO 
also recommends that EPA, DOE, and USDA develop a coordinated approach 
for addressing uncertainties in lifecycle greenhouse gas analysis and 
give priority to R&D that addresses future blend wall issues. DOE, 
USDA, and EPA generally agreed with the recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-09-446] or key 
components. For more information, contact Patricia Dalton at (202) 512-
3841 or daltonp@gao.gov. 

[End of section] 

Contents: 

Letter: 

Executive Summary: 

Purpose: 

Background: 

Principal Findings: 

Conclusions: 

Matters for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and GAO's Evaluation: 

Chapter 1: Introduction: 

Corn Starch Ethanol Is the Primary U.S. Biofuel: 

Soybean Oil Is the Major U.S. Biodiesel Feedstock: 

The Federal Government Has Used Tax Expenditures, the RFS, and an 
Ethanol Import Tariff to Stimulate Domestic Biofuels Production: 

DOE and USDA Support Biofuels R&D and Commercialization: 

Objectives, Scope, and Methodology: 

Chapter 2: Biofuels Production Has Had Mixed Effects on U.S. 
Agriculture, but the Effects of Expanded Production Are Less Certain: 

Increasing Corn Ethanol Production Has Had Mixed Effects on Land Use, 
Crop Selection, and Livestock Production: 

Growth in Ethanol Production Has Generally Provided a Boost to Rural 
Economies: 

Higher Corn Prices--Driven in Part by Increased Ethanol Production-- 
Have Likely Been a Factor in Recent Food Price Increases: 

The Effects of Expanded Biofuels Production on Agriculture Are 
Uncertain but Could Be Significant: 

Some USDA Programs Could Support the Transition to Cellulosic Energy 
Crop Production for Biofuels: 

Chapter 3: Increased Biofuels Production Could Have a Variety of 
Environmental Effects, but the Magnitude of These Effects Is Largely 
Unknown: 

Cultivation of Corn for Biofuel Has a Variety of Environmental Effects, 
but a Shift to Cellulosic Feedstocks Could Reduce These Effects: 

The Process of Converting Feedstocks into Biofuels Has Environmental 
Consequences, but the Effects Vary: 

Storage and Use of Certain Ethanol Blends May Result in Further 
Environmental Effects that Have Not Yet Been Measured: 

Focus on Sustainability Will Be Important in Evaluating Environmental 
Implications of Increased Biofuel Production: 

Conclusions: 

Matter for Congressional Consideration: 

Agency Comments and Our Evaluation: 

Chapter 4: Researchers Disagree on How to Account for Indirect Land-Use 
Changes in Estimating the Lifecycle Greenhouse Gas Effects of Biofuels 
Production: 

Estimates of the Lifecycle Greenhouse Gas Emissions of Biofuels Have 
Significantly Differed: 

Assumptions about Agricultural and Energy Inputs, Co-Products, and Land-
Use Changes Determine Research Results: 

Shortcomings in Forecasting Models and Data Make It Difficult to 
Determine Lifecycle Greenhouse Gas Emissions: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Chapter 5: Federal Tax Expenditures, the RFS, and an Ethanol Tariff 
Have Primarily Supported Conventional Corn Starch Ethanol: 

The VEETC Provides a Tax Credit to Companies that Blend Ethanol with 
Gasoline: 

RFS Biofuels Volume Requirements Rise Annually: 

The United States Imposes a Tariff on Ethanol Imports: 

The RFS and the VEETC Can Be Duplicative for Total Ethanol Consumption: 

The Relationship between Crude Oil and Corn Prices Will Primarily 
Determine Whether the RFS Is Binding: 

Some Recent Studies Have Proposed that the VEETC Be Revised: 

Other Federal Biofuels Tax Expenditures Support Biodiesel and 
Cellulosic Biofuels Producers: 

Conclusions: 

Matter for Congressional Consideration: 

Chapter 6: Federal Biofuels R&D Primarily Supports Developing 
Cellulosic Biofuels: 

Federal Biofuels R&D Programs Are Growing and Focus on Cellulosic 
Ethanol: 

The Congress Has Authorized and Appropriated Additional Funding for 
Biofuels R&D: 

Experts Identified R&D Areas for Improving Cellulosic Biofuels 
Production: 

Chapter 7: Significant Challenges Must Be Overcome to Meet the RFS's 
Increasing Volumes of Biofuels: 

Farmers and Other Suppliers Face the Challenge of Identifying and 
Developing Productive and Profitable Cellulosic Feedstocks: 

Cellulosic Feedstocks Pose Unique Logistical Challenges for 
Biorefineries: 

High Costs and the Limitations of Current Conversion Technology Are Key 
Challenges to Making Cellulosic Biofuels Competitive with Other Fuels: 

Blending Limits and Transportation Pose Challenges to Expanded Ethanol 
Consumption: 

The Biodiesel Industry Faces Feedstock and Market Challenges: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Key Studies on the Agricultural and Related Effects of 
Biofuels and on the Transition to Advanced Biofuel Feedstock 
Production: 

Appendix II: Economic Studies Examining the Impacts of Increased 
Biofuel Production on U.S. Food and Agricultural Markets: 

Appendix III: Scientific Studies on the Environmental Impacts of 
Biofuels: 

Appendix IV: Key Studies on the Lifecycle Greenhouse Gas Effects of 
Biofuels: 

Appendix V: Recent Studies on Federal Supports for Biofuels: 

Appendix VI: Economic Linkages of the Corn Ethanol Industry to Food and 
Agricultural Markets: 

Appendix VII: Summary of Researchers' Assumptions and Conclusions about 
Lifecycle Greenhouse Gas Emissions of Biofuels Production: 

Appendix VIII: Comments from the Department of Agriculture: 

Appendix IX: Comments from the Department of Energy: 

Appendix X: Comments from the Environmental Protection Agency: 

Appendix XI: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Average Water Consumed in Corn Ethanol Production in Primary 
Producing Regions in the United States, in Gallons of Water/Gallon of 
Denatured Ethanol Produced: 

Table 2: Projected Growth in Corn Acreages Related to Increased Corn 
Ethanol Production of 15 Billion Gallons per Year: 

Table 3: Sample of Agricultural Conservation Practices Available to 
Reduce the Environmental Effects of Feedstock Cultivation for Biofuels: 

Table 4: Potential Air Pollutants Associated with Ethanol Refineries 
and Their Related Health and Environmental Effects: 

Table 5: Criteria Pollutants and Related Emissions from Stationary and 
Mobile Sources, 1990 and 2007 (thousands of short tons): 

Table 6: Federal Agencies' Obligations for Biofuels R&D, Fiscal Years 
2005-2008: 

Table 7: Integrated Biorefinery Projects Receiving DOE Funding: 

Table 8: Major Economic Studies of Agricultural Market Impacts of 
Biofuels Production: 

Figures: 

Figure 1: Greenhouse Gas Emissions Associated with the Biofuels 
Production Process: 

Figure 2: Corn Used for Ethanol by Market Year, 1980-2008: 

Figure 3: U.S. Acres Planted to Corn, Soybeans, Wheat, and Cotton, Crop 
Years 1999-2009: 

Figure 4: Existing and Planned Ethanol Facilities (as of 2007) and 
Their Estimated Total Water Use Mapped with the Principal Bedrock 
Aquifers of the United States and Total Water Use in 2000: 

Figure 5: Estimated Lifecycle Greenhouse Gas Emissions of Ethanol as 
Compared with Gasoline: 

Figure 6: Domestic Ethanol Production and Federal Tax Expenditures, 
1980-2008: 

Figure 7: Annual Biofuels Use under the RFS, 2009-2022: 

Figure 8: Economic Linkages of Ethanol Production to Food and 
Agricultural Markets: 

Abbreviations: 

AST: above-ground storage tanks: 

BCAP: Biomass Crop Assistance Program: 

CRP: Conservation Reserve Program: 

DDG: dried distiller's grains: 

DOE: Department of Energy: 

EISA: Energy Independence and Security Act of 2007: 

EPA: Environmental Protection Agency: 

MTB: Emethyl tertiary butyl ether: 

NPDES: National Pollutant Discharge Elimination System: 

NREL: National Renewable Energy Laboratory: 

R&D: research and development: 

RFS: Renewable Fuel Standard: 

RIN: renewable identification number: 

UST: underground storage tanks: 

USDA: U.S. Department of Agriculture: 

USGS: U.S. Geological Survey: 

VEETC: Volumetric Ethanol Excise Tax Credit: 

2008 Farm Bill: Food, Conservation, and Energy Act of 2008: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

August 25, 2009: 

The Honorable Barbara Boxer:
Chairman:
Committee on Environment and Public Works:
United States Senate: 

The Honorable Susan M. Collins:
United States Senate: 

As requested, this report discusses the challenges and potential 
effects associated with the increased production and use of biofuels in 
the United States. We are suggesting that the Congress consider actions 
to address the potential environmental effects of increased biofuels 
production and whether revisions are needed to federal financial 
support for the production of conventional ethanol. We are also 
recommending that the Secretaries of Agriculture and Energy and the 
Administrator of the Environmental Protection Agency take actions to 
minimize the potential effects of the nation's biofuels production 
efforts. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to other appropriate congressional committees; the Secretaries of 
Agriculture, Energy, the Interior, and the Treasury; and the 
Administrator of the Environmental Protection Agency. The report also 
will be available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-3841 or daltonp@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs can be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix XI. 

Signed by: 

Patricia A. Dalton: 
Managing Director: 
Natural Resources and Environment: 

[End of section] 

Executive Summary: 

Purpose: 

For the past several decades, the United States has enjoyed relatively 
inexpensive supplies of crude oil, which has accounted for almost all 
of the energy consumed for transportation. However, this reliance on 
petroleum for transportation makes the U.S. economy vulnerable to even 
minor disruptions in the global crude oil supply, harms U.S. balance of 
payments in trade, and contributes to greenhouse gas emissions-- 
primarily carbon dioxide, methane, and nitrous oxide--which has 
resulted in global climate change with potentially damaging long-term 
effects. The federal government has promoted biofuels as an alternative 
to petroleum-based fuels since the 1970s, and production of the most 
common U.S. biofuel--ethanol from corn starch--reached 9 billion 
gallons in 2008. The Energy Policy Act of 2005 created a Renewable Fuel 
Standard (RFS) that generally required gasoline and diesel in the 
United States[Footnote 1] to contain 4 billion gallons of renewable 
fuels, such as ethanol and biodiesel, in 2006 and 7.5 billion gallons 
in 2012.[Footnote 2] The Energy Independence and Security Act (EISA) of 
2007 expanded the RFS by requiring that U.S. transportation fuel 
contain 9 billion gallons of renewable fuels in 2008 and increasing 
annually to 36 billion gallons in 2022.[Footnote 3] The 36-billion- 
gallon total must include at least 21 billion gallons of advanced 
biofuels--defined as renewable fuels other than ethanol derived from 
corn starch that meet certain criteria--and can include up to 15 
billion gallons of conventional biofuels--defined as ethanol derived 
from corn starch. EISA requires that most advanced biofuels (at least 
16 billion of the 21-billion-gallon total) be produced from cellulosic 
materials, or feedstocks, including perennial grasses, crop residue, 
and the branches and leaves of trees. However, advanced biofuels are at 
the earliest stages of being commercially produced in the United 
States, and a number of logistical and technical challenges must still 
be overcome before they are economically viable. In addition, some 
research in recent years has questioned the extent to which corn starch 
ethanol, as compared with gasoline, reduces lifecycle greenhouse gas 
emissions that occur during the process of growing, harvesting, and 
transporting the feedstock; producing the biofuel; and using the 
biofuel in a vehicle. Some research has also identified other adverse 
environmental effects from producing corn for ethanol. 

The Chairman of the Senate Committee on Environment and Public Works 
and Senator Susan M. Collins asked GAO to assess several issues related 
to increased U.S. production of ethanol and other biofuels. 
Specifically, this report examines (1) the known agricultural and 
related effects of increased biofuels feedstock production in the 
United States; (2) the known environmental effects of increased 
feedstock cultivation and conversion and biofuels use in the United 
States; (3) the results, assumptions, and limitations of key scientific 
analyses of the lifecycle greenhouse gas effects of biofuels produced 
from different feedstocks; (4) federal support for developing a 
domestic biofuels industry; (5) federal funding for advanced biofuels 
research and development (R&D); and (6) key challenges in meeting the 
RFS's specified levels. 

To assess the effects of increased biofuels production, GAO used a 
snowball sampling technique that identified 62 studies on the 
agricultural effects, 62 articles on the environmental effects, and 46 
articles on the lifecycle greenhouse gas effects published in 
scientific journals and government publications. Next, GAO identified 
recognized experts in each field, in collaboration with the National 
Academy of Sciences, and interviewed them using a semistructured 
interview format. In addition, GAO interviewed program managers, 
scientists, economists, researchers, and other staff from the 
Departments of Agriculture (USDA), Energy (DOE), the Interior, and the 
Treasury; the Environmental Protection Agency (EPA); the National 
Science Foundation; and the Department of Commerce's National Oceanic 
and Atmospheric Administration. To assess federal support for 
developing a domestic biofuels industry, GAO obtained Treasury data on 
federal tax expenditures, reviewed relevant economic literature, and 
interviewed cognizant federal officials and academic and government 
economists. GAO applied conventional economic reasoning in analyzing 
the incidence of tax credits. To assess federal funding support for 
advanced biofuels R&D, GAO obtained DOE, USDA, and EPA data on their 
obligations for R&D and loan guarantees for fiscal years 2005 through 
2008 and interviewed cognizant agency officials. To assess key 
challenges in meeting the RFS's requirements, GAO reviewed relevant 
documents, including federal and industry reports; interviewed federal 
agency officials and scientists, and representatives of nongovernmental 
organizations and industry associations. In doing this work, GAO 
conducted site visits at DOE's National Renewable Energy Laboratory, 
Argonne National Laboratory, and Oak Ridge National Laboratory and 
USDA's National Center for Agricultural Utilization Research and 
Eastern Regional Research Center. See chapter 1 for a more detailed 
discussion of GAO's methodology. 

Background: 

Biofuels, such as ethanol and biodiesel, are an alternative to 
petroleum-based transportation fuels and are produced from renewable 
sources such as corn, sugar cane, and soybeans. In 2008, the United 
States consumed about 138 billion gallons of gasoline and about 10 
billion gallons of biofuels, primarily ethanol. Ethanol, the most 
common U.S. biofuel, is mainly used as a gasoline additive in blends of 
about 10 percent ethanol and 90 percent gasoline, known as E10, which 
is available in most states. A relatively small volume is also blended 
at a higher level called E85--a blend of 85 percent ethanol and 15 
percent gasoline--which can only be used in specially designed 
vehicles, known as flexible-fuel vehicles, that can use either gasoline 
or E85 for fuel. About 98 percent of domestic ethanol is made from corn 
grown in the Midwest. The corn starch can be converted relatively 
easily into sugar and then fermented and distilled into ethanol. 

The RFS requires that U.S. transportation fuels in 2022 contain 36 
billion gallons of biofuels. To be eligible for consideration under the 
RFS, renewable fuels produced by biorefineries that begin construction 
after EISA's enactment on December 19, 2007, must generally achieve at 
least a 20 percent reduction in lifecycle greenhouse gas emissions as 
compared with petroleum fuels. However, advanced biofuels and biomass- 
based diesel must generally achieve at least a 50 percent reduction in 
lifecycle greenhouse gas emissions relative to baseline petroleum 
fuels, while cellulosic biofuels must generally achieve at least a 60 
percent reduction, regardless of when the biorefinery producing the 
fuel was constructed.[Footnote 4] Currently, EPA determines a biofuel's 
eligibility under the RFS based, in part, on its lifecycle greenhouse 
gas emissions. However, after 2022, EISA requires that EPA, in 
coordination with DOE and USDA, establish the RFS based, in part, on 
the impact of the production and use of renewable fuels on the 
environment, including on air quality, wildlife habitat, water quality, 
and water supply. EPA is undertaking some of these analyses and 
included a partial assessment of water and air impacts in the preamble 
to the proposed RFS rulemaking, published on May 26, 2009, even though 
this information is currently not used to determine which biofuels are 
eligible for consideration under the RFS. 

Also, at least 16 billion of the 36 billion gallons of biofuels 
required in 2022 are to be made from such cellulosic feedstocks as 
perennial grasses, crop residue, and wood waste. Cellulosic feedstocks 
are diverse. Some feedstocks are abundant and relatively inexpensive, 
and their use could greatly expand biofuel production. These feedstocks 
might also raise farm income, reduce greenhouse gas emissions, and 
improve water quality as compared with conventional corn starch 
ethanol. However, at present, the technology to economically grow, 
harvest, and transport cellulosic feedstocks is untested on a large 
scale. In addition, most of the energy in plant and tree biomass is 
locked away in complex cellulose and hemicellulose molecules, and 
technologies to produce biofuels from this type of feedstock 
economically are still being developed. Some cellulosic biorefineries 
are piloting the use of biochemical processes in which microbes and 
enzymes break down complex plant molecules to produce ethanol, while 
others are piloting the use of thermochemical processes, which use heat 
and chemical catalysts to turn plant material into a liquid that more 
closely resembles petroleum. 

Principal Findings: 

Biofuels Production Has Had Mixed Effects on U.S. Agriculture, but the 
Effects of Expanded Production Are Less Certain: 

Biofuels production has had mixed effects on U.S. agriculture with 
regard to land use, crop selection, livestock production, rural 
economies, and food prices. For example, the increasing demand for corn 
for ethanol production has contributed to higher corn prices, provided 
economic incentives for some producers to devote additional acres to 
corn production, and resulted in reduced production of other crops, 
such as soybeans and cotton. While higher corn prices have created 
additional income for corn producers, they have also increased feed 
costs for livestock producers. At the same time, the number of 
biorefineries producing ethanol or other biofuels has grown 
considerably, offering new employment opportunities in rural 
communities as well as a boost to local commerce and tax revenues, 
although experts' views on the magnitude and permanence of these 
benefits varies. In addition, according to USDA and other sources, the 
increasing use of corn for ethanol production, among other factors such 
as high energy costs and tight global grain supplies, likely 
contributed to higher retail food prices by increasing the price of 
corn used for food processing and animal feed. The potential future 
effects of expanded biofuels production, including production of new 
energy crops for advanced biofuels, are uncertain but could be 
significant, particularly to the extent these new crops affect the 
production of other crops and livestock. Some USDA farm, forest, 
conservation, and extension programs could potentially support the 
transition to cellulosic feedstock production, although changes may be 
needed for these programs to "level the playing field" in light of the 
support they already provide for the production of food and feed crops. 

Increased Biofuels Production Could Have a Variety of Environmental 
Effects, but the Magnitude Is Largely Unknown: 

The increased cultivation of corn for ethanol, its conversion into 
biofuels, and the storage and use of these fuels could affect water 
supply, water quality, air quality, soil quality, and biodiversity, but 
future movement toward cellulosic feedstocks could reduce some of these 
effects. Corn is a relatively resource-intensive crop, requiring 
significant amounts of fertilizer and pesticide applications and 
additional water to supplement rainfall, depending on where the crop is 
grown. As a result, some experts believe that increased corn starch 
ethanol production may result in the cultivation of corn on arid lands 
that require irrigation, contributing to additional ground and surface 
water depletion in water-constrained regions. In addition, some experts 
believe additional corn production will lead to an increase in 
fertilizer and sediment runoff, impairing streams and other water 
bodies. Furthermore, experts believe that as cultivation of some crops 
such as corn for biofuels production increases, environmentally 
sensitive lands currently enrolled in conservation programs may be 
moved back into production, thereby increasing cultivation of land that 
is susceptible to erosion and decreasing available habitat for 
threatened species. However, some of these effects on water quality and 
habitat may be mitigated by the use of certain agricultural 
conservation practices. In the future, farmers may also adopt 
cellulosic feedstocks, such as switchgrass and crop residues, which 
could reduce water and land-use effects relative to corn. In addition, 
the process of converting feedstock into biofuels may also adversely 
affect water supply, water quality, and air quality as more 
biorefineries move into production. For example, biorefineries require 
water for processing biofuels and will need to draw from existing water 
resources, which are limited in some potential production areas. 
However, the effects will depend on the location and size of the 
facility and the feedstock used. Finally, the storage and use of 
certain ethanol blends may pose other environmental problems, such as 
leaks in underground storage tanks that are not certified to store such 
blends and increased emissions of certain air pollutants when ethanol 
is used in most cars; however, less is known about the extent of these 
effects. Although EPA included a partial assessment of water and air 
effects in the preamble of its May 2009 RFS proposed rulemaking, EISA 
does not require EPA to determine what fuels are eligible for 
consideration under the RFS based on their lifecycle environmental 
effects, apart from greenhouse gas emissions. 

Researchers Disagree on How to Account for Indirect Land-Use Changes in 
Estimating the Lifecycle Greenhouse Gas Effects of Biofuels Production: 

Twelve key scientific studies that GAO reviewed provided a wide range 
of estimates on the lifecycle greenhouse gas emissions of biofuels 
relative to fossil fuels--from a 59 percent reduction to a 93 percent 
increase in emissions for conventional corn starch ethanol, a 113 
percent reduction to a 50 percent increase for cellulosic ethanol, and 
a 41 percent to 95 percent reduction for biodiesel. Most of the studies 
found that corn starch ethanol achieves some greenhouse gas reduction 
benefits and that cellulosic ethanol is likely to be more beneficial. 
Different assumptions about the agricultural and energy inputs used in 
biofuel production and how to allocate the energy used in this 
production to co-products, such as distiller's grains, primarily 
explain why the greenhouse gas emission estimates among these studies 
varied. However, most of these studies did not attempt to account for 
the effect of increased biofuels production on indirect land-use 
changes--converting nonagricultural lands elsewhere in the world to 
replace agricultural land used to grow biofuels crops to maintain world 
production of food, feed and fiber crops--even though it is widely 
recognized that land-use changes could be the most significant source 
of lifecycle greenhouse gas emissions associated with biofuels 
production. Three studies that have addressed indirect land-use changes 
in their methodologies each reported that biofuels had a net increase 
in greenhouse gas emissions relative to fossil fuels and concluded that 
indirect land-use changes, in fact, eliminate the greenhouse gas 
reduction benefits associated with corn starch ethanol, biodiesel, and 
even cellulosic biofuels when produced from certain feedstocks. 

Many of the lifecycle analysis researchers GAO interviewed stated there 
is general consensus on the approach for measuring the direct effects 
of increased biofuels production, but disagreement about assumptions 
and assessment methods for estimating the indirect effects of global 
land-use change. EPA is required to assess significant greenhouse gas 
emissions from land-use change because only biofuels that achieve 
certain lifecycle emission reductions relative to petroleum fuels are 
eligible for consideration under the RFS. In particular, researchers 
disagree about what nonagricultural lands will be converted to maintain 
world production of food, feed, and fiber crops. Although research for 
measuring indirect land-use changes as part of the greenhouse gas 
analysis is only in the early stages of development, EISA directed EPA 
to promulgate a rule to determine the lifecycle greenhouse gas 
emissions of biofuels included in the RFS, including significant 
emissions from land-use changes. Several researchers told GAO that the 
lack of agreement on standardized lifecycle assumptions and assessment 
methods, combined with key information gaps in such areas as feedstock 
yields and domestic and international land-use data, greatly complicate 
EPA's ability to promulgate this rule. 

Federal Tax Credits, the RFS, and the Ethanol Tariff Have Primarily 
Supported Conventional Corn Starch Ethanol: 

The federal government has supported the development of a domestic 
biofuels industry primarily though tax credits, the RFS, and a tariff 
on ethanol imports. The Energy Tax Act of 1978, among other things, 
provided tax incentives designed to stimulate the production of ethanol 
for blending with gasoline, which were restructured as the Volumetric 
Ethanol Excise Tax Credit (VEETC) in 2005.[Footnote 5] Subsequently, in 
December 2007, EISA expanded the RFS by substantially increasing its 
annual biofuel volume requirements, including up to 9 billion gallons 
of conventional corn starch ethanol in 2008 and up to 15 billion 
gallons of conventional corn starch ethanol in 2015. As a result, the 
VEETC's annual cost to the Treasury in forgone revenues could grow from 
$4 billion in 2008 to $6.75 billion in 2015 for conventional corn 
starch ethanol, even though the 2008 Farm Bill reduced the VEETC from 
51 cents to 45 cents per gallon for ethanol starting in 2009. The 
United States also controls ethanol imports, which qualify for the 
VEETC, by imposing a tariff of 54 cents per gallon plus 2.5 percent of 
the ethanol's value. However, two of these tools--the VEETC and the 
RFS--can be duplicative with respect to their effects on ethanol 
consumption. Because U.S. ethanol consumption is unlikely to exceed the 
10.5 billion gallons allowed under the RFS in 2009, unless crude oil 
prices rise significantly, GAO and others have found that under current 
market conditions the VEETC does not stimulate additional ethanol 
consumption. In addition, the processing technology for the 
conventional corn starch ethanol industry is mature and its production 
capacity is nearing the effective RFS limit of 15 billion gallons per 
year for conventional ethanol beginning in 2015. In light of this 
situation, some recent studies have suggested that the VEETC be 
terminated or phased out or be revised by, for example, modifying it to 
provide a stimulus when crude oil prices are low but reducing its size 
when crude oil prices rise. The economists GAO interviewed noted that 
removing the VEETC would affect motor fuel blenders, consumers, and 
biofuels producers differently, depending upon market conditions. For 
example, one economist stated that when the RFS causes biofuels 
consumption to be higher than it otherwise would be, most of the 
VEETC's benefits go to consumers with lower crude oil prices and go to 
producers with higher crude oil prices. Another economist said that 
motor fuel blenders would likely lose if the VEETC were removed, but 
the exact impacts would depend on supply and demand elasticities. 

In addition to the VEETC, which predominantly benefits conventional 
corn starch ethanol, the Congress has provided tax credits of $1 per 
gallon for producing or blending advanced biodiesel and $1.01 per 
gallon for producing cellulosic biofuels. Both biodiesel and cellulosic 
biofuels have high production costs that have limited their ability to 
compete in fuel markets. To date, these tax credits have predominantly 
supported biodiesel production because only small amounts of cellulosic 
biofuels are currently being produced. The RFS requirement for 
biodiesel rises from at least 500 million gallons in 2009 to at least 1 
billion gallons in and beyond 2012 and for cellulosic biofuels rises 
from at least 100 million gallons in 2010 to at least 16 billion 
gallons in 2022. 

Federal R&D Mainly Supports the Development of Advanced Cellulosic 
Biofuels: 

DOE and USDA, the principal federal sponsors of biofuels R&D, obligated 
about $500 million to develop advanced cellulosic biofuels in fiscal 
year 2008. In February 2009, the American Recovery and Reinvestment Act 
of 2009 appropriated $800 million to DOE for biomass-related projects, 
and in March 2009 the Omnibus Appropriation Act, 2009, appropriated 
$217 million for DOE's biomass and biorefinery systems R&D program. A 
substantial portion of DOE's funding supports its Integrated 
Biorefineries Program, which seeks to demonstrate technologies for 
using a wide variety of cellulosic feedstocks and operating profitably 
once construction costs are covered, and R&D on next-generation 
cellulosic feedstocks, such as algae. USDA's biofuels R&D seeks, among 
other things, to develop practices and systems that maximize the 
sustainable yield of high-quality bioenergy feedstocks by, for example, 
maximizing the harvest of corn stover (the cobs, stalks, leaves, and 
husks of corn plants) while maintaining soil organic matter. 

Significant Challenges Must Be Overcome to Meet the RFS's Increasing 
Volumes of Biofuels: 

The domestic biofuels industry faces multiple challenges to meet the 
RFS's increasing volume requirement of biofuels, particularly 
cellulosic and other advanced biofuels. For example, cost-effective 
methods and technologies need to be developed to address the logistical 
difficulties in collecting, transporting, and storing the leaves, 
stalks, tree trunks, and other feedstocks that cellulosic biorefineries 
will process. Also, some DOE, EPA, and USDA officials expressed concern 
about inconsistencies in how EISA and the 2008 Farm Bill define 
renewable biomass because municipal waste and wood residues on 
federally managed forest land are excluded under EISA but not under the 
2008 Farm Bill. If not resolved, these inconsistencies could complicate 
the promulgation of regulations and implementation of programs for 
achieving the RFS. Another challenge lies in the cellulosic conversion 
technology itself, which needs more commercial development and is 
expensive relative to the cost of producing ethanol from corn starch. 
Researchers are still developing pretreatment processes and biochemical 
and thermochemical refining technologies. While the RFS requires only 
modest amounts of biodiesel beginning in 2009, this industry faces its 
own set of challenges, including the cost of feedstocks and a limited 
U.S. market. 

An immediate challenge facing the expansion of the domestic biofuels 
industry under the RFS is infrastructure limitations for distributing, 
storing, and using increasing volumes of ethanol because, for example, 
pipelines do not exist to cost effectively transport biofuels from 
biorefineries in the Midwest to East and West Coast markets. The U.S. 
biofuels distribution infrastructure can deliver current volumes of 
ethanol to consumers. However, the nation may reach the blend wall--the 
point where all of the nation's gasoline supply is blended as E10 and 
extra volumes of ethanol cannot be readily consumed--as early as 2011 
because EPA, under the Clean Air Act, currently limits the ethanol 
content in gasoline to 10 percent for most U.S. vehicles, the current 
economic slowdown has reduced U.S. gasoline consumption, and the RFS 
requires increasing amounts of biofuels. DOE has initiated R&D to 
determine the long-term effects of using blends above 10 percent 
ethanol on a car's emission control system and engine. If EPA and 
vehicle manufacturers find that the current U.S. vehicle fleet cannot 
use higher ethanol blends, additional ethanol consumption will be 
limited to flexible-fuel vehicles that can use E85. However, expanding 
E85 consumption would require substantial investment in an ethanol 
distribution and storage infrastructure that is distinct from the 
existing petroleum distribution and storage system and increased 
consumer purchases of flexible-fuel vehicles. Advances in 
thermochemical processing technology could yield nonethanol products 
that the existing petroleum refining and distribution infrastructure 
can use--and therefore reduce blend wall issues. 

Conclusions: 

The RFS requires that the nation's transportation fuel contain 36 
billion gallons of biofuels in 2022, primarily advanced biofuels. To 
date, the domestic biofuels industry has achieved about 30 percent of 
this level, largely through the production of conventional corn starch 
ethanol. Going forward, federal agencies face significant challenges to 
ensure the domestic biofuels industry can meet the RFS's more demanding 
advanced biofuel requirements, while minimizing any unintended adverse 
effects. For example, one key challenge is identifying and mitigating 
any adverse environmental effects. Given the potential for increased 
biofuels production to further exacerbate existing environmental 
problems, GAO believes that assessing the viability of a biofuel 
feedstock will be incomplete without a consideration of the related 
lifecycle environmental effects. Although EPA's May 2009 proposed 
rulemaking included a partial analysis of water and air effects of 
biofuel production, EISA does not require EPA to determine what 
renewable fuels are eligible for consideration under the RFS based on 
their lifecycle environmental effects, apart from greenhouse gas 
emissions. A second key challenge is addressing the likelihood that 
ethanol production will exceed the capability of the petroleum 
infrastructure and today's fleet of vehicles to distribute and use the 
ethanol, referred to as the blend wall. The nation will need to make a 
substantial investment in a new ethanol distribution infrastructure to 
reach the RFS requirements, unless cost-effective biofuel products are 
developed that the existing petroleum refining, distribution, and 
storage infrastructure can use. A third key challenge is 
inconsistencies in how EISA and the 2008 Farm Bill define renewable 
biomass that, if not resolved, could complicate federal agencies' 
efforts to promulgate regulations and implement programs for achieving 
the RFS. 

EISA, the 2008 Farm Bill, and the American Recovery and Reinvestment 
Act of 2009 have extended and expanded existing programs, authorized 
new ones, and appropriated substantial funding for R&D to stimulate the 
domestic biofuels industry. In particular, EISA significantly expanded 
the RFS to require that U.S. transportation fuels contain 36 billion 
gallons of biofuels in 2022, while the 2008 Farm Bill somewhat reduced 
the VEETC and established a new tax credit for advanced cellulosic 
biofuels. With these many efforts, federal agencies are challenged to 
not only be efficient in minimizing duplicative incentives, but also to 
ensure that existing and new federal programs are harmonized to promote 
advanced biofuel production and more effectively achieve the RFS. How 
federal agencies choose to address these challenges will shape the 
effect that biofuels production will have on the nation's continuing 
efforts to balance the need for new sources of energy, the increasing 
demand for food, and the need to protect the environment. 

GAO provides two matters for congressional consideration and three 
recommendations for executive action to help address these challenges. 

Matters for Congressional Consideration: 

In addition to the currently required lifecycle greenhouse gas 
emissions analysis, the Congress may wish to consider amending EISA to 
require that the Administrator of the Environmental Protection Agency 
develop a strategy to assess the effects of increased biofuels 
production on the environment at all stages of the lifecycle-- 
cultivation, harvest, transport, conversion, storage, and use--and to 
use this assessment in determining which biofuels are eligible for 
consideration under the RFS. This would ensure that all relevant 
environmental effects are considered concurrently with lifecycle 
greenhouse gas emissions. 

Because the RFS allows rapidly increasing annual amounts of 
conventional biofuels through 2015 and the conventional corn starch 
ethanol industry is mature, the Congress may wish to consider whether 
revisions to the VEETC are needed. Options could include maintaining 
the VEETC, reducing the amount of the tax credit or phasing it out, or 
modifying the tax credit to counteract fluctuations in crude oil 
prices. 

Recommendations for Executive Action: 

To improve EPA's ability to determine biofuels' greenhouse gas 
emissions and define fuels eligible for consideration under the RFS, 
GAO recommends that the Administrator of the Environmental Protection 
Agency and the Secretaries of Agriculture and Energy develop a 
coordinated approach for identifying and researching unknown variables 
and major uncertainties in the lifecycle greenhouse gas analysis of 
increased biofuels production. This approach should include a 
coordinated effort to develop parameters for using models and a 
standard set of assumptions and methods in assessing greenhouse gas 
emissions for the full biofuel lifecycle, such as secondary effects 
that would include indirect land-use changes associated with increased 
biofuels production. 

To minimize future blend wall issues and associated ethanol 
distribution infrastructure costs, GAO recommends that the Secretaries 
of Agriculture and Energy give priority to R&D on process technologies 
that produce biofuels that can be used by the existing petroleum-based 
distribution and storage infrastructure and the current fleet of U.S. 
vehicles. 

To address inconsistencies in existing statutory language, GAO 
recommends that the Administrator of the Environmental Protection 
Agency, in consultation with the Secretaries of Agriculture and Energy, 
review and propose to the appropriate congressional committees any 
legislative changes the Administrator determines may be needed to 
clarify what biomass material--based on type of feedstock or type of 
land--can be counted toward RFS. 

Agency Comments and GAO's Evaluation: 

GAO provided USDA, DOE, and EPA with a draft of this report for their 
review and comment. In its written comments, USDA stated that the 
report is comprehensive, well written, and accurate. Regarding the 
recommendation for determining biofuels' lifecycle greenhouse gas 
emissions, USDA agreed with the general premise implicit in the 
recommendation, but cited the need to ensure that coordinated 
scientific discussions do not lead to standard methods that become 
codified in regulations that would inhibit the adoption and use of new 
information and improved or more appropriate methods as they become 
available. GAO agrees with USDA's concern that the RFS regulation 
should not codify standard methods that might inhibit the development 
of better information or methods for assessing lifecycle greenhouse gas 
emissions. However, because only three scientific studies have examined 
the effects of indirect land-use changes, GAO believes that a 
coordinated approach for identifying and researching unknown variables 
and major uncertainties will benefit EPA's lifecycle analysis. 
Regarding the recommendation for giving priority to R&D for producing 
biofuels that can be used by the existing petroleum-based 
infrastructure, USDA agreed that this is an important goal, but cited 
other similarly important biofuels R&D goals that its scientists are 
pursuing. Regarding the recommendation for clarifying what biomass 
material can be counted toward the RFS, USDA agreed that the executive 
agencies should consult on a definition and then propose any 
legislative changes to the appropriate congressional committees, 
stating that the department supports the 2008 Farm Bill's definition. 
USDA also provided four substantive comments on the report. First, 
while the department does not dispute most findings and conclusions, 
USDA noted that the report generally tends to emphasize negative 
aspects of increased biofuels production. GAO notes that USDA, in its 
comments, acknowledged the environmental challenges posed by increased 
biofuel production, and GAO agrees that strategies to mitigate these 
effects are currently being researched. While GAO believes its 
reporting of the research on these effects has been balanced, GAO 
reviewed this discussion and provided additional clarification where 
appropriate. Second, USDA stated that the report is written as if EPA's 
study on the RFS is still in progress and suggests that the report 
discuss EPA's findings and conclusions. GAO notes that EPA recently 
published peer reviewers' assessments of four key components of the 
lifecycle greenhouse gas emissions analysis in its May 2009 proposed 
rule. GAO believes that this peer review is an important first step for 
scientists to understand and validate the assumptions and models that 
EPA's lifecycle analysis used and that GAO's characterization of EPA's 
rulemaking is accurate. Third, USDA suggested that the report discuss 
legislative restrictions on eligibility for some competitive research 
programs, which it believes are important obstacles to achieving the 
best possible biofuels research. GAO notes that examining the funding 
restrictions in the Energy Policy Act of 2005 and other legislation 
that exclude federal government owned and operated research facilities 
from receiving DOE grant funds was beyond the scope of work for this 
review. Finally, USDA said the assessment in appendix VI of the impact 
of linkages between the corn ethanol industry and the livestock 
industry needed clarification and correction. GAO agrees and has 
revised the appendix, as appropriate. See appendix VIII for USDA's 
comments. 

In its written comments, DOE also addressed each of the three 
recommendations. Regarding the recommendation for determining biofuels' 
lifecycle greenhouse gas emissions, DOE noted that EPA already consults 
with DOE on these matters and added that DOE would welcome the 
opportunity to become more engaged in this process if requested to do 
so by the EPA Administrator. Regarding the recommendation for giving 
priority to R&D for producing biofuels that can be used by the existing 
petroleum-based infrastructure, DOE commented that it has already 
expanded in this direction, noting recent and planned initiatives. For 
example, DOE cited a new solicitation to fund consortia to accelerate 
the development of advanced biofuels under the American Recovery and 
Reinvestment Act also supports infrastructure-compatible fuels and 
algae-based fuels, and DOE anticipates that hydrocarbon fuels will 
become a higher priority in the future and contribute to RFS 
requirements for advanced biofuels. Regarding the recommendation for 
clarifying what biomass material can be counted toward the RFS, DOE 
stated that the department would welcome the opportunity to participate 
in deliberations about how to clarify the biomass definition if 
requested to do so by the EPA Administrator, adding that DOE supports 
an expansion of biomass eligibility to include materials that do not 
come from federal lands classified as environmentally sensitive and 
that can be grown and harvested in a sustainable manner. DOE also 
provided four substantive comments on the report. First, DOE stated 
that the blend wall is not necessarily insurmountable to achieving the 
RFS's goals, citing Energy Information Administration projections that 
E85 could account for 30 percent of the total ethanol volume in 2020. 
While GAO does not disagree with this projection, GAO notes that 
expanded use of E85 would require substantial investment in the ethanol 
transportation and storage infrastructure--for example, EPA estimates 
that installing E85 refueling equipment will average $122,000 per 
facility. Second, DOE suggested that GAO revise its footnote in chapter 
1 on Cello Energy's production plans, noting that the company had 
recently lost a fraud lawsuit. GAO has revised the reference to the 
Cello biorefinery. Third, in response to GAO's statement citing DOE and 
ethanol industry expert concern about the limited capacity of the 
freight rail system, DOE said that ethanol cargo represents a mere 
fraction of total rail cargo and that the railway industry has plans 
for major capital expansions over the coming decades. GAO revised its 
discussion of the freight rail challenges to increased biofuels use in 
chapter 7 to note, for example, that few blending terminals have the 
off-loading capacity to handle large train shipments of ethanol. 
Finally, DOE noted that Kinder-Morgan has performed extensive testing 
on transporting ethanol in existing petroleum product pipelines in 
Florida. See appendix IX for DOE's comments. 

In its written comments, EPA stated that the report comprehensively 
identifies the main issues that should be considered when assessing 
expanded biofuels production. Regarding GAO's suggestion that the 
Congress consider amending EISA to require that EPA assess the effects 
of increased biofuels production on the environment at all stages of 
the lifecycle and use this assessment in determining eligible biofuels 
under the RFS, EPA said that (1) this issue might best be addressed by 
the newly created Executive Biofuel Interagency Working Group, (2) EPA 
has clear authorities and responsibilities under other statutes that 
may regulate aspects of a biofuel's lifecycle, and (3) EISA requires 
that EPA evaluate the environmental effects of biofuels and submit a 
report to the Congress. GAO acknowledges that EPA has the authority 
under other statutes to mitigate the environmental effects of biofuels 
and believes that the evaluation currently required by section 204 of 
EISA will provide a good foundation for the analysis GAO suggests. 
However, GAO believes the matter for congressional consideration would 
require EPA to not only assess the lifecycle effects of biofuels, but 
to actually use these assessments to determine which biofuels are 
eligible for consideration under the RFS. Regarding the recommendation 
for determining biofuels' lifecycle greenhouse gas emissions, EPA 
stated that the agency has worked closely with USDA and DOE in 
developing the lifecycle assessment methodology for its proposed rule 
and with the European Union, other international governmental 
organizations, and scientists on modeling, including the impact of 
indirect land-use change. GAO notes that while EPA has obtained 
information from USDA and DOE, its lifecycle analysis methodology was 
not transparent because EPA did not shared its methodology with outside 
scientists before its Notice of Proposed Rulemaking for the RFS 
regulation was published. GAO believes the recently completed peer 
review of EPA's methodology, including key assumptions and its 
analytical model, will improve the transparency of EPA's lifecycle 
analysis. Furthermore, the indirect effects of land-use change on 
lifecycle greenhouse gas emissions are not well understood, and 
additional research is needed to address data limitations, unknown 
variables, and major uncertainties. Regarding the recommendation for 
clarifying what biomass material can be counted toward the RFS, EPA 
stated that the agency is working with USDA to identify inconsistencies 
and interpret how biomass is treated under EISA and the 2008 Farm Bill. 
EPA also provided two substantive comments on the report. First, EPA 
stated that the analyses for its May 2009 proposed rule on lifecycle 
greenhouse gas emissions represent the most up-to-date and 
comprehensive assessment of many of these issues but commented it was 
not clear how GAO considered these analyses for this report. As 
previously stated, GAO believes that EPA's recently completed peer 
review of the key components of its lifecycle greenhouse gas emissions 
analysis is an important first step for scientists to understand and 
validate the data, assumptions, and models that EPA's lifecycle 
analysis uses. Second, EPA believes that many of the inconsistencies in 
biofuels assessments in the reported literature can in large part be 
explained either by differences in what is being modeled or, in some 
cases, by the use of more precise or up-to-date data and assumptions. 
GAO agrees with EPA that important progress has been made in 
quantifying the direct effects of biofuels production on lifecycle 
greenhouse gas emissions. However, few studies have been performed that 
assess the indirect effects of land-use change, and further research is 
needed to improve scientific understanding about the data, assumptions, 
and assessment models used to estimate these indirect effects. See 
appendix X for EPA's comments. 

In addition, USDA, DOE, and EPA provided comments to improve the 
report's technical accuracy, which GAO incorporated as appropriate. 

[End of section] 

Chapter 1: Introduction: 

The United States consumes more liquid fuels than any other nation-- 
roughly 19.4 million barrels per day, or about 23 percent of world 
consumption in 2008--even though U.S. consumption fell in 2008 due to 
high crude oil prices and a weakened economy. The U.S. transportation 
sector is almost entirely dependent on crude oil and accounts for 
almost two-thirds of total U.S. consumption. To meet the demand for oil 
in the face of limited and declining domestic production, the nation 
imported about two-thirds of its oil in 2008 and will likely continue 
to do so absent dramatic reductions in consumption or significantly 
increased use of alternative fuels. Oil is a global commodity with 
relatively little spare production capacity even as world oil demand 
has grown substantially in recent years. As demonstrated by the high 
gasoline prices of 2008, even a minor disruption in global oil supply 
can cause economic difficulties for tens of millions of Americans. Oil 
use also adversely affects the environment through the emission of 
greenhouse gases--primarily carbon dioxide, methane, and nitrous oxide--
which has resulted in a warmer global climate system with potentially 
damaging long-term effects.[Footnote 6] 

Biofuels are an alternative to petroleum-based transportation fuels and 
are produced from renewable sources, primarily corn, sugar cane, and 
soybeans.[Footnote 7] The United States is the world's largest producer 
of biofuels. The Energy Policy Act of 2005 created a Renewable Fuel 
Standard (RFS) that generally required U.S. transportation fuel 
[Footnote 8] to contain 4 billion gallons of renewable fuels, such as 
ethanol and biodiesel, in 2006 and 7.5 billion gallons of renewable 
fuels in 2012, absent a waiver from the Administrator of the 
Environmental Protection Agency (EPA).[Footnote 9] The Energy 
Independence and Security Act (EISA) of 2007 expanded the RFS, 
requiring that U.S. transportation fuels contain 9 billion gallons of 
renewable fuels in 2008 and increasing annually to 36 billion gallons 
in 2022. 

In addition to improving the nation's energy security by decreasing oil 
imports and developing rural economies by raising domestic demand for 
U.S. farm products, increased biofuels consumption may reduce 
greenhouse gas emissions as compared with fossil fuels. As shown in 
figure 1, emissions of carbon dioxide and other greenhouse gases occur 
in each of the stages of growing, harvesting, processing, and using 
biofuels. For the past 20 years, researchers have used mathematical 
models--particularly Argonne National Laboratory's GREET model--to 
estimate fuel-cycle energy use and lifecycle greenhouse gas emissions 
directly associated with biofuels production and to compare them with 
the energy use and emissions of fossil fuels. However, researchers have 
only recently begun to conduct research on the indirect effects of 
increased biofuels production by examining the secondary effects of 
using agricultural lands to grow energy crops. Specifically, 
researchers are seeking to estimate the added greenhouse gas effects if 
other lands, locally or elsewhere globally, are cleared and converted 
into agricultural land to replace the displaced agricultural 
production--referred to as land-use change.[Footnote 10] In addition, 
expanding feedstock supplies and biofuels production may increase the 
use of scarce water supplies; raise food prices; and reduce soil, 
water, and air quality. 

Figure 1: Greenhouse Gas Emissions Associated with the Biofuels 
Production Process: 

[Refer to PDF for image: illustration] 

Solar Energy and Carbon Dioxide: 
Biomass: 
Harvesting: 
Pre-processing: 
Cellulose: 
Enzymes break cellulose down into sugars: 
Microbes ferment sugars into ethanol: 
Biofuels emit carbon dioxide into the atmosphere. 

Sources: DOE; Art Explosion (images). 

[End of figure] 

Corn Starch Ethanol Is the Primary U.S. Biofuel: 

Ethanol is the most commonly produced biofuel in the United States, and 
about 98 percent of it is made from corn that is grown primarily in the 
Midwest.[Footnote 11] Corn contains starch, which can be converted 
relatively easily into sugar and then fermented and distilled into fuel 
ethanol (ethyl alcohol), the same compound found in alcoholic 
beverages. Each 56-pound bushel of corn that is processed in a 
biorefinery yields roughly 2.7 gallons of ethanol fuel. Currently, only 
the starch from the corn kernel is used to make the fuel, and the 
remaining substance of the kernel is available to create additional 
economically valuable products. These are known as co-products and 
include dried distiller's grains, an animal feed primarily used for 
beef and dairy cows. About 3 billion bushels of corn, or about 23 
percent of the nation's 13-billion bushel corn crop, were used to 
produce ethanol during the 2007-2008 corn marketing year, according to 
the U.S. Department of Agriculture's (USDA) February 2009 estimates. 
[Footnote 12] USDA estimated that this will increase to 3.7 billion 
bushels, or about 30 percent of the corn crop, for the 2008-2009 
marketing year.[Footnote 13] 

Corn is converted to ethanol through fermentation using one of two 
standard processes, wet milling or dry milling. The main difference is 
the initial treatment of the corn kernel. In the wet-mill process, the 
corn kernel is steeped in a mixture of water and sulfurous acid that 
helps separate the kernel into starch, germ, and fiber components. The 
starch that remains after this separation can then be fermented and 
distilled into fuel ethanol. In the dry-mill process, the kernel is 
first ground into flour meal and processed without separating the 
components of the corn kernel. The meal is then slurried with water to 
form a mash and enzymes are added to convert the starch in the mash to 
a fermentable sugar. The sugar is then fermented and distilled to 
produce ethanol. Traditional dry-mill ethanol plants are cheaper to 
construct and operate than wet-mill plants but yield fewer marketable 
co-products. Dry-mill plants produce distiller's grains (used as cattle 
feed) and carbon dioxide (used to carbonate soft drinks) as co- 
products, while wet-mill plants produce many more co-products, 
including corn oil, carbon dioxide, corn gluten meal, and corn gluten 
feed. 

The biggest use of fuel ethanol in the United States is as an additive 
in gasoline. Ethanol is primarily blended with gasoline in mixtures of 
about 10 percent, called E10, or less, which can be used in any 
gasoline powered vehicle. A relatively small volume is also blended at 
a higher level called E85--a blend of about 85 percent ethanol--which 
can be used only in specially designed vehicles known as flexible-fuel 
vehicles because they can use either gasoline or E85. Ethanol contains 
only about two-thirds of the energy of a gallon of gasoline, so 
consumers must purchase more fuel to travel the same distance. A 
gasoline blend containing 10 percent ethanol results in a 2 percent to 
3 percent decrease in fuel economy, while in a higher blend such as E85 
drivers experience about a 25 percent reduction in fuel economy. 
Because vehicle manufacturers have generally designed vehicles to 
operate primarily on gasoline, most warranties for non-flexible-fuel 
vehicles allow the company to void the warranty if the owner uses fuels 
containing more than 10 percent ethanol. 

Soybean Oil Is the Major U.S. Biodiesel Feedstock: 

U.S. biodiesel fuel is made from soybeans and other plant oils (such as 
cottonseed and canola), animal fats (such as beef tallow, pork lard, 
and poultry fat), and recycled cooking oils.[Footnote 14] Soybean oil 
has been the most commonly used biodiesel feedstock in the United 
States.[Footnote 15] According to the National Biodiesel Board, soybean 
oil made up about 65 percent of the feedstock used to produce domestic 
biodiesel in 2008. The United States is the world's largest soybean 
producer and exporter--farmers produced about 2.7 billion bushels of 
soybeans in 2007-2008 and will produce about 3 billion bushels of 
soybeans in 2008-2009, according to USDA.[Footnote 16] According to the 
Energy Information Administration, most U.S. biodiesel production in 
recent years has been exported to European Union countries.[Footnote 
17] However, the European Commission imposed provisional antidumping 
and antisubsidy duties on U.S. biodiesel imports in March 2009. 
Biodiesel is most commonly used as a blend with petroleum diesel, and 
B20 (20 percent biodiesel) is the most commonly used biodiesel blend in 
the United States. The energy content of a gallon of biodiesel is about 
8 percent lower than that of petroleum diesel, causing vehicles running 
on B20, for example, to experience about a 2 percent decrease in fuel 
economy. At concentrations of up to 5 percent, biodiesel can be used in 
any application as if it were pure petroleum diesel. At concentrations 
of 6 percent to 20 percent, biodiesel blends can be used in several 
applications that use diesel fuel with minor or no modifications to the 
equipment, although certain manufacturers do not extend warranty 
coverage if equipment is damaged by these blends. 

Ethanol and Other Biofuels Can Be Produced from a Variety of Biomass: 

While ethanol is currently produced primarily from sugar-and starch-
rich food crops, the biomass in the stalks, stems, branches, and leaves 
of various plants and trees can also be used to make biofuels. These 
feedstocks are called cellulosic because much of their biomass is in 
the form of cellulose, a complex molecule found in plants. Plant 
biomass is made up primarily of cellulose, hemicellulose, and lignin. 
Cellulose and hemicellulose are made up of potentially fermentable 
sugars. Lignin provides the structural integrity of plants by enclosing 
the tightly linked cellulose and hemicellulose molecules, which makes 
these molecules harder to reach. Because cellulosic feedstocks are 
diverse, abundant, and potentially inexpensive, their use could greatly 
expand biofuel production. Cellulosic feedstocks include: 

* Dedicated annual or perennial energy crops: includes switchgrass, 
forage sorghum, miscanthus, hybrid poplar, and willow. 

* Agricultural residues: includes corn stover (the cobs, stalks, 
leaves, and husks of corn plants), corn fiber, wheat straw, rice straw, 
and sugarcane bagasse. 

* Forest residues and by-products: includes forest thinnings from stand 
improvement or removal of excess understory trees, forest residues 
(dead trees and branches), and hardwood sawdust and chips from lumber 
mills. 

* Municipal and other wastes: includes household garbage and paper 
products. 

* Cellulosic conversion technology currently focuses on two processes: 

* A biochemical process uses acids and enzymes to break down cellulose 
and hemicellulose into fermentable sugars. This also makes lignin 
available to be burned to produce steam and electricity. In a 
biochemical process, the percentage of the cellulosic feedstock that is 
made of potentially fermentable sugars will determine its potential 
ethanol yield.[Footnote 18] 

* A thermochemical process uses gasification and pyrolysis technologies 
to convert biomass and its residues to fuels, chemicals, and power. 
Gasification--heating biomass with about one-third of the oxygen 
necessary for complete combustion--produces a mixture of carbon 
monoxide and hydrogen, known as syngas. Pyrolysis--heating biomass in 
the absence of oxygen--produces liquid pyrolysis oil. Syngas and 
pyrolysis oil can then potentially be refined into a number of biofuels 
products, including ethanol, gasoline, jet fuel, and diesel fuel. 
Because the thermochemical process can convert the whole plant, 
including lignin, into fuel, it can potentially produce more biofuel 
from a feedstock than biochemical conversion. Researchers at the 
Department of Energy's (DOE) National Renewable Energy Laboratory have 
reported liquid product yields of 75 percent (by feedstock weight) when 
using fast pyrolysis, one method of thermochemical conversion. 

Some small biorefineries have begun to process cellulosic feedstocks 
using either biochemical or thermochemical conversion technologies. 
[Footnote 19] However, no commercial-scale facilities are currently 
operating in the United States. DOE is providing up to $272 million, 
subject to annual appropriations, to support the cost of constructing 
four small biorefineries that will process cellulosic feedstocks using 
either a biochemical or thermochemical conversion technology. 

The Federal Government Has Used Tax Expenditures, the RFS, and an 
Ethanol Import Tariff to Stimulate Domestic Biofuels Production: 

The Energy Tax Act of 1978, among other things, provided tax incentives 
designed to stimulate the production of ethanol for blending with 
gasoline.[Footnote 20] Specifically, the act authorized a motor fuel 
excise tax exemption for ethanol blends, which effective January 2005 
was replaced by the Volumetric Ethanol Excise Tax Credit (VEETC) to 
provide ethanol blenders with an excise tax credit of 51-cents per 
gallon of ethanol through 2008.[Footnote 21] The Food, Conservation, 
and Energy Act of 2008 (the 2008 Farm Bill) effectively reduced the 
VEETC to 45 cents per gallon beginning in 2009 and established a $1.01 
per gallon tax credit through 2012 for cellulosic biofuels 
producers.[Footnote 22] Additional tax credits that support biofuels 
include a $1 per gallon tax credit for biodiesel production, tax 
credits for small producers of ethanol or agri-biodiesel, an income tax 
credit for alternative fueling infrastructure, and a depreciation 
deduction for cellulosic ethanol facilities.[Footnote 23] These tax 
credits are examples of tax expenditures, so named because they result 
in revenue losses for the federal government because the government 
forgoes a certain amount of tax revenue to encourage specific behaviors 
by a particular group of taxpayers, making them in effect spending 
programs channeled through the tax system. The largest of these tax 
expenditures is the VEETC, which cost $4 billion in forgone tax revenue 
in fiscal year 2008, according to the Department of the Treasury. The 
2008 Farm Bill also extended through 2010 a 54-cent-per-gallon tariff 
on imported ethanol, which offsets the advantage foreign ethanol 
producers may gain from the VEETC. 

The federal government also supports biofuels through the RFS. EISA 
amended the RFS in 2007 to require that the amount of renewable fuels 
in transportation fuel in the United States increase from 11.1 billion 
gallons in 2009 to 36 billion gallons in 2022. However, EISA allows the 
Administrator of EPA, after consulting with USDA and DOE and holding a 
public notice and comment period, to reduce the amount of renewable 
fuels required to be blended in gasoline in whole or in part if the 
Administrator determines that (1) its implementation would severely 
harm the economy or environment of a state, a region, or the United 
States or (2) there is an inadequate domestic supply. 

For 2009, the 11.1 billion gallons of biofuels must include at least 
600 million gallons of advanced biofuels--defined as renewable fuel 
other than ethanol derived from corn starch that meet certain criteria--
and up to 10.5 billion gallons of conventional biofuels--defined as 
ethanol derived from corn starch and includes other biofuels that are 
not considered to be advanced biofuels.[Footnote 24] The RFS further 
specifies that of the 600 million gallon of advanced biofuels for 2009, 
at least 500 million gallons must come from biomass-based diesel. 
[Footnote 25] 

Beginning in 2010, the general requirement for advanced biofuel 
contains separate volume requirements for both biomass-based diesel and 
cellulosic biofuels. Beginning in 2015 and continuing through 2022, 
these advanced biofuel requirements essentially limit the annual amount 
of conventional biofuels that can count toward the RFS to 15 billion 
gallons. The 36-billion-gallon biofuel requirement for 2022 includes a 
minimum of 21 billion gallons of advanced biofuels, of which (1) at 
least 16 billion gallons must be cellulosic biofuels, (2) at least 1 
billion gallons must be biomass-based diesel, and (3) the remaining 4 
billion gallons can be other advanced biofuels, such as butanol or 
ethanol derived from sugar or starch other than corn starch. 

To be eligible for consideration under the RFS, renewable fuels 
produced by biorefineries for which construction began after EISA's 
enactment on December 19, 2007, must generally achieve at least a 20 
percent reduction in lifecycle greenhouse gas emissions as compared 
with baseline petroleum fuels.[Footnote 26] However, advanced biofuels 
and biomass-based diesel under the RFS must generally achieve at least 
a 50 percent reduction in lifecycle greenhouse gas emissions relative 
to baseline petroleum fuels, while cellulosic biofuels must generally 
achieve at least a 60 percent reduction, regardless of when the 
biorefinery producing the fuel was constructed.[Footnote 27] 

EISA requires that EPA promulgate a regulation that determines the 
lifecycle greenhouse gas emissions of biofuels and delineates which are 
eligible for consideration under the RFS based on the specified 
reductions and other statutory requirements. On May 26, 2009, EPA 
published a Notice of Proposed Rulemaking in the Federal Register that 
proposes the regulatory structure to implement the RFS and methods for 
calculating the lifecycle greenhouse gas effects of biofuels. 
Subsequently, in late July 2009, four peer review analyses of key 
components of EPA's lifecycle analysis were completed: (1) methods and 
approaches to account for lifecycle greenhouse gas emissions from 
biofuels production over time, (2) model linkages, (3) international 
agricultural greenhouse gas emissions and factors, and (4) satellite 
imagery. The proposed rule, if promulgated, would adjust the required 
lifecycle greenhouse gas emissions reductions for advanced biofuels 
from at least a 50 percent reduction to 44 percent or 40 percent in 
comparison with petroleum fuels. 

Although the proposed rule includes an analysis of environmental and 
health impacts, EISA does not require EPA to determine a fuel's 
lifecycle impact on the environment, apart from greenhouse gas 
emissions, in order for a fuel to be eligible for consideration under 
the RFS. After 2022, EISA requires EPA, in coordination with DOE and 
USDA, to establish the RFS based, in part, on the impact of the 
production and use of renewable fuels on the environment, including on 
air quality, wildlife habitat, water quality, and water supply. On May 
5, 2009, the President announced the formation of a Biofuels 
Interagency Working Group, co-chaired by the Secretary of Agriculture, 
the Secretary of Energy, and the Administrator of EPA. The working 
group is tasked, in part, with identifying new policy options to 
promote the environmental sustainability of biofuels feedstock 
production, taking into consideration land use, habitat conservation, 
crop management practices, water efficiency and water quality, as well 
as lifecycle assessments of greenhouse gas emissions. 

To ensure that the RFS is met, EPA sets a blending standard each year 
that represents the amount of biofuel that each refiner, importer, and 
certain blenders of gasoline must use.[Footnote 28] In November 2008, 
EPA set the blending standard at 10.21 percent for 2009, which is 
designed to satisfy EISA's general requirement that transportation 
fuels contain 11.1 billion gallons of biofuels for the year. This means 
that most refiners, importers, and blenders of gasoline will have to 
displace 10.21 percent of their gasoline with biofuels. 

Other statutory requirements EPA implements help maintain a market for 
ethanol. For example, the Clean Air Act Amendments of 1990 require 
areas with the worst air quality to use reformulated gasoline, which 
includes oxygenate additives that increase the oxygen content of the 
fuel and reduce emissions of carbon monoxide in some engines. Methyl 
tertiary butyl ether (MTBE) was the most common oxygenate additive 
until recent years, when it was found to contaminate groundwater. As of 
2007, MTBE had been banned in 25 states. In its place, ethanol has been 
increasingly used as the primary oxygenate in gasoline--increasing its 
demand. 

DOE and USDA Support Biofuels R&D and Demonstration: 

DOE supports biofuels research and development (R&D) efforts through 
its Biomass Program, within the Office of Energy Efficiency and 
Renewable Energy, and through its Office of Science. DOE's Biomass 
Program focuses on (1) developing more sustainable and competitive 
feedstocks than corn, primarily by exploring technologies to use 
cellulosic biomass; (2) reducing the cost of producing cellulosic 
ethanol; (3) converting biomass to biofuels through both biochemical 
and thermochemical processes; (4) helping to develop a national 
biofuels infrastructure by, for example, funding the construction of 
projects demonstrating integrated biorefinery technologies that use 
multiple feedstocks; and (5) promoting market-oriented activities for 
accelerating the deployment of biomass technologies.[Footnote 29] DOE's 
Office of Science jointly funds projects focused on biomass genomics 
with USDA and funds and operates three Bioenergy Research Centers, 
designed to accelerate basic research to develop cellulosic ethanol and 
other biofuels. DOE is also responsible for monitoring compliance with 
the requirement that 75 percent of federal fleet vehicle acquisitions 
be capable of using alternative fuels and the goal of increasing use of 
these fuels.[Footnote 30] 

USDA's Agricultural Research Service and Forest Service primarily 
conduct in-house R&D on feedstock development, sustainable harvest and 
production, and commercially viable conversion of agricultural 
feedstocks into fuel ethanol, butanol, biodiesel, pyrolysis-derived 
fuels, and value added co-products. In addition to these biofuels R&D 
activities, the Natural Resources Conservation Service administers the 
following two programs: 

* Environmental Quality Incentives Program: a voluntary conservation 
program for farmers and ranchers, to promote agricultural production, 
forest management, and environmental quality as compatible national 
goals. The program offers participants financial and technical 
assistance through contracts ranging from 1-to 10-year terms to install 
or implement structural and land management practices. 

* Conservation Stewardship Program: provides payments to encourage 
producers to address resource concerns in a comprehensive manner by 
undertaking additional conservation activities and improving, 
maintaining, and managing existing conservation activities. 

The Farm Service Agency administers the Conservation Reserve Program, a 
cost-share and rental payment program that assists producers in 
improving soil, water, and wildlife resources. The program encourages 
farmers to convert highly erodible cropland or other environmentally 
sensitive acreage to vegetative cover, such as tame or native grasses, 
wildlife plantings, trees, filter strips, or riparian buffers. In 
addition, the Economic Research Service and Office of the Chief 
Economist analyze and report on trends and effects associated with 
biofuels production; the National Agricultural Statistics Service 
gathers data and reports on several aspects of U.S. agriculture; the 
Natural Resources Conservation Service gathers data on land use and 
natural resource conditions and trends on nonfederal lands; and the 
Forest Service's Forest Inventory and Analysis program is responsible 
for data collection and publication of information on status and trends 
of trees (growth, mortality, and removals), forest products and 
utilization, and forest land ownership in the United States and the 
territories. 

The Biomass Research and Development Board Coordinates Federal R&D: 

The Biomass Research and Development Act of 2000 directed the 
Secretaries of Agriculture and Energy to coordinate policies and 
procedures that promote R&D leading to the production of biofuels and 
biobased products.[Footnote 31] The act created the Biomass Research 
and Development Board, co-chaired by DOE and USDA with representation 
from the Office of Science and Technology Policy; the Office of the 
Federal Environmental Executive; the Departments of Commerce, Defense, 
the Interior, Transportation, and the Treasury; EPA; and the National 
Science Foundation. The act also created the Biomass Research and 
Development Technical Advisory Committee, composed of about 30 
representatives from industry, academia, and state government. In 
addition, the act directed the Secretaries of Agriculture and Energy to 
establish, in consultation with the Board, a Biomass Research and 
Development Initiative to award grants, contracts, and financial 
assistance to carry out research on and development of biofuels and 
biobased products. The Biomass Research and Development Board issued a 
multiagency National Biofuels Action Plan in October 2008 and a report 
in December 2008 to inform research recommendations to address the 
constraints surrounding availability of biomass feedstocks.[Footnote 
32] The Board has also completed or drafted reports on such subjects as 
biomass conversion, sustainability, feedstock production, and 
logistics. 

In addition to federal efforts to support biofuel development, several 
states have established laws and policies to increase the availability 
and use of biofuels. In 2007, the American Coalition for Ethanol 
reported that 7 states have mandates that require the use of ethanol-
blended fuels, 23 states provide ethanol production incentives, and 13 
states offer incentives to encourage retailers to provide biofuels at 
their stations. 

Objectives, Scope, and Methodology: 

The Chairman of the Senate Committee on Environment and Public Works 
and Senator Susan M. Collins asked us to assess several issues related 
to the increased production of ethanol and other biofuels in the United 
States. Specifically, we examined (1) the known agricultural and 
related effects of increased biofuels feedstock production in the 
United States; (2) the known environmental effects of increased 
feedstock cultivation and conversion and biofuels use in the United 
States; (3) the results, assumptions, and limitations of key scientific 
analyses of the lifecycle greenhouse gas effects of biofuels produced 
from different feedstocks; (4) federal support for developing a 
domestic biofuels industry; (5) federal funding for advanced biofuels 
R&D; and (6) key challenges in meeting the RFS's specified levels. 

To examine known agricultural and related effects of increased biofuels 
production in the United States, we reviewed recent economic and 
scientific articles and recent reports of federal agencies. We also 
reviewed studies, reports, and presentation materials from the Biomass 
Research and Development Board and obtained relevant USDA data. 
Specifically, we searched databases including SciSearch, Biosis 
Previews, ProQuest, EconLit, and AgEcon Search and used a snowball 
technique to identify relevant peer-reviewed articles. We reviewed 
scientific articles in peer-reviewed journals that fit the following 
criteria: (1) the research was of sufficient breadth and depth to 
provide observations or conclusions directly related to our objectives; 
(2) the research was targeted specifically toward projecting or 
demonstrating effects of current biofuels production and advanced 
biofuels production on U.S. agriculture, namely on food, feed, and 
livestock markets as well as on overall biofuels feedstock yield and 
productivity, land-use intensification or expansion, and rural 
development; and (3) the studies were typically published between 2002 
and 2008 by U.S.-based researchers. Based on these criteria, we 
selected 62 studies (see appendix I). Of these, we selected 12 studies 
for more detailed analysis (see appendix II). These studies contain 
empirical economic analysis and were chosen because they present key 
assumptions, methods, scenarios, and relevant findings of economic 
models of biofuels' potential effects on agriculture. For the most 
part, these studies were national in scope and generated quantitative 
or empirical results. Some of the studies also modeled the effects of 
increased biofuels production on relevant agricultural and energy 
programs or policies. 

To examine the known environmental effects of increased feedstock 
cultivation and conversion and biofuels use in the United States, we 
conducted a review of relevant scientific articles, U.S. 
multidisciplinary studies, and key federal and state government 
reports. In conducting this review, we searched databases such as 
SciSearch, Biosis Previews, and ProQuest and used a snowball technique 
to identify additional studies, asking experts to identify relevant 
studies and reviewing studies from article bibliographies. We reviewed 
studies that fit the following criteria for selection: (1) the research 
was of sufficient breadth and depth to provide observations or 
conclusions directly related to our objectives; (2) the research was 
targeted specifically toward projecting or demonstrating effects of 
increased biofuel feedstock cultivation, conversion, and use on U.S. 
water supply, water quality, soil quality, air quality and 
biodiversity; and (3) typically published from 2004 to 2008. In 
reviewing 62 articles and studies (see appendix III), we examined key 
assumptions, methods, and relevant findings of major scientific 
articles, primarily on the water quality, water supply, soil quality, 
and air quality effects. 

To examine the findings, assumptions, and limitations of key scientific 
analyses of the lifecycle greenhouse gas effects of biofuels produced 
from different feedstocks, we reviewed recent scientific articles in 
peer-reviewed journals that examined the energy effects of biofuels, 
including net energy effects and greenhouse gas emissions of biofuels 
compared with fossil fuels. Specifically, we used a snowball sampling 
technique, asking experts and relevant stakeholders to identify key 
studies and then checking in the citations of these articles for other 
relevant work to identify studies that (1) provided specific estimates 
of greenhouse gas emissions from ethanol and biodiesel produced from 
biofuel feedstocks and (2) were published from 2004 to 2009 by U.S.-
based researchers. We then examined 12 studies that quantified a change 
in lifecycle greenhouse gas emissions of biofuels compared with that of 
fossil fuels as well as 18 studies that found a change in greenhouse 
gas emissions but did not compare the effects with fossil fuels. We 
also reviewed 16 additional studies that examined the effects of 
different inputs, assumptions, and data gaps on lifecycle analysis 
conclusions. (See appendix IV for the 46 scientific studies on the 
lifecycle greenhouse gas effects of biofuels we reviewed.) In doing 
this work, we made site visits to DOE's Argonne National Laboratory to 
interview the scientists who developed the GREET model that is widely 
used to calculate greenhouse gas emissions and DOE's Oak Ridge National 
Laboratory to interview scientists about their efforts to develop 
switchgrass as an energy crop and calculate the greenhouse gas 
emissions of cellulosic feedstocks. We also reviewed the proposed 
California Air Resources Board regulation to implement California's low 
carbon fuel standard. 

Based on our review of the methodologies of each of the scientific 
studies included to assess agricultural and related effects, 
environmental effects, and greenhouse gas emissions, we determined each 
to be sufficiently sound to include in this report. We also 
collaborated with the National Academy of Sciences to identify 
recognized experts affiliated with U.S.-based institutions, including 
academic institutions, the federal government, and research-oriented 
entities for each of the following areas: 

* The effects of increased biofuels production on agriculture. Experts 
who published peer-reviewed research articles or texts or significantly 
contributed to government studies that either (1) analyzed the effects 
of one or more biofuel feedstocks on U.S. agriculture; (2) estimated 
how expansion of U.S. biofuels production on agricultural or 
nonagricultural lands has impacted, is impacting, or will potentially 
impact food, feed, or fertilizer markets, major agricultural 
conservation programs, or any associated price and income effects; or 
(3) examined practices to maintain or increase crop or biofuels 
feedstock productivity levels while mitigating any adverse effects on 
environmental quality. We also asked the National Academy of Sciences 
to identify recognized experts from the private sector. 

* The effects of increased biofuels production on water quality, soil 
quality, water supply, and air quality. Experts who have (1) published 
research analyzing the water resource requirements of one or more 
biofuel feedstocks and the implications of increased biofuels 
production on lands with limited water resources, agricultural lands, 
marginal lands, or highly erodible lands; (2) analyzed the possible 
effects of increased biofuel production on water, soil, habitat, and 
biodiversity; or (3) analyzed pollution resulting from biofuels 
production and use. 

* The lifecycle greenhouse gas effects of biofuels production. 
Researchers who have recently published peer-reviewed research that 
examined the lifecycle greenhouse gas effects of biofuels produced from 
different feedstocks. Because we were asked to examine the results, 
assumptions, and limitations of key scientific analyses of the 
lifecycle greenhouse gas effects of biofuels produced from different 
feedstocks, we limited our interviews to the researchers who published 
these scientific studies and, as a result, are most knowledgeable about 
the models and data used for analysis. 

We believe we have included the key scientific studies and have 
qualified our findings where appropriate. However, it is important to 
note that, given our methodology, we may not have identified all of the 
studies with findings relevant to these three objectives. Where 
applicable, we assessed the reliability of the data we obtained and 
found them to be sufficiently reliable for our purposes. 

Together with the National Academy of Sciences' lists of experts, we 
identified authors of key agricultural, environmental, and greenhouse 
gas studies as a basis for conducting semistructured interviews to 
assess what is known about the effects of the increasing production of 
biofuels and important areas that need additional research. The experts 
we interviewed included research scientists in such fields as 
agricultural economics, environmental and natural resource economics, 
agronomy, soil science, ecology, air quality, and engineering. We also 
conducted interviews with cognizant federal agency officials and 
industry association executives. 

To assess federal support for developing a domestic biofuels industry, 
we reviewed the economic literature on the impacts of various policy 
tools used to provide federal support and their interactions, including 
both conceptual and empirical analyses. (See appendix V for 10 recent 
analyses by economists and nonprofit organizations.) We conducted 
semistructured interviews of cognizant federal officials and academic 
and government economists and reviewed Treasury data on federal tax 
expenditures; the R&D tax credit and other tax expenditures generally 
available to businesses were excluded. We applied conventional economic 
reasoning in analyzing the incidence of tax credits. 

To examine federal support for advanced biofuels R&D, we obtained DOE 
and USDA data on (1) obligations for biofuels R&D for fiscal years 2005 
through 2008 and (2) commitments for grants and loan guarantees for 
biofuels projects. We also obtained R&D data from EPA but excluded 
other federal agencies because they obligated only limited funds for 
biofuel R&D. We did not attempt to determine the market value of 
proposed federal loan guarantees. To determine what federal 
agricultural research is underway to support a transition to advanced 
biofuels feedstock production, we conducted interviews with USDA 
officials in the Agricultural Research Service; Forest Service; 
Cooperative State Research, Education, and Extension Service; Natural 
Resources Conservation Service; Economic Research Service; Office of 
the Chief Economist; Farm Service Agency; Rural Development mission 
area; National Agricultural Statistical Service; Office of Budget and 
Program Analysis; and Risk Management Agency. 

To examine the key challenges in meeting the RFS's specified levels, we 
reviewed relevant literature and federal and industry association 
reports, and interviewed federal agency officials and executives from 
industry associations. We also conducted site visits to DOE's National 
Renewable Energy Laboratory, Argonne National Laboratory, and Oak Ridge 
National Laboratory and USDA's National Center for Agricultural 
Utilization Research and Eastern Regional Research Center. 

In addition, we interviewed executives from cognizant industry 
associations and nonprofit organizations for each of the objectives. 
The industry associations include the American Meat Institute, 
Biotechnology Industry Organization, National Biodiesel Board, National 
Corn Growers Association, and Renewable Fuels Association, which 
represent various agricultural, energy, and biofuels industries. The 
nonprofit organizations include the Environmental Working Group, 
Natural Resources Defense Council, The Nature Conservancy, and World 
Resources Institute. 

We conducted our work from July 2008 through July 2009 in accordance 
with generally accepted government auditing standards. These standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. 

[End of section] 

Chapter 2: Biofuels Production Has Had Mixed Effects on U.S. 
Agriculture, but the Effects of Expanded Production Are Less Certain: 

Biofuels production has had mixed effects on U.S. agriculture, 
including effects on land use, crop selection, livestock production, 
rural economies, and food prices. For example, the increasing demand 
for corn for ethanol production has led to higher corn prices, provided 
economic incentives for some producers to devote additional acres to 
corn production, and resulted in reduced production of other crops. 
While higher corn prices have created additional income for corn 
producers, they have also been driving up feed costs for livestock 
producers. At the same time, the number of biorefineries producing 
ethanol or other biofuels has grown considerably, offering new 
employment opportunities in rural communities as well as a boost to 
local commerce and tax revenues, although experts' views on the 
magnitude and permanence of these benefits varies. In addition, the 
increasing use of corn for ethanol production, among other factors such 
as high energy costs and tight global grain supplies, has likely 
contributed to higher retail food prices by increasing the price of 
corn used for food processing and animal feed. The potential future 
effects of expanded biofuels production, including production of new 
energy crops for advanced biofuels, are less certain but could be 
significant, particularly to the extent that these new crops affect the 
production of other crops and livestock on agricultural land. Finally, 
some USDA farm, forest, conservation, and extension programs 
potentially could reduce risk and provide incentives to encourage 
farmers to produce cellulosic energy crops (feedstocks) and help reduce 
the gap with existing supports for producing food and feed crops. 

Increasing Corn Ethanol Production Has Had Mixed Effects on Land Use, 
Crop Selection, and Livestock Production: 

Increased ethanol production has raised demand for corn and contributed 
to higher corn prices. This has had several effects on U.S. 
agriculture, including an increase in acres planted to corn, a 
reduction in acres planted to other crops, an increase in crop 
production on lands that were formerly used for grazing or idled, and 
an increase in feed costs for livestock producers. 

In 2007, increased prices for corn led farmers to devote more acreage 
to corn and less to soybeans and other crops. That year, U.S. farmers 
planted an estimated 93.5 million acres to corn--a 19 percent increase 
from 2006--while reducing the area planted to soybeans by 14 percent, 
and to cotton by 29 percent. According to USDA, a sharp rise in the 
price of corn, partially attributable to the increased use of corn for 
ethanol, prompted farmers to make this shift from soybeans and cotton. 
At the beginning of the 2007 planting season, the price of corn had 
reached $3.39 a bushel--a 61 percent increase from just 12 months 
earlier. Moreover, the quantity of U.S. corn used to produce ethanol 
rose by more than 50 million metric tons from 2002 to 2007. Figure 2 
shows the increase in corn used for ethanol by market year, 1980 
through 2008. 

Figure 2: Corn Used for Ethanol by Market Year, 1980-2008: 

[Refer to PDF for image: vertical bar graph] 

Year: 1980; 
Bushels (millions): 35. 

Year: 1981; 
Bushels (millions): 86. 

Year: 1982; 
Bushels (millions): 140. 

Year: 1983; 
Bushels (millions): 160. 

Year: 1984; 
Bushels (millions): 232. 

Year: 1985; 
Bushels (millions): 271. 

Year: 1986; 
Bushels (millions): 290. 

Year: 1987; 
Bushels (millions): 279. 

Year: 1988; 
Bushels (millions): 287. 

Year: 1989; 
Bushels (millions): 321. 

Year: 1990; 
Bushels (millions): 349. 

Year: 1991; 
Bushels (millions): 398. 

Year: 1992; 
Bushels (millions): 426. 

Year: 1993; 
Bushels (millions): 458. 

Year: 1994; 
Bushels (millions): 533. 

Year: 1995; 
Bushels (millions): 396. 

Year: 1996; 
Bushels (millions): 429. 

Year: 1997; 
Bushels (millions): 481. 

Year: 1998; 
Bushels (millions): 526. 

Year: 1999; 
Bushels (millions): 566. 

Year: 2000; 
Bushels (millions): 628. 

Year: 2001; 
Bushels (millions): 706. 

Year: 2002; 
Bushels (millions): 996. 

Year: 2003; 
Bushels (millions): 1168. 

Year: 2004; 
Bushels (millions): 1323. 

Year: 2005; 
Bushels (millions): 1603. 

Year: 2006; 
Bushels (millions): 2119. 

Year: 2007; 
Bushels (millions): 3026. 

Year: 2008; 
Bushels (millions): 3700. 

Source: USDA’s Economic Research Service. 

[End of figure] 

In 2008, soybean plantings rebounded, as corn acreage declined. Soybean 
prices rose significantly in 2007 because of the smaller crop--the 
second smallest soybean crop in a decade--and this prompted some 
producers to return acres planted in corn in 2007 back to soybeans in 
2008. The estimated land area planted to soybeans increased by 17 
percent, returning to 2006 levels. Land planted to corn dropped to an 
estimated 86 million acres in 2008; nevertheless, this level was still 
10 percent above 2006 levels and represented one of the largest areas 
planted to corn since 1949. USDA expects a similar acreage to be 
planted to corn in 2009 and projects corn acreage to remain above 90 
million acres through 2017, with increasing yields per acre. Figure 3 
shows the changes in U.S. production--based on planted acres--of corn, 
soybeans, wheat, and cotton for crop years 1999 through 2009. 

Figure 3: U.S. Acres Planted to Corn, Soybeans, Wheat, and Cotton, Crop 
Years 1999-2009 (Millions of acres): 

[Refer to PDF for image: multiple line graph] 

Year: 1999; 
Corn: 77.4 million acres; 
Soy: 73.7 million acres; 
Wheat: 62.7 million acres; 
Cotton: 14.9 million acres. 

Year: 2000; 
Corn: 79.6 million acres; 
Soy: 74.3 million acres; 
Wheat: 62.5 million acres; 
Cotton: 15.5 million acres. 

Year: 2001; 
Corn: 75.7 million acres; 
Soy: 74.1 million acres; 
Wheat: 59.4 million acres; 
Cotton: 15.8 million acres. 

Year: 2002; 
Corn: 79.1 million acres; 
Soy: 74 million acres; 
Wheat: 60.3 million acres; 
Cotton: 14 million acres. 

Year: 2003; 
Corn: 78.6 million acres; 
Soy: 73.4 million acres; 
Wheat: 62.1 million acres; 
Cotton: 13.5 million acres. 

Year: 2004; 
Corn: 80.9 million acres; 
Soy: 75.2 million acres; 
Wheat: 59.6 million acres; 
Cotton: 13.7 million acres. 

Year: 2005; 
Corn: 81.8 million acres; 
Soy: 72 million acres; 
Wheat: 57.2 million acres; 
Cotton: 14.3 million acres. 

Year: 2006; 
Corn: 78.3 million acres; 
Soy: 75.5 million acres; 
Wheat: 57.3 million acres; 
Cotton: 15.3 million acres. 

Year: 2007; 
Corn: 93.5 million acres; 
Soy: 64.7 million acres; 
Wheat: 60.5 million acres; 
Cotton: 10.8 million acres. 

Year: 2008; 
Corn: 86 million acres; 
Soy: 75.7 million acres; 
Wheat: 63.1 million acres; 
Cotton: 9.5 million acres. 

Year: 2009; 
Corn: 85 million acres; 
Soy: 76 million acres; 
Wheat: 58.6 million acres; 
Cotton: 8.8 million acres. 

Source: GAO analysis of USDA’s National Agricultural Statistics Service 
data. 

[End of figure] 

Increased demand and higher prices for corn in recent years also 
resulted in the cultivation of some land that was formerly used for 
grazing or idled. Cropland used only for pasture or grazing declined by 
41 percent from 2002 to 2007 compared with a 6 percent decline in total 
cropland, according to USDA's 2007 Census of Agriculture. In addition, 
the cash rental rates for these pasture and grazing lands increased 
substantially, in part due to land-use changes to crop production. For 
example, the average cash rent paid per acre for pasture rose by 41 
percent nationwide from 2002 to 2008. In addition, some experts said 
that some land formerly enrolled in USDA's Conservation Reserve Program 
(CRP) has recently gone back into crop production, especially corn. CRP 
is a land retirement program that encourages landowners to take 
cropland, particularly highly erodible land, out of production and, in 
most circumstances, establish a natural vegetative cover--usually 
grasses--on this land. The landowner receives a rental payment from 
USDA for enrolling land in the program. Some experts expect even more 
CRP land to go back into production in the near term as contracts 
expire and if commodity prices remain high. Moreover, CRP, which as of 
November 2008 had 34.7 million enrolled acres, is scheduled to reduce 
its enrollment to no more than 32 million acres by October 1, 2009, as 
required by the 2008 Farm Bill. USDA officials said they do not track 
how former CRP land is used once it leaves the program, but USDA is 
working on a survey to identify reasons why some landowners opt to 
leave the program. 

The conversion of land used for grazing or idled to crop production has 
mixed effects. Cropland--which produces food, feed, fiber, and energy--
can yield relatively high financial returns to crop producers and 
landowners. In addition, crop exports contribute to the U.S. balance of 
trade; the United States is the world's leading exporter of several 
major crops including corn, soybeans, and wheat. Furthermore, crop 
production generally increases economic activity in rural communities, 
affecting demand for farm inputs--seed, fertilizer, pesticides, 
herbicides, farm machinery, and labor--and the services of grain 
marketing and transportation companies. However, the grazing and idled 
land, usually planted in grasses, that cropland displaces also has many 
economic as well as environmental benefits. Grassland provides forage 
for grazing livestock; provides recreational opportunities, such as for 
hunting and fishing; reduces soil erosion; improves water quality; 
provides wildlife habitat; and aids carbon sequestration, which reduces 
carbon dioxide, a greenhouse gas, in the atmosphere. 

Increased use of corn for ethanol has affected livestock producers by 
increasing prices for feed. In addition, livestock producers face 
reductions in land available for grazing. Historically, between 50 
percent and 60 percent of U.S. corn is used as animal feed, and feed is 
often the largest cost for livestock producers. According to USDA, from 
2006 to 2008, livestock producers saw feed prices nearly double, in 
part because of increasing use of corn for ethanol.[Footnote 33] For 
example, according to USDA, almost one-third of the U.S. corn crop in 
the 2008 marketing year was used for ethanol production, and the agency 
estimates that a similar or larger percentage of the 2009 crop will 
also be used for this purpose. In addition, the amount of land 
available for grazing cattle has been declining, according to 
researchers knowledgeable about the livestock sector.[Footnote 34] 
While development and other uses account for part of these losses, 
conversion of grasslands to cropland, including for the production of 
crops for biofuels, is also a key factor. In addition, the 2008-09 
global recession has hurt U.S. livestock producers by lowering demand 
for meat and poultry in the United States and abroad. Faced with 
multiple factors including rising feed costs, declining availability of 
land for grazing, and decreased domestic and foreign demand for meat, 
many U.S. livestock producers reduced the size of their herds and 
flocks in 2008. For example, the national beef cow herd was about 31.7 
million head at the end of 2008, the lowest inventory since 1963. USDA 
projects that the value of U.S. livestock production will decline $11 
billion, or 8 percent, in 2009 from the 2008 level. USDA also is 
forecasting a decline in 2009 and 2010 across all major categories of 
meat production. Furthermore, a meat industry official said that per- 
capita meat supplies in the United States in 2009 will be at their 
lowest level in several decades. 

Higher animal feed costs due to increasing corn prices also led some 
livestock producers to seek alternative feed rations that use less 
corn. According to officials of livestock producer organizations, in 
some cases the nutrient or caloric content of these alternative rations 
is lower, resulting in slower maturation and weight gain in the animal. 
Another alternative to corn is distiller's grains, a co-product of the 
ethanol-from-corn process that is rich in protein and is gaining 
increasing importance as a feed supplement for beef cattle and dairy 
cows. However, it is less suitable as feed for poultry and hogs because 
of its high fiber content except in smaller amounts. Also, according to 
some experts, the increasing use of distiller's grains in the feed 
ration could raise consumer issues because it could affect the quality 
and appearance of the meat. Nevertheless, according to some 
agricultural economists, the increased availability of distiller's 
grains has reduced to some extent the adverse impact of corn price 
increases on the livestock sector by increasing the supply of a corn 
substitute. However, a few experts also acknowledged that the price of 
distiller's grains, like other feed substitutes such as hay, has risen 
and generally tracks with the price of corn. Poultry producers, who 
cannot use hay as a substitute or large quantities of distiller's 
grains, have seen a rapid escalation in feed costs. Increased costs 
combined with lower demand have forced them to make sustained cutbacks 
in production, according to livestock industry officials. These 
officials also said that pork producers can feed soybean meal to their 
hogs but their total feed costs have remained high, prompting them to 
breed fewer animals. (See appendix VI for further information on 
economic effects and linkages in food and agricultural markets 
resulting from increased corn ethanol production.) 

Growth in Ethanol Production Has Generally Provided a Boost to Rural 
Economies: 

The growth in ethanol production generally has provided a boost to 
rural economies, particularly in the Corn Belt states.[Footnote 35] The 
main benefits have come from increased crop prices and the construction 
and operation of biorefineries to process corn into ethanol. However, 
expert views on the magnitude of these benefits and their permanence 
varies as the ethanol industry is prone to boom and bust cycles because 
of commodity and energy price volatility. In addition, as discussed 
above, the growth in ethanol production has generally hurt livestock 
producers, primarily by driving up feed costs and thereby hurting some 
sectors of rural economies. 

The increases in crop prices, caused partly by ethanol production, have 
brought benefits to farmers and landowners. For example, corn prices 
rose from under $2 per bushel in 2005 to $5.47 per bushel in June 2008. 
The corn futures price also reached a peak that month of $7.08 per 
bushel. These increases represented historic highs. Furthermore, 
according to USDA, long-term growth in global demand for agricultural 
products, in combination with continued U.S. demand for corn for 
ethanol and European Union demand for oilseeds for biodiesel, will hold 
prices for corn, oilseeds, and many other crops well above their 
historical levels through 2018. USDA expects domestic corn use to grow 
throughout this period, largely reflecting increases in corn use for 
ethanol production. The agency also expects corn exports to increase 
due to global economic growth, including increasing demand for feed 
grains to support growth in meat production. 

Because of the increases in crop prices, U.S. farmers set records in 
2007 and 2008 for the dollar value of their crop production, according 
to USDA. Net farm income was $86.8 billion in 2007, more than $29 
billion above the average of $57.5 billion (nominal dollars) for the 
previous 10 years. In addition, USDA estimates that the value of farm 
assets, including land, machinery, stored crops, and purchased inputs, 
rose 28 percent from 2005 to 2008. According to USDA, increased crop 
prices also reduced government outlays by $3.9 billion in 2007 for 
federal farm programs that provide producers payments when commodity 
prices fall below specified thresholds. Furthermore, because USDA 
anticipates that crop prices will remain high for the long term, it 
projects that government payments to farmers will fall from $12.4 
billion in 2008 to an average of less than $10 billion annually from 
2009 to 2018. 

In addition, the construction and operation of biorefineries to process 
corn into ethanol has provided additional employment opportunities in 
local communities and benefited businesses which provide goods and 
services to these plants. From 1991 through December 2008, the number 
of U.S. ethanol biorefineries increased from 35 to 172. Construction of 
a biorefinery generally requires the services of multiple businesses 
and skilled and unskilled workers, as well as the local purchase of 
materials, including concrete and plumbing and electricity supplies. 
While a relatively few firms specialize in ethanol plant construction 
and generally have their own equipment and skilled workers that travel 
with them, local construction firms sometimes provide less specialized 
services such as basic site preparation and plumbing and electrical 
work. 

Once operational, an ethanol biorefinery generally employs dozens of 
people. For example, an average 100-million-gallon-per-year plant 
employs about 52 full-time workers, who earn on average $52,000 a year. 
According to the most recent U.S. Census Bureau data available, the 
industry had about 4,300 employees in 2006. In addition, an operational 
biorefinery purchases goods and services from local firms to support 
its operations. This spending, along with employee salaries, also 
results in a multiplier effect of additional spending that supports 
jobs at local businesses, such as restaurants, stores, and gas 
stations.[Footnote 36] A 2008 study for the Renewable Fuels 
Association, a trade association, estimated that a 100-million-gallon- 
per-year plant provides nearly 1,100 jobs indirectly. However, other 
sources have estimated that the direct and indirect employment effects 
of ethanol plants are positive, but substantially lower. For example, a 
2009 study by the University of Illinois at Urbana-Champaign estimated 
a 100-million-gallon-per-year plant creates 97 to 152 jobs indirectly. 
In another case, a 2007 study done by Iowa State University projected, 
in part, that by 2016 the U.S. ethanol industry will have created about 
9,000 jobs directly and 11,600 indirectly. In addition, according to 
estimates made by Iowa's Department of Revenue, the operation of an 
ethanol plant in a town increases the average real household income of 
its residents by $822. The creation of additional employment 
opportunities is important for farm households and rural communities. 
For example, according to USDA, about 90 percent of U.S. farm household 
income is derived from sources other than the farming operation, such 
as wages and salaries from off-farm jobs and nonfarm businesses. In 
addition, according to a March 2009 report by the Rural Policy Research 
Institute, the nation's rural economy is losing jobs at a rate faster 
than the rest of the United States. New plants also increase the local 
tax base, which may provide funding for schools, hospitals, fire 
protection, and other public services. However, local governments may 
offer tax abatements for a specified period of years to attract plants 
to their area. 

Expert views on the magnitude of these benefits to rural communities 
and their permanence vary, and some biorefineries recently have 
suspended operations or delayed planned construction or expansion 
projects due to high corn prices, lower fuel demand, and tight credit 
markets. Some experts noted that the biofuels industry generally has 
been prone to periods of boom and bust driven by food and energy price 
volatility. When crop prices are low and energy prices are high, 
biofuel producers generally have profited and have sought to expand 
production. However, when these market conditions are reversed, biofuel 
producers generally have struggled. For example, one of the largest 
U.S. ethanol producers, VeraSun Energy Corporation, declared bankruptcy 
in October 2008 and announced the sale of all of its production 
facilities in February 2009. Other ethanol producers, such as Pacific 
Ethanol, Inc., have shut down plants or filed for bankruptcy because of 
unfavorable market conditions. 

Finally, according to livestock industry officials, herd and flock 
reductions--although initially creating a surge in business for 
slaughterhouses and meatpackers--have resulted, in the longer term, in 
many slaughter and meatpacking processors reducing shifts or days of 
operation, while others were forced to lay off employees, file for 
bankruptcy, suspend operations, or close. According to these officials, 
these actions potentially have led to the loss of jobs, economic 
activity, and tax revenues in some local communities. For example, 
according to a report by the National Chicken Council, National Turkey 
Federation, and American Meat Institute, the chicken and turkey 
industries closed facilities and laid off thousands of employees in 
2008 due to historically high corn prices resulting, at least in part, 
from the use of corn for ethanol. However, the general economic 
recession affecting the United States is also likely a factor in these 
plant closures. Furthermore, prices paid to livestock producers for 
meat may increase in the future due to supply reductions associated 
with herd and flock downsizing if consumer demand for meat remains 
unchanged. However, if the current global recession continues or 
worsens, consumer demand for meat may drop further. 

Higher Corn Prices--Driven in Part by Increased Ethanol Production--
Have Likely Been a Factor in Recent Food Price Increases: 

Higher corn prices, resulting in part from increased ethanol 
production, have likely contributed to domestic and international food 
price increases. Similar observations have been made in other countries 
that also are diverting part of their food and feed crop production to 
biofuels. However, estimates vary widely as to the relative 
contribution of biofuels production to food price increases. Other 
factors have also contributed to these price increases, including 
increased energy costs, higher costs for agricultural inputs, tight 
global grain supplies, export restrictions, poor grain crops in other 
countries, and growing world demand for food. 

Many experts agreed that the rapid growth in demand for grains to 
produce biofuels has contributed to rising global and domestic food 
prices, although opinions varied on the extent of this contribution. 
Biofuels production has recently been growing by about 15 percent per 
year worldwide, and more than doubled from 2000 to 2005, to nearly 
650,000 barrels per day, or about 1 percent of global transportation 
fuel use. Moreover, from the end of 2006 to early 2008, world food 
commodity prices rose by 45 percent, according to the International 
Monetary Fund, and many world food prices were at record highs in July 
2008. In contrast, in the United States, retail food prices rose by 4 
percent in 2007 and 5.5 percent in 2008, but these rates were still 
greater than in prior years. According to USDA, one reason for this 
smaller rate of increase is that Americans tend to consume highly 
processed foods in which grain, such as corn or its derivative 
products, represent a relatively small portion of the processed food 
cost. This is less true in developing countries where direct 
consumption of grain is more important. 

Estimates vary widely as to the relative contribution of biofuels 
production to retail and commodity food price increases. For example, 
in April 2009, the Congressional Budget Office estimated that from 
April 2007 to April 2008, the rise in the price of corn resulting from 
expanded production of ethanol contributed from 0.5 to 0.8 percentage 
points of the 5.1 percent increase in U.S. retail food prices measured 
by the Consumer Price Index. In another analysis, the U.S. Council of 
Economic Advisers estimated in May 2008 that U.S. production of corn-
based ethanol increased global retail food prices by about 3 percent 
for a 12-month period from 2007 to 2008. In addition, regarding 
commodity prices, a June 2008 study prepared for Kraft Foods Global, 
Inc. by a former USDA Chief Economist estimated that about 60 percent 
of the increase in the price of corn in marketing years 2006 through 
2008 was due to the increased use of this grain for ethanol, although 
other experts estimated that the impact was from 25 percent to 47 
percent. 

According to studies we reviewed, the following other factors also 
contributed to food price increases experienced in 2007 and 2008: 

* Input prices. Higher oil prices increased the production costs of all 
goods and services, including prices for agricultural inputs such as 
fertilizer, diesel, and propane. In general, higher input prices affect 
food prices through reduced production of food, as suppliers cut back 
their output. 

* Grain supplies. Global consumption of grain exceeded production in 7 
of the past 8 years, according to USDA. At the same time, by 2007 the 
global stocks-to-use ratio declined to the lowest level on record since 
1970,[Footnote 37] although government reductions to their reserve 
stocks also played a role. 

* Export restrictions. Rapidly rising food prices led some countries to 
restrict exports of agricultural commodities. In general, these 
countries wanted to maintain an adequate and reasonably priced domestic 
food supply to avoid civil unrest. However, according to USDA, these 
trade disruptions only exacerbated the price increases on world 
markets. 

* Rising incomes. In recent years, rising world incomes have led 
consumers in developing countries, such as China and India, to increase 
their per capita consumption of staple foods and include more meats, 
dairy products, and vegetable oils. 

* Exchange rates and speculation. Historically, commodity prices move 
with changes in the dollar's exchange rate. For example, depreciation 
of the U.S. dollar relative to the currency of importing countries 
makes purchases of U.S. commodities by foreign consumers less 
expensive, thus stimulating demand and increasing the prices of these 
commodities, as was the case from 2006 to 2008. In addition, increased 
purchases of financial instruments to hedge price swings may contribute 
to greater volatility in commodity prices. 

The Effects of Expanded Biofuels Production on Agriculture Are 
Uncertain but Could Be Significant: 

Many experts said increased biofuels production, including advanced 
biofuels, could significantly affect U.S. agriculture by changing land- 
use patterns. In addition, some experts said crop prices and other 
aspects of agricultural markets, such as use of inputs, land values, 
and farming profitability could also be affected. However, the effects 
are uncertain and will hinge on what energy crop feedstocks are used 
and whether these feedstocks are grown on existing farmland (crop-, 
pasture-, and rangeland).[Footnote 38] Also uncertain is how the 
continuing world economic recession and increased volatility of 
agricultural commodity prices, particularly corn prices, will impact 
the agricultural and biorefining sectors. 

Experts' views varied on the effect that diverting an increasing 
proportion of the U.S. corn crop to the production of ethanol will have 
on land-use decisions. Some said it would bring even more land not 
currently cultivated into production, including pasture-and rangeland. 
Others said it would continue to increase the cropland acreage devoted 
to corn production and reduce the acreage available for other crops. 
Still others said that while such changes are possible, the overall 
shift in agricultural land used to meet the future RFS-specified level 
for corn ethanol will be relatively modest. 

Some experts said that producing new energy crops, such as switchgrass, 
[Footnote 39] could increase competition for the use of existing 
farmland. However, several factors could mitigate this. For example, 
global food production must double by 2050 in order to meet the needs 
of the growing world population, according to the United Nations' Food 
and Agriculture Organization and other sources. Any resulting increases 
in the demand for highly productive farmland might limit shifts to 
energy crop production. Also, some experts said that energy crops such 
as perennial grasses are more suited to marginal land than are most 
food and feed crops, although they emphasized that yields will be lower 
on such land. In addition, crop residues could be produced along with 
food and feed, although residue removal above recommended rates might 
reduce soil fertility and increase soil erosion and thus affect food 
production. Furthermore, a few experts noted that some feedstocks 
chosen for production of advanced biofuels in the future would require 
little or no agricultural land. These might include municipal waste, 
forest thinnings, and algae. 

A few experts also noted that the commercial production of energy crops 
is still several years away. Significant challenges involving feedstock 
production practices, transport infrastructure, ethanol conversion 
technologies, and market formation must be addressed before new energy 
crops become economically viable. (See ch. 7 for a further discussion 
of these factors.) While there are a number of ongoing test or pilot 
projects to produce advanced biofuels from a variety of crops or other 
materials, it will be a considerable leap to commercial scale 
production. Furthermore, there may be little incentive for investors to 
embrace advanced biofuels at this time. As of early 2009, production in 
the ethanol industry had stagnated because of relatively low gasoline 
prices and excess ethanol production capacity. In addition, the U.S. 
recession, with its tight credit markets, numerous bank failures, and 
plummeting stock values, has made investors and lenders particularly 
cautious regarding unproven technologies. Finally, future demand and 
supply projections for crops currently used for biofuels production as 
well as new energy crops are sensitive to assumptions regarding crude 
oil prices and U.S. government policies. For example, according to a 
study by two Purdue University researchers, ethanol production jumps 
significantly when crude oil prices increase from $40 to $60 a barrel, 
but the impact on ethanol production would be less pronounced if oil 
prices were to increase from $140 to $160 per barrel. (See appendix II 
for information on several studies presenting such projections.) 

Moreover, while crude oil prices historically have had an impact on the 
agricultural sector, the RFS created a tighter link between the prices 
of crude oil and corn, according to some economists. Ethanol's share in 
the U.S. transportation fuel mix has increased, making up about 5 
percent of current U.S. gasoline consumption, while escalating RFS 
levels guarantee that this share will increase at least in the short 
term. Price volatility can have damaging effects for crop producers and 
biorefineries, as well as consumers, all of whom may have difficulty 
managing increased risk. For example, one large ethanol company filed 
for bankruptcy protection because it erred in making expensive hedges 
on the future price of corn. On the other hand, some oil refiners may 
be benefiting by being able to purchase shuttered ethanol plants. For 
example, Valero Energy, one of the largest independent U.S. oil 
refiners, won a bid in March 2009 to purchase eight ethanol plants. If 
this trend continues, more consolidation in the refining sector may 
help this set of corn users to weather increased price volatility. Crop 
and livestock producers, however, would still need to find their own 
mechanism for managing this volatility. 

Although potential growth in biofuel production is uncertain, various 
estimates suggest that global biofuel production could grow to supply 
over 5 percent of the world's transportation energy needs. This growth 
will likely mean an even greater use of crops and agricultural land for 
producing biofuel feedstocks, putting further pressure on commodity and 
food prices. In addition, we previously reported on the potential 
implications of expanded biofuels production on food security, hunger, 
and international food aid.[Footnote 40] For example, the diversion of 
grains to biofuel production contributes to increases in global grain 
prices, exacerbating food insecurity in regions such as sub-Saharan 
Africa by making food less affordable for the poor and the food aid 
programs that assist them. However, we also reported that rural 
development opportunities could exist for African communities that are 
able to produce biofuels. 

Some USDA Programs Could Support the Transition to Cellulosic Energy 
Crop Production for Biofuels: 

According to USDA officials and experts, some USDA farm, forest, 
conservation, and extension programs could potentially reduce risk and 
provide incentives to encourage farmers to produce cellulosic energy 
crops (feedstocks) for biofuels. At current market prices and under 
existing subsidy regimes for food and feed crops, returns to production 
of cellulosic feedstocks are not comparable with those for corn and 
other agricultural commodities. At present, it is not clear whether or 
how USDA programs will be designed to reduce the gap or what role 
increases in biofuels prices will play. 

Several USDA officials and experts said a new program, the Biomass Crop 
Assistance Program (BCAP), may provide a key means to reduce risk to 
producers of cellulosic feedstocks. The 2008 Farm Bill authorized BCAP 
to support the establishment and production of cellulosic feedstock and 
assist landowners with collection, harvest, storage, and transport of 
the feedstock to a biorefinery.[Footnote 41] Under this program, 
producers would enter into multiyear contracts with USDA to obtain 
payments of up to 75 percent of the cost for planting and establishing 
a perennial energy crop. They also would be eligible for annual 
payments for the life of the contract, similar to the payments 
producers now receive for certain food and feed crops, including corn. 
In addition, producers could receive separate payments for 2 years if 
they collect, harvest, store, or transport the feedstock to a 
biorefinery. Cognizant Farm Service Agency officials told us they will 
need to carefully consider these three potentially overlapping program 
payments as they develop the program rules and application process. A 
few experts said that BCAP payments could help put dedicated energy 
crops on a level playing field with traditional commodity crops. Farm 
Service Agency officials expect to issue a notice of proposed 
rulemaking, including a draft environmental impact statement, in fall 
2009. 

However, several provisions in the 2008 Farm Bill may affect the Farm 
Service Agency's ability to effectively develop the BCAP regulations, 
according to agency officials. For example, it is unclear whether the 
Farm Service Agency can pay costs associated with conservation measures 
under BCAP--such as dedicated wildlife corridors and riparian buffers--
in addition to costs specifically cited in the legislation, such as 
seeds, planting, and site preparation. Also, the 2008 Farm Bill 
excludes federal-or state-owned land from eligibility, which may have 
implications for Indian tribe lands held in trust by the U.S. 
Government and cropland owned by local government entities, such as a 
school board. 

In addition, the 2008 Farm Bill contains a research provision focused 
on (1) providing grants for enhancing the production of biomass energy 
crops and the energy efficiency of agricultural operations and (2) 
developing a best practices database of publicly available information 
on both the production potential of various biofuel feedstocks and on 
the best practices for production, collection, harvest, storage, and 
transportation of those feedstocks. This research is authorized for $50 
million annually through 2012 and the Cooperative State Research, 
Education, and Extension Service would likely carry out the grant 
program component of this provision once these funds are appropriated. 

Lastly, a 2008 Farm Bill provision authorized studies of insurance 
policies for dedicated energy crops. USDA Risk Management Agency 
officials said that current methods to design insurance policies for 
covering pasture, range, and forage lands would be suitable to use for 
certain dedicated energy crops if farmers were interested in an 
insurance product. However, these officials also said that developing 
such products would likely be more complicated for agricultural 
residues or woody feedstocks. 

Producers of biofuel feedstocks may already be considered for USDA 
conservation programs that the Natural Resources Conservation Service 
administers--such as the Environmental Quality Incentives Program and 
the Conservation Stewardship Program--because eligibility is based on 
land type rather than what is grown on the land. While it is likely 
that some criteria for production of nonfood biofuel feedstocks would 
need to be developed or enhanced, officials said that once they have 
sufficient resources, they do not anticipate difficulty in doing so. 
However, our past work has found that funding available to these 
programs has lagged producers' interest in participating.[Footnote 42] 
If the land on which producers might grow energy crops is indeed 
eligible, demand for program participation may further increase. 

Currently, energy crops other than corn and soybeans do not represent 
viable commercial alternatives for farmers when deciding what to plant. 
As demand for cellulosic-based biofuels develops and raises feedstock 
prices, returns to energy crop production may approach those for food 
and feed crops. In the meantime, government subsidies may improve 
incentives to adopt production systems necessary to grow cellulosic 
feedstocks. However, the returns for food and feed crops also include 
the benefits of government subsidies, among them direct and 
countercyclical payments.[Footnote 43] Experts said it may not be 
desirable or necessary to extend similar benefits to dedicated energy 
crops if biofuels market prices rise sufficiently. Moreover, a USDA 
official said it is unclear how energy crop subsidies could be designed 
in light of likely regional variation in prices that would develop. 

[End of section] 

Chapter 3: Increased Biofuels Production Could Have a Variety of 
Environmental Effects, but the Magnitude of These Effects Is Largely 
Unknown: 

The increased cultivation of corn, its conversion into conventional 
biofuels, and the storage and use of these fuels could have various 
environmental effects, including on water supply, water quality, air 
quality, soil quality, and biodiversity, but future movement toward 
cellulosic feedstocks for advanced biofuels could reduce some of these 
effects. Although input requirements have decreased over time, corn is 
a relatively resource-intensive crop, requiring relatively higher rates 
of fertilizer and pesticide applications and additional water to 
supplement rainfall depending on where the crop is grown. As a result, 
some experts believe that increased corn starch ethanol production may 
result in the cultivation of corn on arid lands that require 
irrigation, contributing to additional water depletion, and will lead 
to an increase in fertilizer and sediment runoff, impairing streams and 
other water bodies. Furthermore, experts believe that as cultivation of 
some crops such as corn for biofuels production increases, 
environmentally sensitive lands that are currently protected because 
they are enrolled in conservation programs may be moved back into 
production, thereby increasing cultivation of land that is susceptible 
to erosion and decreasing available habitat for threatened species. 
However, it is important to recognize that some of the effects on water 
quality and habitat may be mitigated by the use of agricultural 
conservation practices. In the future, farmers may also adopt 
cellulosic feedstocks, such as switchgrass and woody biomass, which 
could reduce water and land-use effects relative to corn. In addition, 
the process of converting feedstocks into biofuels may also negatively 
affect water supply, water quality, and air quality as more 
biorefineries move into production. For example, biorefineries require 
water for processing the fuel and will need to draw from existing water 
resources, which are limited in some potential production areas. 
However, the effects will depend on the location and size of the 
facility and the feedstock used. Finally, the storage and use of 
certain ethanol blends may pose other environmental problems, such as 
leaks in underground storage tanks that are not certified to store such 
blends and increased emissions of certain air pollutants when ethanol 
is used in most cars; however, less is known about the extent of these 
effects. According to some experts and officials, focusing on 
sustainability will be important in evaluating the environmental 
implications of increased biofuels production. 

[End of section] 

Cultivation of Corn for Biofuel Has a Variety of Environmental Effects, 
but a Shift to Cellulosic Feedstocks Could Reduce These Effects: 

The Biomass Research and Development Board projects that corn acreage 
will increase in all regions of the United States if corn starch 
ethanol production reaches the 15 billion gallons per year allowed by 
EISA for 2015 through 2022, with the largest increases taking place in 
the Corn Belt and Northern Plains. Although the water requirements of 
corn production have decreased over time with new seed varieties and 
agricultural management techniques, increased corn production in these 
areas could strain the supply of groundwater in places that rely on 
irrigation and are already facing water constraints. It could also 
degrade water quality in local streams and waterways as far away as the 
Gulf of Mexico. In addition, biodiversity and habitat could be 
affected, as lands set aside for conservation are returned to crop 
production. In contrast, the cultivation of cellulosic feedstocks has 
the potential to reduce the environmental effects associated with corn- 
based biofuel cultivation. However, there is still a significant amount 
of uncertainty associated with the direction and scale of the potential 
environmental implications of these feedstocks. 

Increased Cultivation of Corn for Ethanol Could Further Stress Water 
Supplies, but Cultivation of Certain Cellulosic Feedstocks May Require 
Less Water: 

Although advances have been made with regard to developing seed 
varieties for corn that are more drought tolerant, the cultivation of 
corn for ethanol production can require substantial quantities of water 
depending on where it is grown and on how much irrigation water is used 
to grow the corn.[Footnote 44] According to an Argonne National 
Laboratory study, the amount of water needed to produce 1 gallon of 
corn starch ethanol (considering both water used for irrigation and in 
the conversion process) varies significantly, estimated at 10 to 324 
gallons of water per gallon of ethanol for major corn production 
regions in the United States (see table 1). The upper part of this 
range generally represents regions that rely heavily on irrigation to 
grow corn, whereas the lower end reflects water use in those regions 
that rely primarily on rainfall. Another study examined water use as a 
function of vehicle miles per gallon associated with a range of 
transportation fuels. Corn starch ethanol derived from irrigated corn 
consumes an estimated 1.3 to 62 gallons of water per mile traveled in a 
vehicle using ethanol, while rain fed corn consumes significantly less 
water estimated at 0.15 to 0.35 gallons of water per mile 
traveled.[Footnote 45] In contrast, the production, transport, and use 
of gasoline consumes between 3.4 and 6.6 gallons of water per gallon of 
gasoline, and consumes between 0.07 and 0.14 gallons of water per mile 
traveled.[Footnote 46],[Footnote 47] 

Table 1: Average Water Consumed in Corn Ethanol Production in Primary 
Producing Regions in the United States, in Gallons of Water/Gallon of 
Denatured Ethanol Produced: 

Region: Corn irrigation, groundwater (gallons of water/gallon of 
ethanol); 
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri): 6.7; 
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 10.7; 
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska, 
Kansas): 281.2. 

Region: Corn irrigation, surface water; (gallons of water/gallon of 
ethanol); 
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri): 0.4; 
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 3.2; 
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska, 
Kansas): 39.4. 

Region: Corn ethanol conversion process; (gallons of water/gallon of 
ethanol); 
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri): 3.0; 
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 3.0; 
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska, 
Kansas): 3.0. 

Region: Total water consumption (gallons of water/gallon of ethanol); 
Corn Belt USDA Region 5 (Iowa, Indiana, Illinois, Ohio, Missouri): 
10.0; 
Great Lakes USDA Region 6 (Minnesota, Wisconsin, Michigan): 16.8; 
Northern Plains USDA Region 7 (North Dakota, South Dakota, Nebraska, 
Kansas): 323.6. 

Source: Center for Transportation Research, Energy Systems Division, 
Argonne National Laboratory, "Consumptive Water Use in the Production 
of Ethanol and Petroleum Gasoline," Center for Transportation Research, 
Energy Systems Division, Argonne National Laboratory, January 2009: 

Note: The primary corn production regions are in the upper and lower 
Midwest and include 12 states classified as USDA farm production 
regions 5, 6, and 7. Together these regions accounted for 89 percent of 
corn production in 2007 and 2008, and 95 percent of ethanol production 
in the United States in 2006. The Argonne National Laboratory study 
estimated the water consumed in corn ethanol production in each of the 
major ethanol producing regions considering water consumed in both corn 
cultivation and conversion processing steps. Estimates were based on 
average consumption of 3.0 gallons of water per gallon of corn ethanol 
produced in a corn dry mill, average consumptive use of irrigation 
water for corn in major corn producing regions, and dry-mill yield of 
2.7 gallons of ethanol per bushel. In evaluating corn cultivation, the 
water consumed is based on total amount of irrigation water used for 
corn production and total corn production for each region. In addition, 
based on U.S. Geological Survey research the calculation assumes that 
30 percent of water recharges local surface and groundwater, and the 
remaining 70 percent of the water is consumed by evapotranspiration 
(water lost through evaporation from the soil and plants) and other 
factors. Estimates of water consumed during the conversion process 
assumes use of a dry-mill ethanol production facility and considers 
water lost through evaporation and blowdown (periodic discharge of 
water used to remove salts and other solids to minimize corrosion, 
etc.) from the cooling tower and boiler, evaporation from the dryer, as 
well as water contained in the ethanol and dried distiller's grain co- 
products, among other factors. 

[End of table] 

The effects of corn production for ethanol on water supplies are likely 
to be greatest in water constrained regions of the United States where 
corn requires irrigation. For example, some of the largest increases in 
corn acres (1.1 million acres) are projected for the Northern Plains 
region, where, on average, 40 percent of the corn currently grown is 
irrigated. (See table 2.) Parts of this region draw heavily on the High 
Plains (Ogallala) aquifer. The Ogallala aquifer is already a stressed 
aquifer with known water withdrawals that are greater than the natural 
recharge that occurs through precipitation. A 1997 U.S. Geological 
Survey (USGS) report found water levels in the Ogallala aquifer have 
dropped more than 100 feet in places where agricultural crop irrigation 
was most intense.[Footnote 48] 

Table 2: Projected Growth in Corn Acreages Related to Increased Corn 
Ethanol Production of 15 Billion Gallons per Year (In millions of 
acres): 

U.S. region: Appalachian; 
2016 USDA baseline estimate[A]: Total cropland: 18.3; 
2016 USDA baseline estimate[A]: Corn acres: 4.8; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 1.2; 
2016 federal mandate: Total cropland: 18.6; 
2016 federal mandate: Corn acres: 5.0; 
2016 federal mandate: Continuous corn acres[B]: 1.3; 
Increase in corn acres: 0.2. 

U.S. region: Corn Belt; 
2016 USDA baseline estimate[A]: Total cropland: 101.0; 
2016 USDA baseline estimate[A]: Corn acres: 44.6; (In millions of 
acres): 2016 USDA baseline estimate[A]: Continuous corn acres[B]: 8.8; 
(In millions of acres): Total cropland: 102.6; (In millions of acres): 
2016 federal mandate: Corn acres: 45.9; (In millions of acres): 2016 
federal mandate: Continuous corn acres[B]: 9.4; (In millions of acres): 
Increase in corn acres: 1.3. 

(In millions of acres): U.S. region: Delta; (In millions of acres): 
2016 USDA baseline estimate[A]: Total cropland: 15.9; 
2016 USDA baseline estimate[A]: Corn acres: 0.7; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 0.3; 
2016 federal mandate: Total cropland: 16.4; 
2016 federal mandate: Corn acres: 0.8; 
2016 federal mandate: Continuous corn acres[B]: 0.3; 
Increase in corn acres: 0.1. 

U.S. region: Lake States; 
2016 USDA baseline estimate[A]: Total cropland: 40.0; 
2016 USDA baseline estimate[A]: Corn acres: 14.5; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 4.3; 
2016 federal mandate: Total cropland: 40.5; 
2016 federal mandate: Corn acres: 15.1; 
2016 federal mandate: Continuous corn acres[B]: 4.8; 
Increase in corn acres: 0.6. 

U.S. region: Mountain; 
2016 USDA baseline estimate[A]: Total cropland: 20.8; 
2016 USDA baseline estimate[A]: Corn acres: 1.2; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 1.2; 
2016 federal mandate: Total cropland: 20.3; 
2016 federal mandate: Corn acres: 1.3; 
2016 federal mandate: Continuous corn acres[B]: 1.3; 
Increase in corn acres: 0.1. 

U.S. region: Northern Plains; 
2016 USDA baseline estimate[A]: Total cropland: 63.1; 
2016 USDA baseline estimate[A]: Corn acres: 16.5; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 8.2; 
2016 federal mandate: Total cropland: 64.7; 
2016 federal mandate: Corn acres: 17.6; 
2016 federal mandate: Continuous corn acres[B]: 8.6; 
Increase in corn acres: 1.1. 

U.S. region: Northeast; 
2016 USDA baseline estimate[A]: Total cropland: 15.1; 
2016 USDA baseline estimate[A]: Corn acres: 3.9; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 2.0; 
2016 federal mandate: Total cropland: 15.2; 
2016 federal mandate: Corn acres: 4.1; 
2016 federal mandate: Continuous corn acres[B]: 2.0; 
Increase in corn acres: 0.2. 

U.S. region: Pacific; 
2016 USDA baseline estimate[A]: Total cropland: 7.7; 
2016 USDA baseline estimate[A]: Corn acres: 0.3; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 0; 
2016 federal mandate: Total cropland: 7.7; 
2016 federal mandate: Corn acres: 0.4; 
2016 federal mandate: Continuous corn acres[B]: 0; 
Increase in corn acres: 0.1. 

U.S. region: Southeast; 
2016 USDA baseline estimate[A]: Total cropland: 7.5; 
2016 USDA baseline estimate[A]: Corn acres: 2.3; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 1.1; 
2016 federal mandate: Total cropland: 7.6; 
2016 federal mandate: Corn acres: 2.4; 
2016 federal mandate: Continuous corn acres[B]: 1.1; 
Increase in corn acres: 0.1. 

U.S. region: Southern Plains; 
2016 USDA baseline estimate[A]: Total cropland: 27.6; 
2016 USDA baseline estimate[A]: Corn acres: 1.1; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 0.5; 
2016 federal mandate: Total cropland: 27.7; 
2016 federal mandate: Corn acres: 1.2; 
2016 federal mandate: Continuous corn acres[B]: 0.5; 
Increase in corn acres: 0.1. 

U.S. region: Total; 
2016 USDA baseline estimate[A]: Total cropland: 317.0; 
2016 USDA baseline estimate[A]: Corn acres: 90.0; 
2016 USDA baseline estimate[A]: Continuous corn acres[B]: 27.6; 
2016 federal mandate: Total cropland: 321.4; 
2016 federal mandate: Corn acres: 93.7; 
2016 federal mandate: Continuous corn acres[B]: 29.3; 
Increase in corn acres: 3.7. 

Source: Economic Research Service, USDA. 

[A] The 2007 USDA baseline projections for 2016 assumes ethanol 
production will mature to 12 billion gallons of ethanol per year. The 
2016 federal mandate scenario assumed 15 billion gallons of corn-based 
ethanol per year under the RFS. 

[B] Acres of cropland planted to corn on a continuous basis, rather 
than rotating between corn and the planting of other crops, such as 
soybeans. 

[End of table] 

The shift to cultivate certain cellulosic feedstocks--such as woody 
biomass and switchgrass--may require less water. However, effects on 
water supplies are largely uncertain and will depend on the type of 
feedstock and where it is grown. For example, agricultural crop 
residues, such as corn stover, do not require additional water, since 
they are co-products of already cultivated crops.[Footnote 49] For 
cellulosic feedstocks, as with corn or any other crop, the effects on 
water supply may be minimal if they are planted where they can be grown 
primarily with rainwater. However, if the crop is irrigated, the 
implications on water supply could still be significant. While some 
experts assume that perennial cellulosic feedstocks will be rainfed, 
other experts and EPA officials pointed out that to achieve maximum 
yields for cellulosic crops, farmers may need to irrigate. In addition, 
woody biomass that is planted in such a way to allow for quick growth 
and maximum production may be more water intensive than some perennial 
grasses, although there may be opportunities to irrigate these crops 
with wastewater or saline water sources that would be unsuitable for 
food crops.[Footnote 50] 

Increased Corn Cultivation for Biofuels Is Likely to Impair Water 
Quality, but Cultivation of Certain Cellulosic Feedstocks May Have Less 
of an Effect: 

Several experts we spoke with identified water quality impairments from 
the cultivation of corn as among the most significant potential 
environmental effects of increased corn starch ethanol production. In 
contrast, the cultivation of certain cellulosic feedstocks may have 
less of an effect on water quality, although the extent of the effect 
will depend on a number of factors, including the types of feedstocks 
grown, where they are grown, and the practices employed to cultivate 
and harvest them. 

Water Quality Effects of Increased Corn Production: 

Increased fertilizer use can compromise surface and ground water 
quality. Fertilizer runoff from additional corn cultivation for 
biofuels production is likely to impair streams and local water bodies, 
although agricultural conservation practices could mitigate some of 
these effects. For example, corn requires substantial inputs, including 
higher applications of fertilizers as compared to soybeans and other 
potential biofuel feedstocks.[Footnote 51] Fertilizer runoff containing 
nitrogen and phosphorus can lead to overenrichment and excessive growth 
of algae in surface waters. In some lakes, this has resulted in 
potentially harmful algal blooms, decreased water clarity, and hypoxia, 
a condition of reduced oxygen, which impairs aquatic life.[Footnote 52] 
Similarly, in marine waters, excessive algae growth can create a 
hypoxic or dead zone, a region that cannot support fish and other 
organisms, which require oxygen for survival. The number of reported 
dead zones around the world increased over the past decade to more than 
400.[Footnote 53] Many of them are along the Gulf of Mexico and the 
Atlantic Coast, areas that receive drainage from agricultural and urban 
landscapes, including a large portion of the Corn Belt, where many of 
the existing and planned ethanol production facilities are located. A 
2007 USGS model estimated that 52 percent of the nitrogen and 25 
percent of the phosphorus entering the Gulf system is from corn and 
soybean cultivation in the Mississippi River basin.[Footnote 54] 

Recent studies estimate that nitrogen runoff will increase by 2.5 
percent per year in water bodies across the United States and by more 
than 10 percent per year in the Mississippi River basin if additional 
corn is grown to meet the up to 15 billion gallons per year of corn 
starch ethanol allowed by EISA for 2015 through 2022.[Footnote 55] In 
addition, an analysis in EPA's May 2009 notice of proposed rulemaking 
for the RFS also projected an increase in nitrogen, phosphorus and 
sediment in the Upper Mississippi River Basin as a result of increased 
corn production for biofuels. Further, in the Upper Mississippi River 
basin, surface or subsurface drainage--via ditches or subsurface pipes 
that move water from wet soils to surface water quickly so crops can be 
planted--is common and may increase nutrient runoff, further degrading 
water quality, according to some experts and EPA officials we spoke 
with. In addition, livestock feeding largely on dried distiller's 
grains, a co-product of corn starch ethanol production, may produce 
manure that is especially high in phosphorus, which could also increase 
nutrient runoff, according to other experts and EPA's proposed 
rulemaking. Although EPA projects that nutrient runoff as a result of 
increased corn production may decrease over time with improved crop 
yields per acre, the nutrient load will be higher than the baseline 
measurement developed in 2005. 

Similarly, increased corn production for ethanol also may increase the 
contamination of groundwater by nitrates, which are also found in 
fertilizers. The areas most vulnerable to nitrate contamination are 
those with high fertilizer use that also depend on irrigation, have 
permeable soils, and have shallow groundwater. A 2006 USGS study 
predicted moderate to severe nitrate contamination of shallow 
groundwater in the High Plains and Northern Midwest, where increased 
corn cultivation for ethanol is anticipated.[Footnote 56] This study 
also predicted elevated nitrate levels of deeper water supplies used 
for drinking water in these same areas. EPA has determined that levels 
of nitrate exceeding 10 milligrams per liter in drinking water have an 
anticipated adverse effect on public health.[Footnote 57] Some 
groundwater aquifers in the Corn Belt already have elevated levels of 
nitrate in groundwater and increased corn production may add to the 
problem. For example, one study noted that water quality advisories are 
already common in Columbus, Ohio for elevated levels of nitrates in 
local waters. 

Increased pesticide use can compromise surface and ground water 
quality. Increased use of pesticides--including insecticides and 
herbicides--related to increased corn production will likely affect 
surface and ground water quality. For example, a 10-year nationwide 
study by USGS detected pesticides in 97 percent of streams in 
agricultural and urban watersheds.[Footnote 58] As would be expected, 
the highest concentrations of pesticides have been found in the areas 
of highest use. For instance, application rates of atrazine, a commonly 
used pesticide for corn production, are highest in the Corn Belt, and 
atrazine was also the most widely detected pesticide in watersheds in 
this region, according to a USGS nationwide study. This adversely 
affected aquatic plants and invertebrates in some of the streams, 
according to the study, since organisms are vulnerable to short-term 
exposure to relatively small amounts of certain pesticides. Similarly, 
increased pesticide use for the cultivation of corn for ethanol 
production can impair groundwater supplies. For example, the USGS study 
found pesticides in 61 percent of shallow wells sampled in agricultural 
areas. Once groundwater is contaminated, it is difficult to clean up. 

Increased cultivation of feedstocks for biofuels can increase soil 
erosion. Increased demand for corn for ethanol could also create 
incentives for farmers to abandon agricultural conservation practices 
that would otherwise reduce soil erosion, according to many experts we 
spoke to. Soil erosion reduces fertility by removing nutrient-rich 
topsoil. It also contributes to sedimentation, which fills channels and 
deep areas of lakes, streams, and rivers, affecting aquatic life and 
recreation. Sediment can also carry contaminants, such as pesticides 
and fertilizers, to these water bodies. A USDA Economic Research 
Service study estimates a 2.1 percent increase in rainfall-driven 
erosion related to increased corn production, with higher erosion 
effects expected in the Northern Plains, Great Lake States, and Delta 
regions.[Footnote 59] Furthermore, the discharge of sediment into 
streams is a top water quality problem nationwide, as well as in the 
Mississippi basin, where a large fraction of the increased corn 
production is anticipated. Moreover, to take advantage of higher corn 
prices, farmers may shift to planting corn on the same land every year 
instead of rotating to other crops such as soybeans--a practice known 
as continuous corn cultivation. Crop rotation is a common agricultural 
conservation practice that reduces erosion, helps replenish nutrients 
in the soil, and helps control pests, reducing the need for fertilizer 
and pesticides. Based on Biomass Research and Development Board data, 
an estimated 1.7 million additional acres of continuous corn production 
is projected for 2016 to meet the up to 15 billion gallons of corn 
starch ethanol allowed to be included in the Renewable Fuel Standard 
(see table 2). USDA data indicate that conservation tillage practices, 
such as no-till, can help reduce soil erosion and sediment runoff. 

Expansion of corn and soybean production to marginal lands can further 
affect water quality. Delivery of sediments, nutrients, and pesticides 
to water bodies may increase further if production of corn and soybeans 
expands to marginal lands and lands highly susceptible to erosion. 
Increased demand for biofuel feedstocks creates incentives for farmers 
to place such lands back into production. Marginal lands generally have 
lower productivity soils and are vulnerable to wind and water erosion. 
Moving these lands back into crop production may require more nutrient 
and pesticide inputs and increased tillage as compared with more 
productive lands, potentially leading to further water quality 
impairments. Increased sediment runoff is also anticipated with 
increased production of corn and soybeans, especially on marginal and 
highly erodible lands. Millions of acres of such land are currently 
enrolled in the Conservation Reserve Program (CRP), which provides 
annual rental payments and cost-share assistance to producers who 
contractually agree to retire highly erodible, environmentally 
sensitive cropland from agricultural purposes. As discussed in chapter 
2, farmers are generally required to plant or maintain vegetative 
covers (such as native grasses) on CRP land, which provides a range of 
environmental benefits, including improved water quality, reduced 
erosion, and preserved soil productivity. 

Agricultural conservation practices--such as no-till, reduced till, 
crop rotation, rotation cover crops, and riparian buffer zones--can 
reduce nutrient and pesticide runoff as well as erosion by retaining 
additional moisture and nutrients in the soil and disturbing the land 
less. Additional techniques are also available to reduce the effects of 
fertilizers, including precision agriculture, controlled-release 
fertilizers, and practices that match nitrogen fertilizer applications 
to a crop's nitrogen demand. However, EPA officials noted that despite 
implementation of these practices to varying degrees, nutrients from 
agriculture are already a major source of water quality impairment 
throughout the country, especially in the Corn Belt. Furthermore, a 
number of irrigation techniques and technologies are available to 
conserve water and thus reduce runoff. These include subsurface drip 
irrigation systems, real-time soil moisture and weather monitoring, 
rainfall harvesting, and use of reclaimed water. See table 3 for a 
description of some of the agricultural conservation practices that can 
reduce degradation of surface and ground waters from the increase in 
cultivation of feedstock for biofuels production. 

Table 3: Sample of Agricultural Conservation Practices Available to 
Reduce the Environmental Effects of Feedstock Cultivation for Biofuels: 

Agricultural conservation practice: Soil erosion prevention: Crop 
residue management; 
Description: Any tillage method that leaves a portion of the previous 
crop residues (unharvested portions of the crop) on the soil surface; 
Environmental benefits: 
* Reduces soil erosion caused by tillage and exposure of bare soil to 
wind and water; 
* Reduces water lost to evaporation; 
* Improves soil quality; 
* Reduces sediment and fertilizer runoff. 

Agricultural conservation practice: Soil erosion prevention: No-till; 
Description: Method that leaves soil and crop residue undisturbed 
except for the crop row where the seed is placed in the ground; 
Environmental benefits: 
* Reduces soil erosion caused by tillage and exposure of bare soil to 
wind and water; 
* Reduces water lost to evaporation; 
* Improves soil quality by improving soil organic matter; 
* Reduces sediment and fertilizer runoff. 

Agricultural conservation practice: Soil erosion prevention: Cover 
crops; 
Description: A close-growing crop that temporarily protects the soil 
during the interim period before the next crop is established; 
Environmental benefits: 
* Reduces erosion; 
* Reduces nitrate leaching; 
* Integrates crops that store nitrogen from the atmosphere (such as 
soy), replaces the nitrogen that corn and other grains remove from the 
soil; 
* Reduces pesticide use by naturally breaking the cycle of weeds, 
insects, and diseases; 
* Improves soil quality by improving soil organic matter. 

Agricultural conservation practice: Nutrient pollution reduction: Crop 
rotation; 
Description: Changing the crops grown in a field, usually in a planned 
sequence. For example, crops grown in the following sequence corn-soy-
corn; 
Environmental benefits: 
* Integrates crops that obtain nitrogen from the atmosphere (such as 
soy), replaces the nitrogen that corn and other grains remove from the 
soil; 
* Reduces pesticide use by naturally breaking the cycle of weeds, 
insects, and diseases. 

Agricultural conservation practice: Nutrient pollution reduction: 
Nutrient management; 
Description: Use of nutrients to match the rate, timing, form, and 
application method of fertilizer to crop needs; 
Environmental benefits: 
* Reduces nutrient runoff and leaching. 

Agricultural conservation practice: Nutrient pollution reduction: 
Subsurface fertilizer application; 
Description: Injection of fertilizer below the soil surface; 
Environmental benefits: 
* Reduces runoff and gaseous emission from nutrients. 

Agricultural conservation practice: Nutrient pollution reduction: 
Controlled-release fertilizers; 
Description: Use of fertilizers with water-insoluble coatings that can 
prevent water-soluble nitrogen from dissolving. Increases the 
efficiency of the way nutrients are supplied to and are taken up by the 
plant, regardless of the crop; 
Environmental benefits: 
* Reduces nutrient runoff and leaching. 

Agricultural conservation practice: Nutrient pollution reduction: 
Controlled drainage; 
Description: Water control structures, such as a flashboard riser, 
installed in the drainage outlet allow water level to be raised or 
lower as needed; 
Environmental benefits: 
* Minimizes transport of nutrients to surface waters. 

Agricultural conservation practice: Irrigation techniques: Subsurface 
drip irrigation systems; 
Description: Irrigation systems buried directly beneath the crop apply 
water directly to the root zone; 
Environmental benefits: 
* Minimizes water lost to evaporation and runoff. 

Agricultural conservation practice: Irrigation techniques: Reclaimed 
water use; 
Description: Water recovered from domestic, municipal, and industrial 
wastewater treatment plants that has been treated to standards that 
allow safe reuse for irrigation; 
Environmental benefits: 
* Reduces demand on surface and ground waters. 

Agricultural conservation practice: Multiple benefits: Wetland 
restoration; 
Description: Restoring a previously drained wetland by filling ditches 
or removing or breaking tile drains; 
Environmental benefits: 
* Reduces flooding downstream; 
* Filters sediment, nutrients, and chemicals; 
* Provides habitat for wetland plants, amphibians, and birds. 

Agricultural conservation practice: Multiple benefits: Riparian buffer 
zones; 
Description: Planting of strips or small areas of land along waterways 
in permanent vegetation that help control pollutants and promote other 
environmental benefits; 
Environmental benefits: 
* Traps sediment; 
* Filters nutrients; 
* Provides habitat and corridors for fish and wildlife. 

Agricultural conservation practice: Multiple benefits: Precision 
agriculture; 
Description: A system of management of site-specific inputs (i.e., 
fertilizer, pesticides) on a site-specific basis such as land 
preparation for planting, seed, fertilizers and nutrients, and pest 
control. Precision agriculture may be able to maximize farm production 
efficiency while minimizing environmental effects. Key technological 
tools used in this approach include global positioning systems, 
geographic information systems, real-time soil testing, real-time 
weather information, etc.; 
Environmental benefits: 
* Reduces nutrient runoff and leaching; 
* Reduces erosion; 
* Reduces pesticide use. 

Source: GAO. 

[End of table] 

Water Quality Effects of a Shift to Cellulosic Biofuels: 

Cultivation of some cellulosic feedstocks can provide certain benefits, 
including stabilizing soils, reducing soil erosion and nutrient runoff, 
and increasing nutrient filtration, according to some experts that we 
spoke to. For example, research indicates that perennial cellulosic 
feedstocks, such as switchgrass and other native prairie grasses, offer 
a range of water quality benefits related to their ability to cycle 
nitrogen more efficiently, sequester carbon, and protect soil from wind 
and water erosion. The perennial nature of these feedstocks can also 
reduce the need for most chemical inputs and tillage after crops are 
established, which can lessen the need for fertilizer application and 
reduce soil erosion and sedimentation. In addition, use of diverse 
perennial species can minimize the need for pesticides by promoting 
greater diversity and an abundance of natural enemies for agricultural 
pests.[Footnote 60] Finally, the presence of cellulosic feedstocks 
across an agricultural landscape can help reduce nutrient and chemical 
runoff from adjacent farmlands, and provide riparian strips and 
windbreaks that minimize erosion. 

The type, location, and cultivation methods used to grow cellulosic 
feedstocks will influence the extent to which they can improve water 
quality. Since potential cellulosic feedstocks have not been grown 
commercially to date, there is little data on the nutrient and 
pesticide input needs of these crops. In addition, according to USDA 
officials, nutrient inputs are likely to be greater on marginal lands 
with poor soil quality. Furthermore, use of some cellulosic feedstocks, 
specifically agricultural crop residues, could negatively affect water 
quality, depending on the agricultural practices employed. Agricultural 
crop residues--such as corn stover--offer a large and readily available 
biomass resource for production of cellulosic ethanol. It is a common 
agricultural conservation practice to leave residue--the portion of the 
crop which is not harvested--on the field to help protect the soil from 
wind and water erosion and replenish the soil with nutrients and 
carbon, among other benefits. If not enough residue is retained on farm 
fields, there could be increased sediment loadings to waterways. Excess 
residue removal may also increase the need for fertilizer, potentially 
leading to further water quality degradation, according to some 
experts. Further, an analysis conducted for EPA's proposed rulemaking 
identified the need for different conservation systems and conservation 
practice standards to produce cellulosic feedstocks in a sustainable 
manner. 

Biofuels Production Can Affect Soil Quality and Productivity: 

Promotion of biofuel production in a way that maintains soil quality 
over the long term is a critical environmental consideration about 
which several experts have expressed concern. Soil is a central, 
fundamental resource for all crops, including biofuel feedstock 
production, and ultimately determines crop productivity. Soil quality 
is directly affected by soil organic matter (which includes decomposed 
crop residue and living microorganisms), soil structure and compaction, 
and soil microbial communities. In particular, soil carbon, a central 
component of soil organic matter, supports nutrient cycling, improves 
soil structure, enhances water exchange and aeration, and sustains 
microbial life in the soil. 

The effects of biofuel feedstocks cultivation on soil quality will 
depend on which feedstock is planted and how it is cultivated. For 
example, planting perennial feedstocks, such as switchgrass, can help 
store soil carbon, stabilize soils, and reduce erosion, largely because 
of the deep root systems of many perennial plants. In addition, some 
cultivation methods can help maintain and potentially improve soil 
quality. Specifically, use of conservation tillage practices, such as 
no-till or planting cover crops, can protect soil from erosion and help 
restore, maintain, or build soil organic matter. 

Overuse of agricultural residues as feedstocks for biofuel production 
would also likely have adverse effects on soil quality, according to 
several experts we interviewed. Considerable uncertainty exists 
regarding how much, if any, residue can be removed for biofuels 
production while maintaining soil and water quality. In addition to 
protecting the soil from wind and water erosion, crop residues left on 
the field help maintain soil quality and replenish the soil with carbon 
and nutrients. If too much residue is removed for use as a feedstock 
for biofuels, soil productivity may be compromised, according to these 
experts. USDA, DOE, and some academic researchers are attempting to 
develop new projections on how much residue can be removed without 
compromising soil quality, but sufficient data may not be available to 
inform their efforts, and it may take several years to make such 
projections. In the interim, USDA and DOE are developing some tools to 
help estimate safe residue removal rates, but efforts are still under 
way. When completed, these residue removal assessment tools will 
consider the broad variance of local conditions such as soil type, 
climate, and management practices. 

Habitat and Biodiversity May Be Compromised with Increased Biofuel 
Feedstocks Cultivation: 

Table 30: The increased cultivation of corn and soy-based feedstocks to 
meet increases in corn and soy-based biofuels production could have 
significant effects on wildlife habitat and biodiversity, according to 
experts we spoke with. As mentioned above, a portion of the land that 
may be cultivated for additional crop production is expected to come 
from environmentally sensitive lands currently enrolled in conservation 
programs, such as the CRP. According to experts we spoke with, these 
lands provide contiguous habitat available for native wildlife in many 
parts of the country. Moving these lands back into production could 
lead to effects on available habitat, and subsequently, biodiversity. 
In addition, the effects of more intensively farmed monocultures-- 
production or growth of a single crop--over a wide area have been shown 
to lead to a decline in biodiversity and biodiversity-based benefits, 
such as pest suppression. For example, a recent study found that 
increased corn plantings can result in lower landscape diversity, 
altering the supply of natural predators to the soybean aphid, a major 
food crop pest.[Footnote 61] 

According to some experts that we spoke to, cellulosic biofuel 
feedstocks that require few inputs and include a diverse mix of native 
and perennial species could promote greater biodiversity than input-
intensive corn and soybean monocultures. Furthermore, some research 
suggests that cellulosic feedstocks may be grown on marginal lands that 
have been removed from agricultural production with fewer environmental 
effects. For example, a 2006 study--in which diverse native prairie 
grass species were grown on a site with degraded soils similar to lands 
often set aside in conservation programs--demonstrated that such 
perennial grasses could generate promising feedstock yields with low 
nutrient and irrigation inputs.[Footnote 62] According to some experts 
we spoke to, crop choice and cultivation methods will influence the 
extent of biodiversity benefits of cultivating cellulosic biofuel 
crops. For example, the cultivation of monocultures of cellulosic 
biofuel feedstocks, such as switchgrass, may be economically favorable 
to the cultivation of diverse native prairie grasses. However, 
according to some experts, these kinds of monocultures may not provide 
the same biodiversity benefits, and the characteristics that make the 
plant good for crop production, such as being fast growing, also 
increase its potential to invade natural environments. For instance, a 
recent study found that some monocultures of cellulosic feedstocks may 
be invasive in certain regions of the United States and have the 
potential to affect plant biodiversity in these regions.[Footnote 63], 
[Footnote 64] In addition, some USDA officials said that cultivation of 
new feedstock across large areas within the landscape will likely 
create new disease and insect problems for which there are limited 
control strategies. 

The Process of Converting Feedstocks into Biofuels Has Environmental 
Consequences, but the Effects Vary: 

The processing of feedstocks into biofuels at biorefineries may have 
significant effects on water supplies in some parts of the United 
States. However, according to officials, existing water quality 
regulations over effluents discharged by these facilities are expected 
to reduce the effects of pollutants. These facilities may also affect 
air quality, but the effects will depend on location, feedstock, and 
the pollution control technologies deployed. 

Effects on Water Supply from Biorefineries Can Be Significant in Some 
Locations: 

Although research indicates that the amount of water consumed in the 
corn ethanol conversion process has declined over time and is small 
compared to the amount of water consumed to grow irrigated corn, it may 
have significant effects on local water supplies. Specifically, from 
1998 through 2007, water consumption at corn ethanol biorefineries 
dropped 48 percent--from 5.8 to 3.0 gallons of water per gallon of 
ethanol--with improved equipment and energy efficient design, according 
to a 2009 Argonne National Laboratory study.[Footnote 65] Nevertheless, 
at this rate, the current average water needs for a single 100-million- 
gallon-per-year corn ethanol plant is almost the same as the annual 
water needs for a city with approximately 8,200 people--approximately 
300 million gallons, according to an EPA estimate.[Footnote 66] In 
addition, a recent report by the National Research Council found that 
siting of some ethanol plants is occurring where water resources are 
already under duress.[Footnote 67] As figure 4 shows, many existing and 
planned ethanol facilities that require 0.1 to 1.0 million gallons of 
water per day are located on the High Plains aquifer, where current 
water withdrawals are much greater than the aquifer's recharge rates 
(about 0.02 to 0.05 foot per year in most areas of the northern parts 
of the aquifer which include parts of Nebraska, Kansas, South Dakota, 
Colorado and Wyoming).[Footnote 68] Furthermore, ethanol conversion 
requires high-quality water, which can include groundwater, surface 
water, or municipal water supply sources.[Footnote 69] Because rural 
communities frequently rely on groundwater aquifers, which may take 
lifetimes to recharge, for their drinking water supplies, if several 
ethanol plants are built near one another or draw from the same 
aquifer, they could reduce the drinking water available to the 
surrounding communities. Finally, according to EPA, most estimates of 
water consumption in ethanol production do not consider water 
discharged as a result of pre-treating water prior to use in the 
conversion process. 

Figure 4: Existing and Planned Ethanol Facilities (as of 2007) and 
Their Estimated Total Water Use Mapped with the Principal Bedrock 
Aquifers of the United States and Total Water Use in 2000: 

[Refer to PDF for image: illustrated U.S. map] 

The map depicts the following: 

Location of:
High Plains Aquifers; 
Glacial Aquifers. 

Principal Bedrock Aquifers 2000 Water Use: Irrigation/Public 
Supply/Industrial; Million Gallons Per Day: 
0-250; 
250-500; 
500-750; 
750-1000; 
1000-1250; 
1250-1500; 
More than 1500. 

2007 Existing and Planned Ethanol Facilities: Estimated Total Water 
Use; Millions Gallons Per Day: 
0-0.05; 
0.05-0.10; 
0.10-0.50; 
0.50-1.00; 
More than 1.00. 

Source: Created by USGS for use in the National Research Council 2008 
report Water Implications of Biofuels Production in the U.S. 

[End of figure] 

For conversion of cellulosic feedstock, the amount of water consumed 
will depend on the process and on technological advancements that 
improve the efficiency with which water is used. For example, according 
to a 2009 Argonne National Laboratory study, water consumed in the 
biochemical conversion process for cellulosic feedstock using advanced 
technology is estimated at 5.9 gallons of water per gallon of ethanol, 
while thermochemical gasification processes for cellulosic feedstock 
may only require 1.9 gallons of water per gallon of ethanol or other 
fuel.[Footnote 70] According to the study, water required in the 
conversion process for cellulosic feedstock may also be reduced as 
technology improves, as has occurred in corn ethanol biorefineries. 

Water Pollutants Discharged by Biorefineries Are Regulated under the 
Existing Permitting Process: 

While effluent from ethanol and biodiesel refineries may contain 
pollutants that could negatively affect water quality, discharges of 
these effluents are regulated under the requirements of the Clean Water 
Act's National Pollutant Discharge Elimination System (NPDES) program. 
Effluents from refineries can be applied to land, treated on site, 
discharged to local wastewater treatment facilities, or discharged to 
water bodies. Under the act, refineries that discharge pollutants into 
federally regulated waters are required to obtain a federal NPDES 
permit from EPA or a state agency authorized by EPA to implement the 
NPDES program. These permits generally allow a point source, such as a 
refinery, to discharge specified pollutants into federally regulated 
waters under specific limits and conditions. According to EPA 
officials, the greatest potential pollutants are discharges of 
contaminated water from the reverse osmosis treatment used in ethanol 
refineries and the glycerin that is used in biodiesel refineries. 
[Footnote 71] According to EPA officials and state officials we spoke 
with, the NPDES permitting process is generally being effectively 
applied to discharges from refineries.[Footnote 72] For ethanol 
refineries, these permits cover blowdown (water containing salts built 
up in cooling towers and boilers), as well as discharges from the 
reverse osmosis process. The concentrated salts in discharges to 
streams and lakes from reverse osmosis are an area of concern due to 
their potential aquatic toxicity and other water quality effects, 
according to EPA officials. In addition, at small biodiesel refineries, 
biological oxygen demand from glycerin can be a problem in effluent 
released into local municipal wastewater facilities because it may 
disrupt the microbial processes used in wastewater treatment, according 
to EPA officials.[Footnote 73] However, according to EPA, in larger 
biorefineries, glycerin is less of a concern because it often is 
extracted from the effluent and refined for use in other products, 
including cosmetics and animal feed. In the future, it is likely that 
new technologies will make recovery of glycerin economically feasible 
in smaller facilities, according to USDA. 

Air Quality Effects of Biorefineries Will Depend on the Location and 
Size of the Facility and the Feedstock Used: 

Certain air pollutants--known as criteria pollutants under the Clean 
Air Act--are released into the air during most industrial manufacturing 
and refining processes, including the conversion of feedstocks into 
ethanol. These pollutants, which pose risks to human health and 
welfare, include particulate matter, nitrogen dioxide, carbon monoxide, 
ozone, lead, and sulfur dioxide.[Footnote 74] In addition, ethanol 
refineries can emit volatile organic compounds, which are a precursor 
to ozone, a criteria pollutant. (See table 4 for details on the public 
health and environmental effects of common pollutants that can be 
released by ethanol refineries.) In addition to criteria pollutants, 
ethanol refineries emit hazardous air pollutants, such as acetaldehyde, 
which are known or suspected to cause serious health effects, including 
cancer, or adverse environmental effects such as damaging crops or 
trees. 

Table 4: Potential Air Pollutants Associated with Ethanol Refineries 
and Their Related Health and Environmental Effects: 

Pollutant: Particulate matter; 
Health effects: Aggravation of respiratory and cardiovascular disease, 
decreased lung function and increased respiratory symptoms, and 
premature death; 
Environmental effects: Impairment of visibility, effects on climate, 
and damage and/or discoloration of structures and property. 

Pollutant: Sulfur dioxide; 
Health effects: Aggravation of asthma and increased respiratory 
symptoms. Contributes to particle formation with associated health 
effects; 
Environmental effects: Contributes to the acidification of soil and 
surface water and mercury methylation in wetland areas. Contributes to 
particle formation with associated environmental effects. Causes injury 
to plants and suppresses crop yield. 

Pollutant: Oxides of nitrogen (NOx); 
Health effects: Aggravation of respiratory disease and increased 
susceptibility to respiratory infections. Contributes to ozone with 
associated health effects; 
Environmental effects: Contributes to the acidification and nutrient 
enrichment (eutrophication, nitrogen saturation) of soil and surface 
water. Contributes to ozone with associated environmental effects. Can 
adversely affect plants and crop yields. 

Pollutant: Carbon monoxide (CO); 
Health effects: Reduces the ability of blood to carry oxygen to body 
tissues including vital organs. Aggravation of cardiovascular disease; 
Environmental effects: None known. 

Pollutant: Volatile organic compounds; 
Health effects: Cancer (from some toxic air pollutants) and other 
serious health problems. Contributes to ozone formation with associated 
health effects; 
Environmental effects: Contributes to ozone formation with associated 
environmental effects. 

Pollutant: Ozone (O3)[A]; 
Health effects: Aggravation of respiratory and cardiovascular disease, 
decreased lung function and increased respiratory symptoms, increased 
susceptibility to respiratory infection, and premature death; 
Environmental effects: Damage to vegetation such as effects on tree 
growth and reduced crop yields. 

Source: EPA. 

[A] Ozone is a secondary pollutant formed by a chemical reaction of 
volatile organic compounds and NOx in the presence of sunlight. 

[End of table] 

Biorefineries that emit more than threshold quantities of criteria and 
hazardous air pollutants are subject to Clear Air Act permitting 
requirements. If a biorefinery's emissions meet or exceed specific 
statutory or regulatory thresholds prior to its construction or any 
subsequent major modifications, the proposed facility or modification 
undergoes a New Source Review.[Footnote 75] Under New Source Review, 
permitting authorities review a proposed facility or modification to 
ensure that it will operate within emissions limits and utilize the 
requisite pollution control technologies. In addition, these 
biorefineries must obtain an operating permit and must comply with any 
applicable national emission standards for hazardous air pollutants. 
[Footnote 76] According to EPA regional officials, emissions from many 
of the existing and planned facilities in their region do not meet or 
exceed applicable thresholds, and are not subject to a New Source 
Review.[Footnote 77],[Footnote 78] These EPA officials and some state 
officials said they have experienced relatively few permit compliance 
issues with biorefineries once they are operational; however, these 
officials said the number of new permit applications has been small, in 
part due to the recent economic downturn. 

According to some experts we spoke with, as biofuels production 
increases, the effects on air quality from conversion processes will 
depend on the location of the biorefinery and the feedstock used. For 
example, according to some experts, many facilities are currently 
located in close proximity to where biofuel feedstocks are cultivated--
in rural areas that do not traditionally have problems with ambient air 
quality. However, some state and EPA officials expressed concern that 
with increased production and the availability of a more diverse group 
of biofuel feedstocks in a variety of geographic locations, future 
biorefineries may be located closer to urban areas that already have 
impaired ambient air quality, thereby exacerbating existing problems. 
In addition, according to some experts and state officials we spoke 
with, when looking at the total air emissions from biofuels it is 
important to also consider the additional emissions that may be 
generated by the transport of feedstocks to the biorefinery as well as 
the transport of fuel from the facility for blending with gasoline 
prior to distribution. 

In addition, EPA regional officials expressed concern regarding 
elevated ambient levels of some hazardous air pollutants that may 
result from increased ethanol production, especially in areas with high 
concentrations of ethanol refineries. For example, acetaldehyde, a 
hazardous air pollutant, forms during the ethanol conversion process 
and is also emitted when ethanol is used as fuel.[Footnote 79] A 2008 
study by the Nebraska Department of Environmental Quality showed that 
some ethanol refineries may have difficulties meeting national emission 
standards for some hazardous air pollutants, including acetaldehyde. 
Further, EPA's May 2009 notice of proposed rulemaking regarding the RFS 
included an analysis that found the production and distribution of 
biofuels could increase acetaldehyde emissions by almost 14 percent by 
2022 when compared to business as usual estimates. According to EPA 
regional officials, EPA is planning a pilot study to monitor ambient 
acetaldehyde in localities with high concentrations of ethanol 
production in order to develop better estimates of acetaldehyde 
emissions in the ethanol conversion process. 

In contrast, at this time, according to some experts and EPA regional 
officials we spoke with, little is known about the potential air 
quality effects of converting cellulosic feedstocks to biofuels, 
primarily because commercial-scale cellulosic biorefineries have not 
been completed and put into use. While some studies projecting 
potential emissions generated from the cultivation and conversion of 
biofuels show promise,[Footnote 80] some experts we spoke with believe 
that predictions of potential emissions reductions from the conversion 
of cellulosic feedstock are speculative until facilities have been 
demonstrated at the commercial scale. 

Storage and Use of Certain Ethanol Blends May Result in Further 
Environmental Effects that Have Not Yet Been Measured: 

As the percentage of ethanol used in motor fuels increases, the risk of 
leaks in the existing fuel storage and delivery infrastructure also 
increases because some of these tanks are not currently certified for 
storing such blends. These leaks could result in contamination of 
groundwater and surface water. Furthermore, the potential effects of 
increased biofuels use on air quality will depend on the ability of the 
existing fleet of vehicles to adapt to fuel blends with an increased 
percentage of ethanol. 

Current Fuel Storage and Delivery Infrastructure May Be Inadequate to 
Prevent Leaks and Potential Groundwater Contamination from Certain 
Ethanol Blends: 

Ethanol is highly corrosive and poses a risk of damage to pipelines, 
rail or tanker trucks, underground storage tanks (UST), and above-
ground storage tanks (AST), which could in turn lead to releases to the 
environment that may also contaminate groundwater, among other 
issues.[Footnote 81] According to EPA officials, aside from UST systems 
specifically designed to store fuel containing 85 percent ethanol, a 
large number of the 617,000 federally regulated UST systems currently 
in use at approximately 233,000 sites across the country are not 
certified to handle fuel blends that contain more than 10 percent 
ethanol.[Footnote 82] These officials stated that the expected life 
span of USTs is typically 30 years. This, combined with the lack of 
information on how many of these tank systems are ethanol compatible 
and where they are installed, makes it difficult for EPA to gather data 
on the level of leakage risk posed by a switch to different blends of 
ethanol. Officials also commented that substantial turnover in 
ownership further complicates the challenge of determining what type of 
UST system is in the ground without removing it. 

Moreover, according to EPA officials, most tank owners do not have 
records of all the UST systems' components, such as the seals and 
gaskets. Glues and adhesives used in UST piping systems were not 
required to be tested for compatibility with ethanol until recently. 
Thus there may be many compatible tanks with incompatible system 
components, increasing the potential for equipment failure and fuel 
leakage, according to EPA officials, and EPA continues to work with 
government and industry partners to study the compatibility of UST 
system components with various ethanol blends. In 2000, 39 states, 
territories and tribes identified leaking USTs as one of the top 10 
causes of groundwater contamination in state assessment reports. When 
leakage occurs from USTs storing ethanol-blended fuels, the 
contamination may pose greater risks than petroleum. Studies show that 
ethanol causes benzene, a soluble and carcinogenic chemical in 
gasoline, to travel longer distances and persist longer in soil and 
groundwater than it would in the absence of ethanol, potentially 
reaching a greater number of drinking water supplies.[Footnote 83], 
[Footnote 84] 

Use of Certain Ethanol Blends in Vehicles Is Expected to Increase 
Emissions of Certain Air Pollutants, but Research Is Ongoing to Better 
Establish the Magnitude of These Emissions: 

In addition to emissions from biorefineries, research indicates that 
there is some concern regarding tailpipe emissions from vehicles and 
small nonroad engines using certain blends of ethanol.[Footnote 85], 
[Footnote 86] In modeling done as part of its proposed rulemaking, EPA 
estimated that nitrogen oxide emissions are projected to increase due 
to the use of fuel blends with 10 percent ethanol, and the use of fuel 
blends with 85 percent ethanol will lead to more significant increases 
in ethanol, acetaldehyde, and formaldehyde emissions. Furthermore, 
while some vehicles are designed to handle fuel blends of up to 85 
percent ethanol, some conventional vehicles may not be equipped to 
handle blends containing greater than 10 percent ethanol, according to 
an Oak Ridge National Laboratory study.[Footnote 87] Specifically, the 
study reported that the use of these intermediate ethanol blends by 
vehicles may have an effect on the pollution control systems and 
emissions of some vehicles, particularly older vehicles.[Footnote 88] 
While EPA has conducted some research to quantify the emissions effects 
of ethanol blends of 10 percent and 85 percent, research on 
intermediate blends has been limited and efforts are under way to 
determine the magnitude of their potential effect.[Footnote 89] For 
example, DOE's National Renewable Energy Laboratory and Oak Ridge 
National Laboratory and EPA are conducting long-term studies on the 
effects of intermediate ethanol blends on emissions from vehicles in 
the existing fleet and small nonroad engines. Preliminary results have 
shown that, in vehicles, fuel blends greater than 10 percent ethanol 
generally reduce emissions of some criteria pollutants and some 
hazardous air pollutants, although acetaldehyde emissions increased. 
[Footnote 90] The National Renewable Energy Laboratory, the Oak Ridge 
National Laboratory, and EPA are expected to report on the effects of 
intermediate ethanol blends on the full useful life of the existing 
fleet of vehicles in 2010, including effects on pollution control 
systems and emissions.[Footnote 91] While the potential effects of 
intermediate ethanol blends on tailpipe emissions and catalytic systems 
are important, EPA emissions data indicate that tailpipe emissions of 
certain pollutants have decreased substantially over time (see table 
5). As a result, while there may be some adverse effects, particularly 
in areas with existing air pollution problems, the effects of increased 
pollution from motor vehicles as a result of ethanol use may be 
relatively small. EPA plans to further analyze the potential air 
quality effects of increased renewable fuel use as a part of the final 
rulemaking for the RFS. 

Table 5: Criteria Pollutants and Related Emissions from Stationary and 
Mobile Sources, 1990 and 2007 (thousands of short tons): 

Highway vehicles: 
Year: 1990; 
Carbon monoxide (CO): 110,255; 
Nitrogen oxides (NOx): 9,592; 
Sulfur dioxide (SO2): 503; 
Volatile organic compounds: 9,388; 
Particulate matter (PM2.5)[A]: 323. 

Highway vehicles: 
Year: 2007; 
Carbon monoxide (CO): 41,610; 
Nitrogen oxides (NOx): 5,563; 
Sulfur dioxide (SO2): 91; 
Volatile organic compounds: 3,602; 
Particulate matter (PM2.5)[A]: 114. 

Nonroad equipment: 
Year: 1990; 
Carbon monoxide (CO): 21,447; 
Nitrogen oxides (NOx): 3,781; 
Sulfur dioxide (SO2): 371; 
Volatile organic compounds: 2,662; 
Particulate matter (PM2.5)[A]: 300. 

Nonroad equipment: 
Year: 2007; 
Carbon monoxide (CO): 18,762; 
Nitrogen oxides (NOx): 4,164; 
Sulfur dioxide (SO2): 396; 
Volatile organic compounds: 2,650; 
Particulate matter (PM2.5)[A]: 276. 

Total U.S. emissions: 
Year: 1990; 
Carbon monoxide (CO): 154,188; 
Nitrogen oxides (NOx): 25,527; 
Sulfur dioxide (SO2): 23,077; 
Volatile organic compounds: 24,108; 
Particulate matter (PM2.5)[A]: 7,560. 

Total U.S. emissions: 
Year: 2007; 
Carbon monoxide (CO): 88,254; 
Nitrogen oxides (NOx): 17,025; 
Sulfur dioxide (SO2): 12,925; 
Volatile organic compounds: 18,423; 
Particulate matter (PM2.5)[A]: 5,450. 

Source: GAO analysis of EPA data. 

[A] PM2.5 includes particulate matter at most 2.5 micrometers in 
diameter. 

[End of table] 

Focus on Sustainability Will Be Important in Evaluating Environmental 
Implications of Increased Biofuel Production: 

Experts from government, academia, and the private sector have stated 
that to better understand the environmental implications of different 
fuel choices, an increased focus on sustainability is needed. While 
there are no standard criteria, nor a single working definition for 
sustainability, the Biomass Research and Development Board described 
sustainable renewable energy production as systems that are not only 
productive, but also environmentally, economically, and socially viable 
now and for future generations. Some experts and agency officials said 
that sustainability is a useful concept for understanding these effects 
and evaluating policy options because it takes into account a wide 
variety of potential effects. Several efforts are under way to evaluate 
biofuels using this broad concept. For example, the Biomass Research 
and Development Board has drafted a proposed set of scientific 
sustainability criteria that cover the critical elements of a 
sustainable biofuels system.[Footnote 92] Each criterion has a 
corresponding set of measurable indicators. For example, one of the 
environmental criteria is "soil quality and land productivity," and its 
corresponding indicators are feedstock yield, soil loss, and soil 
organic matter content. Although some data are available, reliable 
science-based methods to predict likely outcomes from measurable 
indicators must still be developed, according to USDA. 

Furthermore, some experts and officials we spoke with highlighted the 
importance and need for lifecycle analysis of the environmental effects 
of biofuels--throughout feedstock cultivation, harvest, transport, fuel 
production, storage, and use. EPA is undertaking some of these analyses 
and included a partial assessment of water and air effects in the 
preamble of the May 2009 RFS proposed rulemaking. In addition, EPA has 
stated that it has clear authority and responsibility under other 
statutes, such as the Clean Water Act and the Federal Insecticide, 
Fungicide and Rodenticide Act, to evaluate the environmental impacts of 
a biofuel's lifecycle. However, EISA does not require EPA to determine 
what fuels are eligible for consideration under the RFS based on their 
lifecycle environmental effects even though a fuel's lifecycle 
greenhouse gas emissions determine eligibility (see ch. 4). Moreover, 
beginning in 2022, EPA must establish the renewable fuel standard based 
in part on the impact of the production and use of renewable fuels on 
the environment. According to the experts we spoke with, any 
comprehensive analysis of the costs and benefits of gasoline compared 
with the various types of biofuels will require a complete analysis of 
environmental effects as well. 

Conclusions: 

Ethanol, biodiesel, and advanced cellulosic biofuels are being promoted 
for their potential contributions to reducing net greenhouse gas 
emissions, achieving greater national energy security by decreasing the 
transportation sector's use of imported petroleum, and developing rural 
economies by raising domestic demand for U.S. farm products. Although 
EPA's May 2009 proposed rulemaking included a partial analysis of water 
and air effects of biofuels production, EISA does not require EPA to 
determine what renewable fuels are eligible for consideration under the 
RFS based on their lifecycle environmental effects, apart from 
lifecycle greenhouse gas emissions. Given the significant environmental 
effects that could occur at every step of the biofuels production 
process--feedstock cultivation, harvest, transport, conversion to 
biofuel, storage, and end use--and the potential for biofuels 
production to further exacerbate existing environmental problems, we 
believe that any assessment of biofuel feedstock will be incomplete 
without a full consideration of all the related potential environmental 
implications associated with each type of feedstock. Furthermore, for 
policymakers to be fully informed about the effects of their decisions, 
these implications must be compared to the environmental effects of 
gasoline and other transportation fuel options. While we recognize the 
challenge EPA faces in assessing the variety of environmental effects 
that increased biofuels production can cause and given that, at a 
minimum, the agency will be required to undertake such an assessment in 
2022, we believe developing a strategy to assess these effects now is 
an important first step in ensuring that future fuel choices will not 
lead to additional environmental degradation. 

Matter for Congressional Consideration: 

In addition to the currently required lifecycle greenhouse gas 
emissions analysis, the Congress may wish to consider amending EISA to 
require that the Administrator of the Environmental Protection Agency 
develop a strategy to assess the effects of increased biofuels 
production on the environment at all stages of the lifecycle-- 
cultivation, harvest, transport, conversion, storage, and use--and to 
use this assessment in determining which biofuels are eligible for 
consideration under the renewable fuel standard. This would ensure that 
all relevant environmental effects are considered concurrently with 
lifecycle greenhouse gas emissions. 

Agency Comments and Our Evaluation: 

In commenting on a draft of this report, EPA addressed the Matter for 
Congressional Consideration to consider amending EISA to require EPA to 
develop a strategy to assess the effects of increased biofuels 
production on the environment at all stages of the lifecycle and to use 
this assessment in determining which biofuels are eligible for 
consideration under the RFS. EPA commented that this matter might be 
best addressed by the recently created Executive Biofuel Interagency 
Working Group co-chaired by EPA, USDA, and DOE, which has been tasked 
to promote the environmental sustainability of biofuel feedstock 
production, among other things. EPA also commented that it has clear 
authorities and responsibilities under other environmental statutes 
that may regulate aspects of a biofuel's lifecycle and is required by 
Section 204 of EISA to evaluate the environmental effects of biofuels 
and submit a report to the Congress. 

We acknowledge that EPA has the authority under other statutes to 
mitigate the environmental effects of biofuels and believe that the 
evaluation currently required by section 204 of EISA will provide a 
good foundation for the analysis we are suggesting. However, we believe 
that our matter for congressional consideration would require EPA to 
not only assess the lifecycle effects of biofuels, but to actually use 
these assessments to determine which biofuels are eligible for 
consideration under the renewable fuel standard. 

[End of section] 

Chapter 4: Researchers Disagree on How to Account for Indirect Land-Use 
Changes in Estimating the Lifecycle Greenhouse Gas Effects of Biofuels 
Production: 

Twelve recent scientific studies have used greenhouse gas or economic 
forecasting models to estimate the total emissions of carbon dioxide 
and associated gas during a biofuel's lifecycle--growing, harvesting, 
and transporting the feedstock; producing the biofuel; and using it in 
a vehicle--and comparing these results with greenhouse gas emissions of 
fossil fuels.[Footnote 93] Overall, the estimated lifecycle greenhouse 
gas emissions of biofuels compared with fossil fuels in these studies 
ranged from a 59 percent reduction to a 93 percent increase in 
greenhouse gas emissions for corn starch ethanol, a 113 percent 
reduction to a 50 percent increase for cellulosic ethanol, and a 41 
percent to 95 percent reduction for biodiesel. More specifically, 
studies that did not include indirect land-use changes in their 
lifecycle analysis generally reported that conventional corn starch 
ethanol can achieve some net greenhouse gas reduction benefits and 
cellulosic ethanol can likely achieve more reduction benefits as 
compared with fossil fuels. However, the three studies that addressed 
indirect land-use changes in their methodologies each reported that 
biofuels had a net increase in greenhouse gas emissions relative to 
fossil fuels. In addition, 9 other scientific studies assessed the 
greenhouse gas emissions of various biofuels feedstocks using various 
other metrics, such as the carbon payback period--the amount of time 
needed to compensate for the carbon debt generated from clearing new 
lands to grow biofuel feedstocks. 

Many of the lifecycle analysis researchers we interviewed stated there 
is general consensus on the approach for measuring the direct effects 
of increased biofuels production, but disagreement among researchers 
about assumptions and assessment methods for estimating the indirect 
effects of global land-use change. EPA is required to assess 
significant greenhouse gas emissions from land-use change because only 
biofuels that achieve certain lifecycle emission reductions relative to 
petroleum fuels are eligible for consideration under the RFS. In 
particular, researchers disagree about what nonagricultural lands will 
be converted to replace land used to grow biofuels crops so that world 
production of food, feed, and fiber crops is maintained, and about 
future productivity trends in both existing and new farmland. Although 
research for measuring indirect land-use changes as part of the 
greenhouse gas analysis is only in the early stages of development, 
EISA directed EPA to promulgate a rule to determine the lifecycle 
greenhouse gas emissions of biofuels included in the RFS, including 
significant emissions from land-use changes for each feedstock. Many 
researchers told us that the lack of agreement on standardized 
lifecycle assessment methods, combined with key information gaps in 
several areas--such as feedstock yields, domestic and international 
land-use data, and data on above-ground biomass and soil carbon for a 
variety of land cover crops worldwide--greatly complicate EPA's ability 
to promulgate this rule. On May 26, 2009, EPA published a proposed rule 
in the Federal Register. 

Estimates of the Lifecycle Greenhouse Gas Emissions of Biofuels Have 
Significantly Differed: 

Twelve recent scientific studies that compared the estimated lifecycle 
greenhouse gas emissions of using ethanol with using gasoline generally 
showed a modest greenhouse gas reduction benefit for conventional corn 
starch ethanol and greater benefits for cellulosic ethanol (see figure 
5). For example, a 2006 Argonne National Laboratory study estimated 
that, for the entire fuel cycle, corn starch ethanol generated 21 
percent to 24 percent less greenhouse gas emissions than gasoline, 
while cellulosic ethanol produced from corn stover generated 86 to 89 
percent less greenhouse gas emissions than gasoline.[Footnote 94] 
Updated data presented in 2008 showed that such feedstocks as forest 
residues, corn stover, switchgrass, and fast-growing trees reduced 
greenhouse gas emissions relative to gasoline from 75 percent to 112 
percent.[Footnote 95] In comparison with gasoline, the estimated 
greenhouse gas emissions ranged from a 59 percent decrease to a 93 
percent increase for corn starch ethanol and from a 113 percent 
decrease to a 50 percent increase for ethanol emissions from 
cellulosics, including switchgrass, corn stover, and forest residues. 

Figure 5: Estimated Lifecycle Greenhouse Gas Emissions of Ethanol as 
Compared with Gasoline: 

[Refer to PDF for image: illustration] 

This illustration indicates four types of ethanol feedstock as well as 
the estimated lifecycle greenhouse gas emissions for each type as 
compared with gasoline. 

In most cases, lifecycle analysis did not include indirect land use 
change. In a few cases, lifecycle analysis included indirect land use 
change. 

The illustration indicates the following: 

Ethanol feedstock: Corn starch; 
Reduces greenhouse gases: generally between 0 and 50%, but in a few 
cases increased greenhouse gases more than 50%. 

Ethanol feedstock: Switchgrass; 
Reduces greenhouse gases: generally between 50 and 100%. 

Ethanol feedstock: Corn stover; 
Reduces greenhouse gases: generally between 75 and 100%. 

Ethanol feedstock: Forest residues; 
Reduces greenhouse gases: generally between 75 and 90%. 

Source: Figure based on data from 12 key studies conducted by DOE, 
USDA, and academic researchers. 

[End of figure] 

In addition, we examined 9 other scientific studies that estimated the 
greenhouse gas impacts of biofuels using different metrics to report 
their results than the studies shown in figure 5. For example, 3 of 
these 9 studies estimated the greenhouse gas emissions of biofuels 
based on a carbon payback period--defined as the amount of time needed 
to overcome greenhouse gas releases incurred when new lands are cleared 
to grow biofuel feedstocks--while 2 studies in this group used a net 
energy metric, such as net energy input per unit output. Other studies 
in this group reported the greenhouse gas impacts from biofuels in 
terms of overall greenhouse gas emissions reductions or increases 
without quantifying these reductions relative to fossil fuels. These 9 
scientific studies reported both positive and negative greenhouse gas 
impacts for biofuels. 

Assumptions about Agricultural and Energy Inputs, Co-Products, and Land-
Use Changes Determine Research Results: 

The results of the 21 scientific studies we reviewed vary primarily 
because researchers made different assumptions about the agricultural 
management practices and biorefinery energy inputs required to produce 
biofuels, allocated these energy inputs to co-products in a number of 
ways, and considered direct and indirect land-use impacts to different 
extents. (See appendix IV for a list of key studies on the lifecycle 
greenhouse gas effects of biofuels and appendix VII for a summary of 
the assumptions and conclusions of 17 researchers about lifecycle 
greenhouse gas emissions of biofuels production.) 

Assumptions about Agricultural and Biorefinery Energy Inputs Can 
Strongly Affect the Results of Biofuel Lifecycle Assessment Models: 

Several researchers told us that different assumptions about 
agricultural inputs and practices related to biofuel production can 
strongly affect lifecycle analysis results. For example, assumptions 
about fertilizer production and its rate of application are important 
because corn farming requires intensive application of nitrogen-based 
fertilizer. One study estimated that 70 percent of greenhouse gas 
emissions in corn production are related to nitrogen fertilizer, which 
requires fossil energy to produce and results in emissions of nitrous 
oxide, a greenhouse-gas, from the farmed soil.[Footnote 96] Also, most 
researchers told us that certain agricultural and production 
efficiencies could reduce greenhouse gas emissions from corn starch 
ethanol. For example, such farming practices as planting cover crops 
that bind the fertilizer's nitrogen in the soil might mitigate nitrogen 
leaching and greenhouse gas emissions and improve soil organic levels. 
[Footnote 97] Similarly, the no-till land management practice might 
improve soil organic levels and increase carbon sequestration rates in 
comparison with conventional tillage. In addition, the lifecycle 
analysis is affected by decisions on what type of land to bring into 
feedstock production, the energy requirements of harvesting machinery, 
and the energy associated with transporting feedstocks to 
biorefineries. 

Researchers have also made varying assumptions on the amounts and types 
of energy used to power biorefineries. For example, estimates of the 
lifecycle greenhouse gas emissions of corn ethanol as compared with 
gasoline have varied from a 3 percent increase when coal was used as 
the process fuel to a 52 percent decrease when wood chips were 
used.[Footnote 98] For cellulosic ethanol biorefineries, some studies 
that assume coal will be used for power showed increased greenhouse gas 
emissions compared with other studies that assume lignin (the 
noncellulose portion of the feedstock) will be used as a source of 
power.[Footnote 99] Furthermore, the models vary based on whether they 
measure biorefinery energy use with regional data or measure it at a 
specific biorefinery, and some studies vary based on whether they use 
energy data for dry mill processing or more energy-intensive wet mill 
processing. 

Assumptions about Allocating Energy to Co-Products Can Substantially 
Affect the Results of Biofuel Lifecycle Analyses: 

The same energy that a biorefinery uses to make ethanol or biodiesel 
also creates economically valuable co-products, including distiller's 
grains produced with corn ethanol using dry mill processing, soy meal 
produced by soybean crushing facilities, glycerin produced with 
biodiesel by biorefineries, and electricity produced by ethanol 
biorefineries that use cellulosic and sugarcane feedstocks. To analyze 
the energy use and greenhouse gas emissions, the energy used by a 
biorefinery to produce co-products needs to be subtracted out. Because 
future cellulosic biorefineries could be designed to co-produce 
electricity along with ethanol by burning the lignin in cellulosic 
feedstocks to generate heat or steam, this potential energy offset for 
producing cellulosic ethanol also needs to be taken into account. 
Researchers have used different approaches for addressing biofuels co- 
products. Some researchers did not include co-products as a factor in 
their analysis while other researchers have allocated the energy use 
attributable to these products through (1) a displacement method that 
assumes that co-products from ethanol production substitute for other 
products that require energy for their production, (2) a mass-based 
method that distributes energy among all products according to their 
mass output shares, and (3) an economic revenue shares method that 
distributes energy based on the revenue shares of each product. Several 
researchers told us that the methods used to allocate energy to these 
co-products is one of the largest variables in energy studies, and the 
variation can lead to widely different results.[Footnote 100] A recent 
Argonne National Laboratory study examining the implications of 
selecting one method over others found that co-product method selection 
has significant effects on the biofuel greenhouse gas results, 
particularly for corn ethanol and biodiesel--for corn starch ethanol 
from 19 percent to 46 percent of the greenhouse gas emissions could be 
allocated to the distiller's grain co-product depending on the method 
used, and for cellulosic ethanol from 2 percent to 31 percent could be 
allocated to co-generated electricity depending on the method used. 
[Footnote 101] 

Land-Use Changes May Be the Most Important and Difficult Variable to 
Account for when Assessing the Lifecycle Greenhouse Gas Emissions of 
Biofuels: 

Some researchers believe that land-use changes are the most significant 
factor in determining the greenhouse gas effects of certain types of 
biofuels. The land-use changes resulting from biofuel production are 
either direct or indirect. Direct land-use change examines the 
immediate effects of displacing the existing use of land to grow 
feedstocks for biofuel production. For example, as corn ethanol 
production increases, farmers could grow more corn on land previously 
used for another type of crop, such as soybeans. Indirect land-use 
change is significantly more difficult to measure because it examines 
what nonagricultural lands may be converted to replace agricultural 
land used to grow biofuels crops to maintain world production of food, 
feed, and fiber crops. For example, assessments of indirect land-use 
change attempt to measure the impact of increased biofuel production in 
the U.S. on agriculture patterns in other countries, such as those in 
tropical regions where land not currently used for agriculture might be 
cleared to produce corn and other agricultural commodities. Such land- 
use changes may result in more greenhouse gases being released than 
were saved through the replacement of gasoline with ethanol. 

To date, only a few studies have attempted to account for the effects 
of indirect land-use change. One study estimated that (1) corn starch 
ethanol resulted in a 93 percent increase in greenhouse gas emissions 
relative to gasoline when indirect land-use changes were included and 
(2) converting corn fields to grow switchgrass would trigger land-use 
changes that would result in a 50 percent increase in greenhouse gas 
emissions as compared with gasoline.[Footnote 102] In addition, two 
other studies stated that biofuels production could increase greenhouse 
gas emissions if corn starch ethanol production required expanding 
agricultural production on other native habitats or if cellulosic 
feedstocks accelerated land clearing by adding to the agricultural land 
base needed for biofuels.[Footnote 103] These studies quantified the 
carbon debt, which determines the greenhouse gas releases that biofuels 
must overcome to provide greenhouse gas benefits. The time needed to 
overcome this carbon debt is referred to as the payback period. One of 
these studies estimated this payback period to be about 86 to 840 years 
for biodiesel, depending on the tropical ecosystem being converted, and 
about 93 years for corn ethanol produced on newly converted U.S. 
central grasslands. The studies also reported that the expansion of 
biofuels into production in tropical ecosystems would always lead to 
net carbon emissions for decades to centuries, but expanding into 
degraded or already cultivated land could reduce greenhouse gas 
emissions and provide carbon savings. However, while all three studies 
incorporated land-use change effects, other researchers have criticized 
these studies for either (1) not recognizing cultural and political 
interactions as well as other factors that also lead to land-use 
change, (2) using economic models that do not include all land-use 
factors in the modeling, (3) making certain assumptions about the type 
of land being converted and agricultural practices used to plant the 
biofuel feedstocks, or (4) making assumptions regarding crop 
productivity of existing and new crop land that may not reflect 
technology potentials. [Footnote 104] Other researchers told us that 
indirect land-use changes could be significant but said that their 
effects cannot be estimated because current models, methods, and data 
are inadequate. 

Two of these studies also estimated that biodiesel achieved a 41 
percent to 95 percent decrease in greenhouse gas emissions relative to 
diesel fuel.[Footnote 105] However, these studies did not consider the 
possible effects of biofuel production on land-use decisions and any 
new greenhouse gas emissions that may be released. Other researchers 
told us that converting rainforests, peatlands, savannas, or grasslands 
to biodiesel crops would likely lead to increased greenhouse gas 
emissions. For example, in a 2006 study, researchers did not consider 
land-use changes and reported greenhouse gas emission decreases for 
soybeans compared with diesel fuel, but in a 2008 study, some of these 
researchers found greenhouse gas increases when land-use changes were 
considered.[Footnote 106] While these researchers did not quantify the 
results as a percent change compared with fossil fuels, they found that 
clearing certain land for crop-based biofuels would release more carbon 
dioxide than the greenhouse gas reductions from displacing fossil fuels 
would provide. 

Despite the differences regarding how to quantify land-use change, the 
researchers we interviewed generally believe that certain cellulosic 
feedstocks, such as corn stover, wood waste, or municipal waste, would 
not cause significant indirect land-use changes and could decrease 
greenhouse gas emissions compared with fossil fuels, even though some 
researchers said over-harvesting agricultural residues could increase 
soil erosion and adversely affect water quality, requiring mitigation. 

Shortcomings in Forecasting Models and Data Make It Difficult to 
Determine Lifecycle Greenhouse Gas Emissions: 

Researchers told us there is a lack of consensus within the scientific 
community about whether biofuels reduce greenhouse gas emissions, 
citing in particular uncertainties about how to link biofuels 
production with indirect land-use change. Underlying this lack of 
consensus are limitations to current forecasting models, a lack of 
standardized assumptions and metrics, and a lack of current data on the 
type of land that would be brought into production to replace acreage 
used to grow biofuel feedstocks.[Footnote 107] Many researchers told us 
that limitations to current lifecycle models and key information gaps 
challenge EPA's ability to promulgate a rule defining fuels eligible 
for consideration under the RFS. 

Models for Assessing Lifecycle Impacts Are Currently Limited: 

Several researchers have cited a need for better and more sophisticated 
models and analyses of lifecycle impacts. Many researchers we 
interviewed said a primary limitation in conducting lifecycle analyses 
is how to link biofuels production with indirect land-use change. The 
complexity of commodity markets, national policies and other factors 
influencing land use makes modeling the indirect effects of rising 
demand for biofuel feedstocks highly uncertain. For example, some 
researchers said the current models do not consistently (1) identify 
where the biofuel feedstocks are grown, (2) include marginal or unused 
land in the modeling, and (3) characterize the carbon content of the 
soil before and after the biofuel feedstocks are planted. Moreover, 
researchers said that none of the models alone can accurately quantify 
international aspects of land-use change, since they essentially have 
to perform economic modeling of the whole world as well as conclusively 
prove cause and effect--that land in Brazil, for example, is being 
converted because of U.S. biofuel production. In addition, some models 
use profit maximization as the decision rule to predict how people will 
respond to changes in prices, but these models do not necessarily 
predict how people make decisions or how economic and social policy in 
the various nations affect land-use decisions in those countries. 

Some researchers cited the need for more research to address 
information gaps, such as limited data on land use, feedstock yield and 
agricultural inputs data, and conversion data at cellulosic 
biorefineries. Specifically, researchers said there are gaps in the 
research for direct land-use change, such as variations in the 
different ecosystems being studied.[Footnote 108] In addition, 
researchers identified data gaps in the amount of carbon in the biomass 
that is lost when, for example, a forest is converted into farmland. 
Researchers also cited a lack of real data for different feedstock 
yields because, for example, some feedstocks have not been widely grown 
for harvest on a large scale under typical farm conditions, and actual 
yields and fertilizer application rates may differ with large scales 
and on-farm conditions. Researchers also said limited information 
exists on the costs and efficiencies of cellulosic materials in a 
biorefinery, since the first biorefineries are just beginning to be 
built and have not yet produced substantial real-world data. 

Some Efforts Are Being Made to Address Lifecycle Modeling and Data 
Concerns: 

International efforts are ongoing to address the need to standardize 
lifecycle models and metrics. For example, the International 
Organization of Standardization has published lifecycle analysis 
protocols. However, some researchers have noted that these standards 
still do not contain guidelines for some important assumptions, such as 
indirect land-use impacts. The Global Bioenergy Partnership is also 
working to formulate a methodological framework to measure greenhouse 
gas emission reductions from biofuels. 

In addition, in April 2009, the California Air Resources Board adopted 
a regulation that will implement California Executive Order S-01-07, 
the Low Carbon Fuel Standard, which calls for the reduction of 
greenhouse gas emissions from California's transportation fuels by 10 
percent by 2020. As with the federal RFS, the California Low Carbon 
Fuel Standard is also attempting to measure the greenhouse emissions 
for the full lifecycle, including both the direct emissions associated 
with producing, transporting, and using fuels, as well as the indirect 
emissions that may be caused by land-use change when certain biofuel 
feedstocks are grown. The California Air Resources Board's regulation 
identifies carbon intensity values for gasoline and some biofuels 
produced under different process and input pathways, including 11 
different pathways to produce ethanol from corn, and values for 
cellulosic ethanol from farmed trees, agricultural waste, and forest 
waste are under development. In the draft regulation, the carbon 
intensity values for corn ethanol vary based on location, type of 
processing facility, and wet or dry co-product, but each corn pathway 
includes the same carbon intensity value for land-use change. The 
preliminary results show that certain transportation fuels that 
substitute for gasoline could meet the Low Carbon Fuel Standard, 
including some conventional corn starch ethanol using the dry mill 
conversion process and some corn starch ethanol produced in California, 
as well as ethanol from sugarcane produced in Brazil. Others would not, 
including corn ethanol produced in the Midwest or using the wet mill 
conversion process. However, some associations have criticized the 
California rule for the lack of precision in measuring the indirect 
effects of biofuels. For example, the Truman National Security Project, 
a group of retired military and intelligence officers, criticized the 
global trade analysis model used to develop the draft rule for its 
variability depending on the assumptions used by the individuals 
conducting the research. 

Although research for measuring indirect land-use changes as part of 
the greenhouse gas analysis is only in the early stages of development, 
EISA requires that EPA develop a regulation for determining the 
lifecycle greenhouse gas emissions of biofuels included in the RFS, 
including those emissions caused by land-use changes. To be eligible 
for consideration under the RFS, conventional corn starch ethanol from 
biorefineries built after December 19, 2007, must generally reduce 
lifecycle greenhouse gas emissions by at least 20 percent relative to 
petroleum fuels. Advanced biofuels and biomass-based diesel must 
generally reduce lifecycle greenhouse gas emissions by at least 50 
percent, and advanced biofuels made from cellulosic biomass must 
generally reduce emissions by at least 60 percent relative to baseline 
petroleum fuels. 

On May 26, 2009, EPA published a Notice of Proposed Rulemaking in the 
Federal Register that proposes a regulatory structure to implement the 
RFS and methods for calculating the greenhouse gas impact of biofuels 
and announced that key components of its lifecycle greenhouse gas 
emissions analysis would be peer reviewed. The four peer review 
analyses, which EPA has posted on its Web site, were completed in late 
July 2009: (1) methods and approaches to account for lifecycle 
greenhouse gas emissions from biofuels production over time, (2) model 
linkages, (3) international agricultural greenhouse gas emissions and 
factors, and (4) satellite imagery. 

Several DOE and USDA researchers we interviewed have expressed concern 
that the lifecycle models and data are not sufficiently mature for EPA 
to account for indirect land-use change in estimating biofuels 
greenhouse gas emissions. Some of these researchers also said that EPA 
has not made its approach to address indirect land-use change by 
combining elements of the GREET, FAPRI, FASOM, and GTAP models 
sufficiently transparent so that others can closely examine key 
assumptions in EPA's analyses and possibly replicate EPA's simulations. 
One DOE researcher noted that if secondary effects are to be included, 
they should be addressed on a consistent basis for all fuel pathways 
and uncertainties in understanding causal effects should be recognized. 
In addition, the National Biodiesel Board has expressed concern that 
the production from many biodiesel refineries, particularly ones using 
soybean and other vegetable oil feedstocks, may not qualify as biomass- 
based diesel under EPA's proposed RFS regulation because of the 
indirect land-use changes that result when soybeans are grown as an 
energy crop. 

On May 5, 2009, the President announced the formation of an Executive 
Biofuel Interagency Working Group, co-chaired by the Secretaries of 
Agriculture and Energy and the Administrator of EPA. The working group 
is tasked with, among other things, identifying new policy options to 
promote the environmental sustainability of biofuels feedstock 
production, taking into consideration land use, habitat conservation, 
crop management practices, water efficiency, and water quality, as well 
as lifecycle assessments of greenhouse gas emissions. 

Conclusions: 

EISA requires EPA to determine lifecycle greenhouse gas emissions from 
different biofuels and to define those fuels that would count toward 
the annual volume in the RFS because they sufficiently reduce emissions 
compared with gasoline. However, researchers have used markedly 
different assumptions and models to analyze the lifecycle greenhouse 
gas emissions of corn starch and cellulosic biofuel feedstocks. Also, 
no commonly recognized standards exist to assess, in particular, 
indirect land-use changes associated with increased biofuels 
production, and researchers are limited by uncertain data in key areas. 
As a result, researchers have reported widely varying results on the 
aggregate quantity of greenhouse gas emissions for corn starch ethanol, 
cellulosic ethanol, and biodiesel as compared with gasoline and diesel. 
Such current scientific uncertainty makes it difficult for EPA to 
precisely determine whether a biofuel generated from corn starch or 
from cellulosic feedstocks would meet the greenhouse gas reduction 
requirements under the RFS. Without this information, EPA may be 
hampered in its ability to accurately define some feedstocks as 
acceptable or unacceptable fuels under the RFS. 

Recommendation for Executive Action: 

To improve EPA's ability to determine biofuels greenhouse gas emissions 
and define fuels eligible for consideration under the RFS, we recommend 
that the Administrator of EPA and the Secretaries of Agriculture and 
Energy develop a coordinated approach for identifying and researching 
unknown variables and major uncertainties in the lifecycle greenhouse 
gas analysis of increased biofuels production. This approach should 
include a coordinated effort to develop parameters for using models and 
a standard set of assumptions and methods in assessing greenhouse gas 
emissions for the full biofuel lifecycle, such as secondary effects 
that would include indirect land-use changes associated with increased 
biofuels production. 

Agency Comments and Our Evaluation: 

USDA, DOE, and EPA each commented on our recommendation for determining 
biofuels' lifecycle greenhouse gas emissions. Specifically, USDA agreed 
with the general premise implicit in the recommendation, but cited the 
need to ensure that coordinated scientific discussions do not lead to 
standard methods that become codified in regulations that would inhibit 
the adoption and use of new information and improved or more 
appropriate methods as they become available. We agree with USDA's 
concern that the RFS regulation should not codify standard methods that 
might inhibit the development of better information or methods for 
assessing lifecycle greenhouse gas emissions. However, we believe that 
a coordinated approach for identifying and researching unknown 
variables and major uncertainties will benefit EPA's lifecycle analysis 
because only three scientific studies have examined the effects of 
indirect land-use changes and USDA and DOE provide substantially 
greater funding in support of biofuels R&D. DOE noted that EPA already 
consults with DOE on these matters and added that DOE would welcome the 
opportunity to become more engaged in this process if requested to do 
so by the EPA Administrator. EPA stated that the agency has worked 
closely with USDA and DOE in developing the lifecycle assessment 
methodology for its proposed rule, and with the European Union and 
other international governmental organizations and scientists on 
modeling, including the impact of indirect land-use change. We note 
that while EPA has obtained information from USDA and DOE, its 
lifecycle analysis methodology was not transparent because EPA did not 
share its methodology with outside scientific groups before its Notice 
of Proposed Rulemaking for the RFS regulation was published. We believe 
the recently completed peer review of EPA's methodology, including key 
assumptions and its analytical model, will improve the transparency of 
EPA's lifecycle analysis. Furthermore, the indirect effects of land-use 
change on lifecycle greenhouse gas emissions are not well understood, 
and additional research is needed to address unknown variables and 
major uncertainties. 

[End of section] 

Chapter 5: Federal Tax Expenditures, the RFS, and an Ethanol Tariff 
Have Primarily Supported Conventional Corn Starch Ethanol: 

The federal government supports the development of a domestic biofuels 
industry primarily through tax credits, the RFS, and a tariff on 
ethanol imports. Since 1978, the Volumetric Ethanol Excise Tax Credit 
(VEETC) and its predecessor have provided a tax incentive for blending 
ethanol with gasoline. In December 2007, the Energy Independence and 
Security Act (EISA) expanded the RFS by substantially increasing the 
required annual volumes of renewable fuels, including up to 9 billion 
gallons of conventional corn starch ethanol in 2008 and up to 15 
billion gallons of conventional corn starch ethanol in 2015. As a 
result, the VEETC's annual cost to the Treasury in forgone revenues 
could grow from $4 billion in 2008 to $6.75 billion in 2015 for 
conventional corn starch ethanol, even though the 2008 Farm Bill 
reduced the VEETC from 51 cents to 45 cents per gallon of ethanol 
starting in 2009. The United States also imposes a tariff on ethanol 
imports, which qualify for the VEETC, by imposing a tariff of 54 cents 
per gallon plus 2.5 percent of the ethanol's value. 

Two of these tools--the VEETC and the RFS--can be duplicative with 
respect to their effects on ethanol consumption. We and others have 
found that the VEETC does not stimulate the use of additional ethanol 
under current market conditions because conventional ethanol use in 
transportation fuel in 2009 is unlikely to exceed 10.5 billion gallons-
-the portion of the required 11.1 billion gallons of biofuels that the 
RFS allows to come from conventional corn starch ethanol. In light of 
this situation, some recent studies have suggested that the VEETC be 
terminated or phased out or be revised by, for example, modifying it to 
provide a stimulus when crude oil prices are low but reducing its size 
when crude oil prices rise. 

Advanced biodiesel and cellulosic biofuels have high production costs 
that have limited their ability to compete in fuel markets. To 
stimulate domestic production of these biofuels, the Congress has 
provided larger federal tax credits--$1.00 per gallon to biodiesel 
producers or blenders and $1.01 per gallon to cellulosic biofuels 
producers--which, to date, have predominantly supported biodiesel 
production. In addition, the RFS requires the use of at least 1 billion 
gallons of biomass-based diesel in and beyond 2012 and at least 16 
billion gallons of cellulosic biofuels in 2022. 

The VEETC Provides a Tax Credit to Companies that Blend Ethanol with 
Gasoline: 

The VEETC and its predecessor excise tax exemption for ethanol have 
historically been important federal tools to establish and expand the 
domestic ethanol industry, which has predominantly used conventional 
corn starch because of lower production costs. To stimulate the 
production of ethanol for blending with gasoline, the Energy Tax Act of 
1978, among other things, established an excise tax exemption at the 
equivalent of 40 cents per gallon of ethanol. The American Jobs 
Creation Act of 2004 changed this original excise tax exemption to an 
excise tax credit called the VEETC and extended it through December 31, 
2010.[Footnote 109] The 2008 Farm Bill subsequently reduced the VEETC 
from 51 cents to 45 cents per gallon for ethanol, starting the year 
after at least 7.5 billion gallons of ethanol were produced or 
imported. 

As shown in figure 6, both domestic ethanol production and federal tax 
expenditures through the VEETC have risen sharply in recent years. A 
key reason for this growth is that 25 states have banned the use of 
methyl tertiary butyl ether (MTBE) as an oxygenate blended into 
gasoline to meet Clean Air Act standards because of concerns about 
ground water contamination, leading to ethanol's substitution. About 
9.2 billion gallons of ethanol were produced domestically in 2008, 
resulting in an estimated $4 billion in tax credits for ethanol 
blenders, according to Treasury. If reauthorized and left unchanged, 
the VEETC's annual cost to the Treasury in forgone revenues could be as 
much as $6.75 billion for conventional corn starch ethanol in 2015 and 
each year thereafter. Typically, petroleum refineries or gasoline 
wholesalers blend the biofuels with gasoline (motor fuel blenders) and 
receive the 45-cent-per-gallon tax credit. Economists have found that 
some of the benefit of this tax credit gets passed forward to motor 
fuel purchasers in the form of lower prices at the pump and some gets 
passed backward to biorefineries that produces the ethanol (ethanol 
producers) in the form of higher prices paid for ethanol. 

Figure 6: Domestic Ethanol Production and Federal Tax Expenditures, 
1980-2008: 

[Refer to PDF for image: multiple line graph] 

Year: 1980; 
Ethanol production (millions of gallons): 175; 
VEETC tax expenditures (millions of dollars): $118. 

Year: 1981; 
Ethanol production (millions of gallons): 215; 
VEETC tax expenditures (millions of dollars): $118. 

Year: 1982; 
Ethanol production (millions of gallons): 350; 
VEETC tax expenditures (millions of dollars): $110. 

Year: 1983; 
Ethanol production (millions of gallons): 308; 
VEETC tax expenditures (millions of dollars): $375. 

Year: 1984; 
Ethanol production (millions of gallons): 430; 
VEETC tax expenditures (millions of dollars): $399. 

Year: 1985; 
Ethanol production (millions of gallons): 610; 
VEETC tax expenditures (millions of dollars): $674. 

Year: 1986; 
Ethanol production (millions of gallons): 710; 
VEETC tax expenditures (millions of dollars): $703. 

Year: 1987; 
Ethanol production (millions of gallons): 830; 
VEETC tax expenditures (millions of dollars): $813. 

Year: 1988; 
Ethanol production (millions of gallons): 845; 
VEETC tax expenditures (millions of dollars): $796. 

Year: 1989; 
Ethanol production (millions of gallons): 870; 
VEETC tax expenditures (millions of dollars): $775. 

Year: 1990; 
Ethanol production (millions of gallons): 900; 
VEETC tax expenditures (millions of dollars): $685. 

Year: 1991; 
Ethanol production (millions of gallons): 950; 
VEETC tax expenditures (millions of dollars): $690. 

Year: 1992; 
Ethanol production (millions of gallons): 1,100; 
VEETC tax expenditures (millions of dollars): $789. 

Year: 1993; 
Ethanol production (millions of gallons): 1,200; 
VEETC tax expenditures (millions of dollars): $800. 

Year: 1994; 
Ethanol production (millions of gallons): 1,350; 
VEETC tax expenditures (millions of dollars): $797. 

Year: 1995; 
Ethanol production (millions of gallons): 1,400; 
VEETC tax expenditures (millions of dollars): $835. 

Year: 1996; 
Ethanol production (millions of gallons): 1,100; 
VEETC tax expenditures (millions of dollars): $892. 

Year: 1997; 
Ethanol production (millions of gallons): 1,300; 
VEETC tax expenditures (millions of dollars): $884. 

Year: 1998; 
Ethanol production (millions of gallons): 1,400; 
VEETC tax expenditures (millions of dollars): $879. 

Year: 1999; 
Ethanol production (millions of gallons): 1,470; 
VEETC tax expenditures (millions of dollars): $970. 

Year: 2000; 
Ethanol production (millions of gallons): 1,630; 
VEETC tax expenditures (millions of dollars): $1,051. 

Year: 2001; 
Ethanol production (millions of gallons): 1,770; 
VEETC tax expenditures (millions of dollars): $1,210. 

Year: 2002; 
Ethanol production (millions of gallons): 2,130; 
VEETC tax expenditures (millions of dollars): $1,284. 

Year: 2003; 
Ethanol production (millions of gallons): 2,800; 
VEETC tax expenditures (millions of dollars): $1,293. 

Year: 2004; 
Ethanol production (millions of gallons): 3,400; 
VEETC tax expenditures (millions of dollars): $1,662. 

Year: 2005; 
Ethanol production (millions of gallons): 3,904; 
VEETC tax expenditures (millions of dollars): $1,666. 

Year: 2006; 
Ethanol production (millions of gallons): 4,855; 
VEETC tax expenditures (millions of dollars): $2,760. 

Year: 2007; 
Ethanol production (millions of gallons): 6,500; 
VEETC tax expenditures (millions of dollars): $3,470. 

Year: 2008; 
Ethanol production (millions of gallons): 9,200; 
VEETC tax expenditures (millions of dollars): $4,104. 

Source: Renewable Fuels Association and the Department of the Treasury. 

Note: The VEETC replaced the federal ethanol excise tax exemption in 
2004. Domestic ethanol production is reported by calendar year and tax 
expenditures are reported by fiscal year. 

[End of figure] 

The VEETC was important in helping to create a profitable corn starch 
ethanol industry when the industry had to fund investment in new 
facilities. It is less important now for sustaining the industry 
because most of the capital investment has already been made--ethanol 
production can now be profitable as long as the revenue that producers 
receive is sufficient to cover operating costs and depreciation. Corn 
starch ethanol refining is a mature industry because the process 
technology for making it is well understood--the process for making 
corn starch ethanol is similar to making alcoholic beverages, and the 
industry has developed the appropriate yeasts and enzymes. Furthermore, 
domestic biorefinery capacity is approaching the 15-billion-gallons- 
per-year maximum allowed for corn starch ethanol under the RFS in 2015. 
[Footnote 110] Corn starch ethanol consumption received a boost as a 
substitute for MTBE, providing a consistent demand for ethanol. As a 
result, ethanol consumption (primarily from corn starch) grew from 
about 2 billion gallons in 2002 to about 9.5 billion gallons in 2008. 
As of January 2009, the domestic corn starch ethanol industry has 11.5 
billion gallons of refining capacity with an additional 1.8 billion 
gallons of capacity under construction, according to the Renewable 
Fuels Association. 

RFS Biofuels Volume Requirements Rise Annually: 

The Energy Policy Act of 2005 established the RFS, which required that 
4 billion gallons of renewable fuels be blended with gasoline in 2006, 
rising to 7.5 billion gallons in 2012. In December 2007, EISA 
substantially expanded the RFS by requiring that U.S. transportation 
fuels contain 9 billion gallons of renewable fuels in 2008 rising to 36 
billion gallons in 2022 (see figure 7). The RFS allows conventional 
corn starch ethanol--the predominant U.S. biofuel because of its 
relatively low production cost--to account for at most 10.5 billion 
gallons of the RFS's annual requirement in 2009 rising to at most 15 
billion gallons in 2015 and remaining at this level through 2022. The 
RFS requires that, in 2022, at least 21 billion gallons of advanced 
biofuels must be blended, including at least 16 billion gallons of 
cellulosic biofuel and at least 1 billion gallons of biomass-based 
diesel. 

Figure 7: Annual Biofuels Use under the RFS, 2009-2022 (billions of 
gallons): 

[Refer to PDF for image: stacked line graph] 

Year: 2009; 
Maximum amount of corn starch ethanol: 10.5; 
Advanced biofuel mandate - cellulosic biofuels: 0; 
Advanced biofuel mandate - non-corn starch ethanol: 0.1; 
Advanced biofuel mandate - biomass-based diesel: 0.5. 

Year: 2010; 
Maximum amount of corn starch ethanol: 12; 
Advanced biofuel mandate - cellulosic biofuels: 0.1; 
Advanced biofuel mandate - non-corn starch ethanol: 0.2; 
Advanced biofuel mandate - biomass-based diesel: 0.65. 

Year: 2011; 
Maximum amount of corn starch ethanol: 12.6; 
Advanced biofuel mandate - cellulosic biofuels: 0.25; 
Advanced biofuel mandate - non-corn starch ethanol: 0.3; 
Advanced biofuel mandate - biomass-based diesel: 0.8. 

Year: 2012; 
Maximum amount of corn starch ethanol: 13.2; 
Advanced biofuel mandate - cellulosic biofuels: 0.5; 
Advanced biofuel mandate - non-corn starch ethanol: 0.5; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2013; 
Maximum amount of corn starch ethanol: 13.8; 
Advanced biofuel mandate - cellulosic biofuels: 1; 
Advanced biofuel mandate - non-corn starch ethanol: 0.75; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2014; 
Maximum amount of corn starch ethanol: 14.4; 
Advanced biofuel mandate - cellulosic biofuels: 1.75; 
Advanced biofuel mandate - non-corn starch ethanol: 1; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2015; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 3; 
Advanced biofuel mandate - non-corn starch ethanol: 1.5; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2016; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 4.25; 
Advanced biofuel mandate - non-corn starch ethanol: 2; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2017; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 5.5; 
Advanced biofuel mandate - non-corn starch ethanol: 2.5; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2018; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 7; 
Advanced biofuel mandate - non-corn starch ethanol: 3; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2019; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 8.5; 
Advanced biofuel mandate - non-corn starch ethanol: 3.5; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2020; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 10.5; 
Advanced biofuel mandate - non-corn starch ethanol: 3.5; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2021; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 13.5; 
Advanced biofuel mandate - non-corn starch ethanol: 3.5; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Year: 2022; 
Maximum amount of corn starch ethanol: 15; 
Advanced biofuel mandate - cellulosic biofuels: 16; 
Advanced biofuel mandate - non-corn starch ethanol: 4; 
Advanced biofuel mandate - biomass-based diesel: 1. 

Source: EISA. 

[End of figure] 

To ensure compliance with the RFS, EPA annually sets a blending 
standard--10.21 percent for 2009--that represents the amount of 
biofuels that each obligated party (gasoline refiners, importers, or 
blenders, with certain exceptions) must meet.[Footnote 111] To 
demonstrate compliance with EPA's blending standard, each obligated 
party acquires a sufficient amount of renewable identification numbers 
(RIN)--a unique identification number that a producer or importer 
assigns to each gallon of biofuel.[Footnote 112] RINs are valid for 
both the calendar year in which they were generated and the following 
calendar year. Obligated parties with more RINs than needed to meet 
that year's blending standard can either hold the extra RINs for use in 
the following year or sell them to another party that needs additional 
RINs to comply with the blending standard. 

EISA allows the Administrator of EPA, after consulting with USDA and 
DOE and holding a public notice and comment period, to reduce the 
amount of biofuels required to be blended in gasoline in whole or in 
part if the Administrator determines that (1) its implementation would 
severely harm the economy or environment of a state, a region, or the 
United States or (2) that there is an inadequate domestic supply. In 
April 2008, Texas requested that EPA waive 50 percent of ethanol 
produced from grain under the RFS because the RFS was unnecessarily 
having a negative impact on Texas's economy and, specifically, 
increased ethanol production was contributing to higher corn prices 
that were adversely affecting its livestock industry and food prices. 
EPA denied the waiver because it determined that the evidence did not 
support a finding that the RFS would harm the economy of a state, 
region, or the country and the RFS would have no impact on ethanol 
production volumes or on corn, food, or fuel prices.[Footnote 113] 

The United States Imposes a Tariff on Ethanol Imports: 

In addition to the VEETC and the RFS, the federal government levies a 
tariff on imported ethanol to support the domestic corn starch ethanol 
industry. Since 1980, the United States has placed a duty of 54 cents 
per gallon plus a tariff that is 2.5 percent of ethanol's value. The 
tariff on imported fuel ethanol gives the domestic ethanol industry a 
price advantage relative to ethanol imports. Prior to 2006, U.S. 
ethanol imports were less than 200 million gallons a year. In 2008, 
even though crude oil prices peaked above $130 per barrel, making 
ethanol price competitive with gasoline, ethanol imports only grew to 
500 million gallons. 

The United States has provided an exception to the tariff for Caribbean 
Basin Initiative countries which can export ethanol duty free to the 
United States if at least 50 percent of the feedstock is grown in 
member countries. Alternatively, Caribbean Basin Initiative countries 
can export volumes of up to 7 percent of U.S. ethanol consumption duty 
free if more than 50 percent of the feedstock comes from nonmember 
countries--Brazilian and European ethanol imports often come through 
Caribbean Basin Initiative countries. Imports of ethanol have recently 
been well below the 7 percent cap, however. 

The RFS and the VEETC Can Be Duplicative for Total Ethanol Consumption: 

The RFS establishes an annual floor for the amount of renewable fuels 
to be blended into U.S. transportation fuels. Economists consider the 
RFS to be "binding" when the RFS mandate causes biofuels consumption to 
be higher than it would otherwise be. In these circumstances, the VEETC 
does not affect the level of ethanol consumption and is a duplicative 
policy tool for increasing ethanol consumption. Because the RFS would 
ensure that the same amount of ethanol was used by blenders with or 
without the VEETC, we and others have found that removing the VEETC 
would not adversely affect the demand for corn for ethanol and the 
income of corn producers, which depend on the total level of ethanol 
consumption. Alternatively, the RFS is considered nonbinding if 
consumption exceeds the blend volumes in the RFS, which could occur if 
crude oil prices rise significantly. From 2006 through 2008, the RFS 
was not binding because U.S. corn starch ethanol consumption outpaced 
the annual RFS levels that the Energy Policy Act of 2005 had 
established. Specifically, in 2007, ethanol consumption rose to about 
6.8 billion gallons, as compared with the 4.7 billion gallons of 
biofuels specified in the RFS. In 2008, ethanol consumption reached 9.5 
billion gallons, exceeding the RFS level of 9 billion gallons of 
biofuels.[Footnote 114] However, because EISA substantially increased 
biofuels requirements through 2022, the RFS is now more likely to be 
binding in the future. 

When the RFS is binding, removal of the VEETC would not affect ethanol 
consumption but would eliminate the tax credit benefit to motor fuel 
blenders, motor fuel purchasers, and ethanol producers. Because the 
VEETC lowers the effective price (actual price minus the tax credit) 
that blenders pay for ethanol, blenders may be able to retain some of 
this lower effective price, but some or all of it may be passed forward 
to motor fuel purchasers in the form of lower (blended) motor fuel 
prices--as much as 4.5 cents for a gallon of E10 gasoline. 
Alternatively, some of this lower effective price may be passed 
backward to ethanol producers in the form of higher ethanol prices. 
[Footnote 115] However, economists do not expect corn growers to 
benefit from the VEETC when the RFS is binding because the total amount 
of ethanol consumption is limited to the RFS's specified level. If the 
VEETC were eliminated, then motor fuel blenders would lose their tax 
credits, motor fuel purchasers may pay higher prices at the pump, and 
ethanol producers may receive less for ethanol.[Footnote 116] 

The RFS is not binding when ethanol consumption exceeds the RFS level. 
While consumption up to the RFS level would otherwise occur, some of 
this additional consumption above the RFS level is likely to result 
from the VEETC's ethanol price-lowering effects. In these 
circumstances, the VEETC directly benefits blenders by lowering their 
effective price for ethanol and could lead to lower prices at the pump 
for purchasers and higher prices received by ethanol producers. This in 
turn can lead to higher corn prices, which benefit corn growers and 
nongrower owners of corn-producing land, while hurting other corn 
purchasers, including cattle, dairy, hog, and poultry ranchers and 
farmers and consumers. If the VEETC were removed in these 
circumstances, blenders' demand for ethanol could fall. In turn, this 
would cause the price of ethanol received by ethanol producers to fall, 
lowering their demand for corn, and subsequently leading to lower corn 
prices. Throughout the marketing chain, those who had benefited from 
the VEETC would lose their benefits. 

The Relationship between Crude Oil and Corn Prices Will Primarily 
Determine Whether the RFS Is Binding: 

Whether the RFS is binding or not primarily depends on the relationship 
between crude oil prices and corn prices, because those prices 
determine whether it is cheaper to produce gasoline or ethanol. 
Relatively high oil prices and relatively low corn prices (as might 
result from a bumper corn crop that exceeded forecasts) tend to favor 
ethanol consumption by increasing the cost of producing gasoline and 
lowering the cost of producing ethanol, respectively. Specifically, the 
RFS is less likely to be binding when oil prices are high relative to 
corn prices and more likely to be binding when oil prices are low 
relative to corn prices. Similarly, other factors that influence 
gasoline and ethanol production costs could affect the extent to which 
each is consumed and whether or not the RFS is binding. 

Many analysts believe that under current market conditions, with crude 
oil prices well below the peaks they reached last year, the RFS for 
2009 is binding. As evidence, some point to the prices that blenders 
are paying for RINs. When a blender uses more renewable fuel than is 
required by EPA's blending standard for that year, the extra RINs 
associated with that fuel can be sold to other blenders, who can use 
them to comply with the RFS. The sale prices for these RINs have been 
relatively high, implying that they are scarce, and, therefore, that 
the RFS is likely binding because few blenders are using more ethanol 
than the 2009 blending standard requires. 

Economists have disagreed about the circumstances necessary to make the 
RFS nonbinding in 2009--one economist told us that crude oil prices 
would have to reach $80 per barrel while another said $120 per barrel. 
[Footnote 117] A third economist stated that relative gasoline and 
ethanol prices in June 2009 approached the point that blenders would 
choose to blend more ethanol than the RFS requires because crude oil 
reached $70 on the spot market. Whether or not the RFS will remain 
binding in the next few years depends heavily on future oil and corn 
prices, which are hard to forecast. In addition, as corn starch ethanol 
consumption increases in future years under the RFS, higher oil prices 
will be needed to make the RFS nonbinding for a given level of corn 
prices. If oil prices continue to show the volatility that they have in 
the past 2 years, then periods in which the RFS is binding and 
nonbinding may alternate, leading the VEETC to have different effects. 
[Footnote 118] 

Some Recent Studies Have Proposed that the VEETC Be Revised: 

Since December 2007, when EISA substantially expanded the RFS for 
biofuels, several studies have examined the interaction of the RFS, the 
VEETC, and the import tariff (see appendix V). Three economists who 
have studied this interaction stated that because the RFS is currently 
binding, the VEETC does not increase ethanol consumption and the 
benefits of the 45-cent-per-gallon tax credit mainly go to ethanol 
consumers in the form of lower fuel prices. They noted that some 
benefits likely accrue to ethanol blenders but no benefits accrue to 
corn growers or ethanol producers. A fourth economist stated that with 
a binding RFS, most of the VEETC's benefits go to consumers when oil 
prices are low and go to ethanol producers when oil prices are high. 

Some of these recent studies have proposed that the VEETC be revised by 
(1) eliminating it, (2) phasing it out as the corn starch ethanol 
industry further matures, or (3) increasing the amount of the tax 
credit when oil prices are low and decreasing it when they are high. 
Three of the economists told us that when the RFS is binding it is as 
effective in stimulating ethanol consumption as the combination of the 
RFS and the VEETC, making taxpayer funds unnecessary. They also prefer 
the RFS over the VEETC as a way to stimulate ethanol consumption. One 
of the economists noted that the RFS is preferable because it is more 
transparent about how much the government wants to stimulate ethanol 
consumption than the combination of the RFS and the VEETC. The 
economist added that motor fuel blenders would likely lose if the VEETC 
was removed, but the exact impacts would depend on supply and demand 
elasticities. Others noted that the RFS alone costs taxpayers less than 
the VEETC, although one economist stated that eliminating the VEETC 
would increase the cost of E10 gasoline by at most 4-1/2 cents per 
gallon. The economists noted that ethanol blenders continued to receive 
the VEETC in June 2008--when gasoline prices exceeded $4 per gallon and 
ethanol prices reached $3 per gallon. Alternatively, two of the recent 
studies that examined federal biofuels supports did not reach 
conclusions or make recommendations about future federal supports. 

Other Federal Biofuels Tax Expenditures Support Biodiesel and 
Cellulosic Biofuels Producers: 

High costs for producing advanced biodiesel and cellulosic ethanol have 
limited their ability to compete in fuel markets. The federal 
government has provided tax credits through the following tax 
incentives to stimulate production of these biofuels and assist small 
producers: 

The Biodiesel Tax Credit and the Small Agri-Biodiesel Producer Credit: 
The Biodiesel Tax Credit provides a $1 per gallon tax credit for 
producing or blending biodiesel or agri-biodiesel.[Footnote 119] The 
Small Agri-Biodiesel Producer Credit provides a 10-cent-per-gallon 
credit for the first 15 million gallons of agri-biodiesel produced for 
businesses. This credit is limited to agri-biodiesel producers with a 
production capacity of less than 60 million gallons per year. Together, 
these tax credits for biodiesel production--including biodiesel 
exports--increased from $30 million in fiscal year 2005 to $200 million 
in fiscal year 2008 according to Department of the Treasury estimates. 
Both are scheduled to expire on December 31, 2009. In 2008, U.S. 
biodiesel production totaled 690 million gallons, according to the 
National Biodiesel Board. 

Biodiesel producers and blenders are eligible for these tax credits 
regardless of whether the biodiesel is consumed in the United States or 
is exported. In October 2008, the Congress closed the so-called "splash 
and dash" loophole for biodiesel that allowed biodiesel to be imported 
into the United States, blended with small amounts of diesel to claim 
the Biodiesel Tax Credit, and then exported for final use to a third 
country--often the European Union, which provides tax credits for 
biodiesel consumption. However, biodiesel produced in the United States 
for export is eligible to claim both tax credits. While no accurate 
data exist on the import and export of biodiesel, two economists 
estimated that between January and August 2008 at least 285 million 
gallons--or about 65 percent of domestic biodiesel production during 
this period--were exported. In June 2008, the European Commission 
initiated an antidumping investigation and, in March 2009, the European 
Commission imposed provisional antidumping and antisubsidy duties on 
U.S. biodiesel imports. The duty rates vary by producer. 

Annual RFS levels for biomass-based diesel begin with 500 million 
gallons in 2009 and rise to at least 1 billion gallons in 2012 and each 
year thereafter.[Footnote 120] To qualify as biomass-based diesel under 
the RFS, a biorefinery's production must generally achieve at least 50 
percent less lifecycle greenhouse gas emissions than baseline petroleum 
fuels. Production that does not qualify as biomass-based diesel might 
be able to qualify for the RFS's allocation of advanced biofuels that 
is not designated for biomass-based diesel or cellulosic biofuels. If 
not, it would then compete with conventional corn starch ethanol. 

* Cellulosic Biofuel Producer Tax Credit and Special Depreciation 
Allowance for Cellulosic Biofuel Plant Property: The Cellulosic Biofuel 
Producer Tax Credit provides a $1.01 per gallon tax credit for 
cellulosic biofuel produced after December 31, 2008. The value of this 
credit is reduced by the value of other tax credits, including the 
VEETC and the Small Ethanol Producer Tax Credit, so that the maximum 
combined credit a cellulosic biofuel producer may claim is $1.01 per 
gallon. 

* The Special Depreciation Allowance for Cellulosic Biofuel Plant 
Property allows qualified cellulosic biofuel plant owners to take a 
depreciation deduction of 50 percent of the adjusted basis of the plant 
in the year it is put in service. There have been no expenditures 
associated with either of these tax incentives. Both incentives are 
scheduled to expire on December 31, 2012. 

* The Small Ethanol Producer Tax Credit: The Small Ethanol Producer 
Credit provides a 10 cent per gallon credit for the first 15 million 
gallons of ethanol produced each year by businesses with a production 
capacity of less than 60 million gallons annually. According to 
Department of the Treasury estimates, expenditures for income tax 
credits for ethanol have remained flat at around $40 million for fiscal 
years 2005 through 2008 with one exception in fiscal year 2006 when the 
expenditure was $50 million.[Footnote 121] To date, the small ethanol 
producer credit has primarily gone toward corn starch ethanol because 
no cellulosic ethanol has been commercially produced, but small 
producers of cellulosic ethanol are also eligible for this tax credit. 
This tax credit is scheduled to expire on December 31, 2010. 

Conclusions: 

The RFS requires rapidly increasing levels of biofuels to be blended 
into U.S. transportation fuels through 2022 and allows the use of up to 
15 billion gallons of conventional corn starch ethanol in 2015 and 
annually thereafter. Under current market conditions, the VEETC does 
not stimulate additional ethanol consumption above the required level, 
making it duplicative to the RFS with respect to ethanol use. As long 
as the RFS is binding, the VEETC benefits motor fuel blenders, ethanol 
consumers, and ethanol producers, but does not affect corn growers' 
income. At the same time, by increasing ethanol use through 2015, the 
RFS has increased the VEETC's cost to the Treasury in forgone revenues 
because blenders are given a tax credit of 45 cents for each gallon of 
ethanol they blend with gasoline. The cost of this tax credit could 
reach $6.75 billion in 2015 and each year thereafter for corn starch 
ethanol. Furthermore, the conventional corn starch industry is mature 
because the technology is well-understood and biorefineries have the 
capacity to produce 11.5 billion gallons of ethanol each year. The 
VEETC was more important in helping to create a profitable industry 
when the industry had to fund facilities investment than it is now for 
sustaining the industry when most of the capital investment has already 
been made. The 2008 Farm Bill reduced the VEETC from 51 cents to 45 
cents per gallon while establishing a $1.01 per gallon tax credit for 
advanced cellulosic biofuels. While proposals have been made to reduce, 
phase out, or modify the VEETC, the direct and indirect effects on 
motor fuel blenders and other market participants are uncertain. 
Moreover, fluctuations in crude oil prices, such as that experienced in 
the past 2 years, create additional uncertainties as to whether the RFS 
will be binding in future years, with possible implications for the 
VEETC. The Congress is expected to review the VEETC next year because 
it will be terminated on January 1, 2011, unless renewed. 

Matter for Congressional Consideration: 

Because the RFS allows rapidly increasing annual amounts of 
conventional biofuels through 2015 and the conventional corn starch 
ethanol industry is mature, the Congress may wish to consider whether 
revisions to the VEETC are needed. Options could include maintaining 
the VEETC, either reducing the amount of the tax credit or phasing it 
out, or modifying the tax credit to counteract fluctuations in crude 
oil prices. 

[End of section] 

Chapter 6: Federal Biofuels R&D Primarily Supports Developing 
Cellulosic Biofuels: 

[End of section] 

Cellulosic ethanol is a primary focus of federal biofuels R&D. DOE and 
USDA, the largest sponsors of biofuels R&D, obligated about $500 
million in this area in fiscal year 2008. The Energy Independence and 
Security Act (EISA) of 2007 and the 2008 Farm Bill authorized 
significant new biofuels spending for 2009 and beyond, and the American 
Recovery and Reinvestment Act of 2009 provided DOE with $800 million 
for biofuels R&D. Many experts identified important R&D areas for 
stimulating cellulosic biofuels production. 

[End of section] 

Federal Biofuels R&D Programs Are Growing and Focus on Cellulosic 
Ethanol: 

Federal agencies obligated about $505.5 million for biofuels R&D in 
fiscal year 2008 (see table 6).[Footnote 122] DOE obligated $463.2 
million in fiscal year 2008, primarily on cellulosic ethanol R&D. USDA 
obligated an estimated $39.3 million on bioenergy and renewable energy 
R&D in fiscal year 2008. EPA's Office of Research and Development 
obligated about $3 million for biofuels R&D related to EPA's regulatory 
responsibilities in fiscal year 2008. Each of these agencies 
significantly increased biofuels R&D obligations between fiscal years 
2005 and 2008. 

Table 6: Federal Agencies' Obligations for Biofuels R&D, Fiscal Years 
2005-2008 (Dollars in millions): 

Agency: DOE; 
Fiscal year: 2005: $117.8; 
Fiscal year: 2006: $95.0; 
Fiscal year: 2007: $213.6; 
Fiscal year: 2008: $463.2. 

Agency: USDA; 
Fiscal year: 2005: $26.7; 
Fiscal year: 2006: $30.0; 
Fiscal year: 2007: $35.1; 
Fiscal year: 2008: $39.3. 

Agency: EPA; 
Fiscal year: 2005: $0.3; 
Fiscal year: 2006: $0.3; 
Fiscal year: 2007: $0.7; 
Fiscal year: 2008: $3.0. 

Agency: Total; 
Fiscal year: 2005: $144.8; 
Fiscal year: 2006: $125.3; 
Fiscal year: 2007: $249.4; 
Fiscal year: 2008: $505.5. 

Sources: DOE, USDA, and EPA. 

Note: Obligated amounts may differ from appropriated amounts because 
they account for deobligations, recast funds, carryover funds, and 
rescissions. USDA obligations data for fiscal year 2008 are estimates, 
as are obligations data for fiscal years 2005-2008 for DOE's Office of 
Science. 

[End of table] 

DOE's Obligations for Biofuels R&D Have Grown Substantially: 

DOE's obligations for biofuels R&D have increased almost fourfold since 
fiscal year 2005, when it obligated $117 million on biofuels R&D. About 
75 percent of DOE's fiscal year 2008 obligations for biofuels R&D 
supported the Office of Energy Efficiency and Renewable Energy's 
Biomass Program (about 70 percent primarily focused on cellulosic 
ethanol) and Vehicle Technologies Program (about 5 percent). About 25 
percent of DOE's fiscal year 2008 obligations for biofuels R&D 
supported basic research through the Office of Science. 

* Biomass Program: Biofuels R&D obligations by the Biomass Program more 
than quadrupled between fiscal years 2005 and 2008--from about $76 
million to $327 million--with the percentage of funding going to 
cellulosic ethanol increasing to about 70 percent by fiscal year 2008. 
In particular, these funds support the Integrated Biorefineries Program 
with a goal of developing commercial-scale integrated biorefineries to 
demonstrate how these biorefineries can use a wide variety of 
cellulosic feedstocks and operate profitably once construction costs 
are covered. In February 2007, the Biomass Program awarded up to $385 
million over 5 years, subject to annual appropriations, that would 
provide, at most, 40 percent of the costs for each of six pilot 
integrated cellulosic biorefinery projects. Subsequently, two projects 
withdrew, and DOE now plans to invest up to $272 million in the 
remaining four projects, subject to annual appropriations, between 
fiscal years 2007 and 2011 (see table 7). 

Table 7: Integrated Biorefinery Projects Receiving DOE Funding (Dollars 
in millions): 

Project company and location: Abengoa Bioenergy Biomass of Kansas, LLC 
Hugoton, Kansas; 
Technology, feedstock, and production capacity: 
Technology: Thermochemical and biochemical processing; 
Feedstock: 700 tons/day of corn stover, wheat straw, milo (sorghum) 
stubble, switchgrass, and other opportunity feedstocks; 
Production capacity: 11.4 million gallons/year of ethanol and 
sufficient energy to power the operation and sell excess energy to the 
co-located dry-grind ethanol production plant; 
Potential DOE and industry funding over 5 years[A]: 
DOE: $76.3; 
Industry: $114.2. 

Project company and location: BlueFire Ethanol, Inc.; Riverside and San 
Bernardino Counties, California; 
Technology, feedstock, and production capacity: 
Technology: Concentrated acid processing followed by fermentation of 
sugars to ethanol; 
Feedstock: 700 tons/day of sorted green waste and wood waste from 
landfills; 
Production capacity: 19 million gallons/year in the unit in which DOE 
will be participating; 
Potential DOE and industry funding over 5 years[A]: 
DOE: $40.0; 
Industry: $61.8. 

Project company and location: POET Project Liberty, LLC Emmetsburg, 
Iowa; 
Technology, feedstock, and production capacity: 
Technology: Integrating production of ethanol into a dry grind corn 
mill process; 
Feedstock: 700 metric dry tonnes/day of corn fiber, corn stover; 
Production capacity: 125 million gallons/year, of which roughly 25 
percent will be from lignocellulosics; 
Potential DOE and industry funding over 5 years[A]: 
DOE: $80.0; 
Industry: $123.5. 

Project company and location: Range Fuels, Inc.; near Soperton, 
Georgia; 
Technology, feedstock, and production capacity: 
Technology: Conversion through catalytic upgrading of syngas to ethanol 
and methanol; 
Feedstock: 2500 tons/day of unmerchantable timber and forest residues; 
Production capacity: 20 million gallons/year from first unit and about 
100 million gallons/year of ethanol and about 20 million gallons/year 
of methanol from the commercial unit; 
Potential DOE and industry funding over 5 years[A]: 
DOE: $76.0; 
Industry: $280.0. 

Source: DOE. 

[A] DOE's potential funding is subject to review and annual 
appropriations. 

[End of table] 

* Vehicle Technologies Program: The Vehicle Technologies Program's 
biofuels-related obligations increased from about $9 million in fiscal 
year 2005 to about $22 million in fiscal year 2008. Its primary 
projects currently are an intermediate ethanol blends test program, 
which is co-led by the Biomass Program, and an ethanol optimization 
program. The intermediate blends test program is studying the 
emissions, driveability, materials compatibility, and emissions control 
system durability for E15 and E20 ethanol blends. The ethanol 
optimization program is conducting R&D on the design of flexible-fuel 
vehicles that will run optimally on fuels of any ethanol blend. 

* Office of Science: Obligations for biofuels R&D at the Office of 
Science increased from about $33 million in fiscal year 2005 to about 
$114 million in fiscal year 2008. The Office of Science primarily 
supports basic biofuels research through its Offices of Basic Energy 
Sciences and Biological and Environmental Research and three Bioenergy 
Research Centers. Most of the Office of Science's biofuels obligations 
in fiscal year 2008 supported the three Bioenergy Research Centers-- 
individually led by Oak Ridge National Laboratory, the University of 
Wisconsin, and Lawrence Berkeley National Laboratory. The Office of 
Science plans to provide each with a total of up to $125 million 
between fiscal years 2008 and 2013, subject to annual appropriations, 
to accelerate basic research in the development of cellulosic ethanol 
and other biofuels. 

In addition, DOE's Office of the Chief Financial Officer administers 
DOE's loan guarantee program for categories of energy projects that 
provide a reasonable prospect of repayment and that commence 
construction by September 30, 2011, including leading edge biofuel 
projects that will use technologies performing at the pilot or 
demonstration scale that the Secretary determines are likely to become 
commercial technologies and will produce transportation fuels that 
substantially reduce lifecycle greenhouse gas emissions compared with 
other transportation fuels. DOE is currently reviewing loan guarantee 
applications for several biofuel projects but, to date, has not 
approved any. 

USDA's Obligations for Biofuels R&D Have Gradually Risen: 

USDA obligated an estimated $39 million in fiscal year 2008 for 
bioenergy and renewable energy R&D, including biofuel, wind, solar, and 
geothermal energy projects. USDA's obligations increased from about $27 
million in fiscal year 2005 to about $39 million in fiscal year 2008. 
Most of these funds supported the Agricultural Research Service, USDA's 
chief scientific research agency, for R&D focused on developing 
technologies for the sustainable production and harvest of biomass 
feedstocks and the production of biofuels at or near the farm. The 
goals of this R&D are to identify (1) varieties and hybrids of 
bioenergy feedstocks with optimal traits, (2) optimal practices and 
systems that maximize the sustainable yield of high-quality bioenergy 
feedstocks, and (3) enabling commercially preferred biorefining 
technologies. For example, the renewable energy assessment program is 
assessing the maximum sustainable harvest of corn stover while 
maintaining soil organic matter. 

USDA's Cooperative State Research, Education, and Extension Service, 
which will become the National Institute of Food and Agriculture on 
October 1, 2009, supports land grant university research, conducts 
outreach and education activities, and co-administers a Biomass 
Research and Development Initiative competitive grant process with DOE. 

USDA guaranteed loans for biofuels projects grew from $13.3 million in 
fiscal year 2005 to $88.3 million in fiscal year 2007 but declined to 
$16.5 million in fiscal year 2008 for four biofuels related projects. 
USDA's Rural Development program provides loan guarantees primarily 
through the Business and Industry Guaranteed Loan Program and the Rural 
Energy for America Program. The Rural Business Cooperative Service, 
within Rural Development, and the Commodity Credit Corporation, within 
the Farm Service Agency, administer grant, loan guarantee, and payment 
programs to expand ethanol, biodiesel, and advanced biofuel production 
capacity. 

EPA's R&D Addresses the Full Biofuels Lifecycle: 

Obligations by EPA's Office of Research and Development for biofuels 
R&D increased from $340,000 in fiscal year 2005 to about $3 million in 
fiscal year 2008. This R&D, which supports EPA's mission and regulatory 
responsibilities, focused on the biofuels lifecycle in fiscal year 
2008. Specifically, this R&D includes (1) improving the 
characterization of greenhouse gas emissions; (2) assessing the 
environmental and human health risks associated with existing and 
future feedstock, conversion technology, and fuel pathways; (3) 
assessing the risks associated with genetically engineered plants and 
microbes; (4) assessing the environmental implications of increased 
biofuel concentrations stored in tanks including impacts on leak 
prevention, detection, and remediation of releases, and implications 
for protection of ground water; (5) verifying emerging biofuels tank 
leak detection systems; (6) assessing the environmental implications of 
using animal manures and municipal solid waste as a feedstock; and (7) 
characterizing risks and updating EPA's Integrated Risk Information 
System, particularly related to air emissions resulting from increased 
biofuels consumer use. 

The Congress Has Authorized and Appropriated Additional Funding for 
Biofuels R&D: 

The research and energy titles of the 2008 Farm Bill reauthorized 
existing programs and created several new initiatives to promote 
biofuels use, develop advanced biofuels, and increase advanced refinery 
capacity. Some of these provisions provide mandatory funding, while 
others authorized the use of discretionary funds through fiscal year 
2012. For example, USDA's former Bioenergy Program was revised to 
provide payments to support and expand production of advanced biofuels, 
with mandatory funding of at least $300 million through fiscal year 
2012. The act also created the Biomass Crop Assistance Program, 
directing the Secretary of Agriculture to support the establishment of 
eligible perennial crops for bioenergy production and biofuels 
production through contracts using such sums as necessary from 
Commodity Credit Corporation funds through 2012. In addition, the act 
authorized (1) grants, contracts, and financial assistance for biofuels 
research, including at least $118 million in mandatory funding through 
fiscal year 2012; (2) competitive grants and loan guarantees for the 
construction or retrofit of biorefineries for advanced biofuels 
production for $320 million to $920 million through fiscal year 2012; 
and (3) a R&D program to encourage using forest biomass for energy and 
grants for energy efficient research and extension projects. 

The American Recovery and Reinvestment Act of 2009 appropriated $800 
million to DOE for biomass-related projects. In addition, the Omnibus 
Appropriations Act of 2009 appropriated $217 million for DOE's biomass 
and biorefinery systems R&D program. 

Experts Identified R&D Areas for Improving Cellulosic Biofuels 
Production: 

Many experts cited the importance of R&D in the following areas for 
stimulating cellulosic biofuels production: 

* Long-term R&D on energy crops to improve plant and tree 
characteristics. Long-term R&D on certain food, feed, and fiber crops 
has led to improved yields and quality. For example, researchers are 
examining ways to improve physiological characteristics of the 
feedstocks, including greater ability to accumulate carbon through 
photosynthesis; a more conducive molecular structure for conversion 
into fuel; pest resistance; and greater drought, salt, and cold 
tolerance. 

* Reducing environmental impacts. Several experts cited the importance 
of examining the impacts of feedstock cultivation on soil quality, 
water quality and quantity, wildlife, and greenhouse gas emissions by 
using such tools as remote sensing and decision tools that consider 
biophysical, economic and social factors at scales ranging from field 
to farm to watershed. Real-world data will improve projections and 
estimates that would help land managers and policy makers to better 
predict the outcomes of certain production and management practices and 
weigh their potential advantages and disadvantages. 

* Conducting large-scale field trials. DOE's and USDA's Regional 
Feedstock Partnership initiated 38 herbaceous crop and corn stover 
removal field trials in 2008 to help develop best practices for 
producing, harvesting, and managing energy crops. For example, USDA and 
DOE are using field trial data to develop a computer tool to maximize 
the amount of corn stover that can be removed without materially 
reducing soil organic matter or increasing soil erosion. However, DOE's 
manager for the partnership program stated that the 5-acre research 
plots used by the Regional Feedstock Partnership are too small to 
collect and integrate sufficient data on nutrient, carbon, and water 
cycles. The manager cited the importance of large-scale field trial 
data for developing cropping and harvesting approaches and estimating 
likely yields and environmental impacts. In addition, USDA's Renewable 
Energy Assessment Project is conducting field trials assessing the 
impact of biomass removal--primarily corn stover but also cotton 
residues and switchgrass--on long-term soil productivity at multiple 
locations across the nation. 

[End of section] 

Chapter 7: Significant Challenges Must Be Overcome to Meet the RFS's 
Increasing Volumes of Biofuels: 

The domestic biofuels industry faces multiple challenges to meet the 
RFS's increasing volumes of biofuels, particularly those volumes 
related to cellulosic biofuels. At least 16 billion gallons of the 21- 
billion-gallon requirement for advanced biofuels must be met from 
cellulosic feedstocks; yet cellulosic ethanol currently costs at least 
twice as much to produce as conventional corn starch ethanol. 
Collecting, transporting, and storing the leaves, stalks, and even tree 
trunks of cellulosic biomass needed by cellulosic biorefineries 
presents numerous logistical difficulties that increase costs. Also, 
cellulosic conversion technology needs further development to reduce 
processing costs. Scientists are currently working to do so through 
improved pretreatment processes and biochemical and thermochemical 
refining technologies. 

An immediate challenge that may limit the use of ethanol produced from 
either corn starch or cellulosic feedstocks is the lack of 
infrastructure for distributing and using the growing volumes of 
ethanol. Specifically, because the Clean Air Act limits the ethanol 
content in gasoline to 10 percent for most U.S. vehicles and the 
current economic slowdown has reduced U.S. gasoline demand, the nation 
may reach the blend wall--the point where all of the nation's gasoline 
supply is blended as E10 and extra volumes of ethanol cannot be readily 
consumed--as early as 2011. If EPA and vehicle manufacturers find that 
the current U.S. vehicle fleet cannot use higher ethanol blends, 
additional ethanol consumption will be limited to specially designed 
vehicles known as flexible-fuel vehicles because they can use either 
gasoline or E85--a blend of 85 percent ethanol and 15 percent gasoline. 
However, expanding E85 consumption will depend on substantial 
investment in the ethanol distribution infrastructure and consumer 
purchases of flexible-fuel vehicles. Alternatively, if advances are 
made in thermochemical refining technology, biorefineries could produce 
products that are compatible with the existing oil refining, 
distribution, and storage infrastructure and the existing vehicle 
fleet--and therefore avoid blending wall issues. While the RFS requires 
more modest use of biodiesel beginning in 2009, this industry faces its 
own set of challenges, including the cost of feedstocks and a limited 
U.S. market for its product. 

Farmers and Other Suppliers Face the Challenge of Identifying and 
Developing Productive and Profitable Cellulosic Feedstocks: 

Various potential cellulosic feedstocks are being explored for 
commercial use. A 2005 study, sponsored by DOE and USDA, identified 
more than 1.3 billion dry tons per year of biomass potential in the 
United States--an amount sufficient, according to the study, to produce 
biofuels that could replace 30 percent of U.S. crude oil consumption by 
around 2030 and still meet food, feed, and export demands.[Footnote 
123] The study identified two broad sources of biomass potential: 

* From agricultural lands. 998 million sustainable dry tons are 
estimated to be potentially available annually, assuming extensive 
development, including 428 million dry tons from annual crop residues; 
377 million dry tons of perennial crops; 87 million dry tons of grains 
used for biofuels; and 106 million dry tons of animal manures, process 
residues, and other miscellaneous feedstocks. 

* From forest lands. 368 million sustainable dry tons of biomass 
feedstock are estimated to be available annually, including 145 million 
dry tons from forest products industry residues, 64 million dry tons 
from logging and site-clearing residues, 60 million dry tons from fuel 
treatment operations to reduce fire hazards, 52 million dry tons in 
fuel wood, and 47 million dry tons in urban wood residues (yard and 
tree trimmings, packaging materials, and construction and demolition 
debris).[Footnote 124] 

Despite the vast availability of potential cellulosic feedstocks, 
uncertainties remain over how much of it will be profitable for either 
a farmer to grow or a supplier to harvest. The chemical composition of 
fuel ethanol does not change whether it is made from corn starch or 
cellulosic sources. In general, to operate profitably an ethanol 
refinery needs a year-round supply of large volumes of low-cost 
feedstocks that are of consistent quality. As a result, the relative 
cost, consistency, volume, and accessibility of a feedstock is critical 
in determining whether it is ultimately sought by an ethanol refinery. 
In this context, farmers and suppliers face multiple challenges in 
identifying and developing productive and profitable cellulosic 
feedstocks, including the following: 

* The production, yield, and marketing of dedicated energy crops are 
uncertain. Switchgrass is considered a promising biofuel feedstock and 
offers the potential to expand the geographic range of biofuel 
refineries due to its productivity on poor soil and low fertilizer and 
water needs. Yet, because switchgrass is a perennial crop that requires 
time to establish, farmers may face a 2-to 3-year period before 
switchgrass fields mature and potentially become economically 
productive.[Footnote 125] In addition, although switchgrass has 
frequently produced more than 10 tons of dry matter per acre on test 
plots, yields could vary widely depending on such factors as land 
quality, weather conditions, weeds, and overall management. 
Furthermore, it will take time to develop the means to produce 
switchgrass on a large scale and to develop markets for this and other 
new feedstocks. Finally, potential feedstock producers would also have 
to consider less tangible factors, such as complexity, convenience, and 
ability to conserve soil and habitat. For example, advanced feedstock 
crops could require different planting and harvest schedules, which 
could interfere with other tasks on the farm or with family 
obligations. 

* The use of agricultural residues may be limited. In contrast to 
dedicated energy crops, agricultural residues, such as corn stover, are 
already produced in substantial quantities and located nearby existing 
ethanol refineries. However, the amount of residues that farmers will 
be able and willing to remove from their fields is unknown. 
Agricultural residues are vital for preventing soil erosion and 
improving soil fertility. The amount of agricultural residues that can 
be safely removed will vary by field and region and is the subject of 
ongoing research. There are also practical considerations that could 
make corn stover harvesting unprofitable or make farmers unwilling to 
harvest remaining residues. For instance, corn stover harvesting may 
compete with other crop harvesting operations and complicate their 
collection. Also, weather and soil conditions may not allow timely 
field drying of corn stover for safe storage. Corn stover can also 
become contaminated with dirt and other materials during harvesting, 
which can limit its consistency and therefore its desirability as an 
ethanol feedstock. 

* Feedstock demand for certain residues may conflict with current uses 
and restrictions. Mill residues such as bark, sawdust and shavings, are 
generally dry, consistent and concentrated--all desirable feedstock 
characteristics sought by ethanol refineries. However, mill waste is 
currently used for fuel, particleboard and mulch. Similarly, other 
potential feedstocks, including willow, poplar, pines, and cottonwood, 
have already been established and are being commercially harvested, 
primarily for pulpwood and other wood products. As a result, ethanol 
refineries would have to compete with other markets for these higher- 
valued feedstocks. Growers of new stands of woody biomass face time 
lags even longer than for perennial herbaceous crops before trees 
mature and potentially become economically productive. For example, 
hybrid poplar trees require 8 to 15 years of growth to reach their 
first harvest. Finally, biomass harvested from federal forest lands 
generally cannot be counted toward RFS specified levels. The Energy 
Independence and Security Act (EISA) excludes forest-related slash and 
precommercial tree thinning--the trimming or removal of trees in a 
stand of trees to improve the growth of the remaining trees--harvested 
from federal forest lands. 

* EISA and the 2008 Farm Bill provide different definitions of 
renewable biomass. EISA requires that, for purposes of RFS-specified 
levels, cellulosic biofuels be derived from renewable biomass and 
provides a more limited definition of this term than the 2008 Farm 
Bill. For example, EISA's definition of renewable biomass excludes 
municipal waste and residues or other woody crops on federally managed 
forest land. Also, with regard to planted crops and crop residues, EISA 
defines renewable biomass as planted crops and crop residue harvested 
from agricultural land cleared or cultivated prior to its enactment 
that is either actively managed or fallow and nonforested. In contrast, 
the 2008 Farm Bill contains no similar exclusions or restrictions in 
its definition of renewable biomass. The different definitions could 
cause confusion over where biomass may be grown or harvested. Some 
government and academic projections assume that biofuels made from 
feedstock on federal forest lands will count toward the RFS, and they 
include these feedstocks in their projections of the amount of 
feedstock that will potentially be available for biofuel production. 
[Footnote 126] Some USDA, DOE, and EPA officials told us that these 
inconsistencies have complicated rule formulation and could make it 
more difficult to meet the RFS's advanced biofuel requirements. Without 
clarification of the renewable biomass definition and how it affects 
land eligibility, stakeholders and program officials may be unsure 
about how to most efficiently and effectively reach individual program 
outcomes, meet interagency goals such as those in the National Biofuels 
Action Plan, and achieve RFS's specified levels. This could reduce the 
focus on and investment in a feedstock source that some experts 
consider among the most favorable options, provided an economical 
conversion process can be demonstrated. On the other hand, agency 
officials also expressed concern that if renewable biomass is defined 
too broadly, this could permit feedstock production on lands that now 
provide a carbon sink or other environmental benefits, thus potentially 
increasing greenhouse gas emissions. 

Cellulosic Feedstocks Pose Unique Logistical Challenges for 
Biorefineries: 

Additional challenges for the cellulosic biofuel industry lie in the 
feedstock supply chain. Specifically, cellulosic feedstocks do not have 
the established and efficient harvest, storage, and transportation 
infrastructure long since developed for corn. In contrast to corn 
kernels that currently compose most of the biomass used in domestic 
ethanol refineries, cellulosic feedstocks are less energy dense, 
bulkier, and more difficult and costly to transport. They are also 
harder to dry and store and lack established feedstock quality 
standards sought by ethanol refineries. According to DOE officials, 
cellulosic ethanol currently is estimated to cost at least twice as 
much to produce as conventional corn starch ethanol and the uncertainty 
of the biomass feedstock supply chain and associated risks are major 
barriers to procuring capital funding for start-up cellulosic 
biorefineries.[Footnote 127] The Biomass Research and Development Board 
estimates that supply chain costs for cellulosic ethanol refineries 
constitute as much as 20 percent of the projected cost of finished 
cellulosic ethanol and states that harvesting and collecting feedstocks 
from cropland or out of forest, feedstock storage, feedstock 
preprocessing, and feedstock transportation from the field to the 
refinery need to become more cost effective to meet the RFS.[Footnote 
128] 

The industry faces several challenges in harvesting and collecting 
feedstocks, including operations to get cellulosic feedstock from its 
production source into storage. For example, as noted contamination of 
corn stover with dirt and other material can foul baling equipment. In 
addition, the contaminants can complicate feedstock grinding that 
occurs during preprocessing and the unneeded weight can increase 
transportation costs to the ethanol refinery. Also, weather and soil 
conditions may not allow farmers to leave the stover in the field long 
enough to dry to prevent spoilage during storage. In response to these 
issues, DOE has funded R&D to evaluate machinery capable of 
simultaneously segregating and processing both corn ears and stover in 
one pass, which could minimize these harvesting and collection 
problems. To date, few such machines are commercially available. As 
with corn stover, specialized machinery would need to be developed to 
harvest, handle, and collect large volumes of cellulosic feedstocks, 
regardless of whether they are agricultural residues, dedicated 
perennial energy crops, forest residues, or other feedstocks. 

After harvesting and collection, adequate storage facilities are also 
needed because cellulosic feedstocks generally have a narrow harvest 
window and are subject to spoilage, while ethanol refineries require a 
large, steady, and year-round supply of a consistent-grade feedstock. 
Cellulosic feedstocks also require preprocessing steps, such as 
grinding, to minimize quality variability so that feedstocks have the 
proper moisture content, bulk density, fluid thickness (viscosity), and 
quality needed by an ethanol refinery. Finally, cellulosic feedstock 
suppliers face additional transportation costs associated with their 
feedstock. The low bulk density of cellulosic feedstocks would require 
additional deliveries to an ethanol refinery compared with a refinery 
that uses corn. Researchers at the National Renewable Energy Laboratory 
(NREL) forecast that cellulosic feedstock producers would generally 
need to be located within 50 miles of a cellulosic ethanol refinery to 
minimize feedstock transportation costs. 

High Costs and the Limitations of Current Conversion Technology Are Key 
Challenges to Making Cellulosic Biofuels Competitive with Other Fuels: 

Cellulosic conversion technology--whether through biochemical or 
thermochemical processes--needs more R&D and commercial development and 
is expensive relative to the cost of producing ethanol from corn 
starch. According to NREL researchers, producing cellulosic ethanol 
through biochemical conversion is difficult because it requires a 
complex chemical process to convert the plant material into simple 
sugars to use for ethanol. 

The total project investment for a 50-million-gallon-per-year 
cellulosic ethanol biorefinery using a biochemical conversion process 
is estimated to be $250 million, as compared with a total project 
investment of $76 million for a similar capacity corn starch ethanol 
plant, according to NREL.[Footnote 129] Because of these biorefinery 
capital costs and higher costs for collecting and transporting the 
feedstock, additional pretreatment steps, and enzymes to break down the 
sugars, the cost of producing a gallon of cellulosic ethanol is about 
twice that of producing a gallon of corn starch ethanol. Currently, 
while some small U.S. biorefineries are processing cellulosic 
feedstocks using biochemical or thermochemical conversion technologies, 
no commercial-scale facilities are operating. However, as of January 
2009, 25 cellulosic ethanol projects with a combined projected 
production capacity of up to 376 million gallons per year were under 
development and construction in the United States, according to the 
Renewable Fuels Association. 

To date, federal funding for R&D on processing cellulosic feedstocks 
into a biofuel has focused mainly on biochemical processes that use 
enzymes and microorganisms similar to a corn starch ethanol biorefinery 
to break down the sugars in cellulosic feedstocks to make ethanol. Less 
federal R&D funding has been spent on developing advanced 
thermochemical conversion processes, which use heat and chemical 
catalysts to break down cellulosic feedstocks. Thermochemical 
conversion processes can achieve higher fuel yields from a given 
feedstock than biochemical processes by converting more of the biomass 
into fuel. They also offer the potential to convert biomass into 
products that oil refineries can use as direct replacements for 
petroleum-based fuels, in contrast to ethanol. Federal R&D on 
thermochemical conversion technologies has focused on gasification and 
fast pyrolysis: 

* The gasification process heats the biomass at very high temperatures 
(about 800 degrees Celsius) with a controlled amount of oxygen to 
produce a mixture called synthesis gas, or syngas. With additional 
cleanup and conditioning, the syngas can then be used as a fuel itself 
to generate steam or electricity or used as a feedstock for Fischer- 
Tropsch synthesis, in which the syngas undergoes a catalytic reaction 
and can be converted into ethanol, diesel fuel, jet fuel, or other 
biofuels. 

* The fast pyrolysis process, based on centuries-old technology used to 
make charcoal, heats biomass at high temperatures (about 400 to 500 
degrees Celsius) in the absence of oxygen. About 60 percent to 70 
percent of the conversion yield is an intermediate product referred to 
as bio-oil or pyoil. However, oil refineries currently cannot use pyoil 
as a petroleum substitute or hydrocarbon fuel because of its 
instability, inability to mix with petroleum, acidity, and 
corrosiveness. NREL, ARS, and industry scientists are conducting R&D on 
chemical catalysts to improve pyoil's stability and refinability by 
lowering its oxygen content and acidity. In addition, about 12 percent 
to 15 percent of the conversion yield of fast pyrolysis process is 
biochar, a carbon-rich charcoal similar in appearance to potting soil. 
[Footnote 130] Injecting biochar in agricultural lands has been 
proposed as a way to both increase the soil's carbon content and reduce 
greenhouse gas emissions into the atmosphere. USDA is conducting 
research to quantify the effects of adding biochar into soils on crop 
productivity, soil quality, carbon sequestration, and water quality. 
[Footnote 131] Finally, about 13 percent to 25 percent of the 
conversion yield is syngas, which can be used as a fuel for heat or 
power generation. Alternatively, the syngas from fast pyrolysis can 
also be used as a feedstock for Fischer-Tropsch synthesis and converted 
into different liquid fuels. 

Researchers at NREL and USDA's Eastern Regional Research Center told us 
the pyrolysis conversion process offers two additional benefits. First, 
this technology can be used on a small, distributive scale that reduces 
feedstock transportation and storage costs. Because of its energy 
density per unit volume, the resulting pyoil is more economical to 
transport. Second, pyrolysis converts more of the available biomass 
into fuels than biochemical conversion and is generally less energy 
intensive than either biochemical conversion or gasification. As a 
result, it is likely to have a smaller carbon footprint than the other 
conversion processes. Furthermore, the process could actually achieve 
net greenhouse gas reductions if the biochar successfully increases the 
soil's carbon content when it is injected in agricultural lands. 
However, researchers at both laboratories told us that pyrolysis R&D 
funding has been limited. NREL has primarily participated in a 
cooperative R&D agreement involving DOE's Pacific Northwest National 
Laboratory and UOP, a subsidiary of Honeywell. The Eastern Regional 
Research Center recently entered into a cooperative R&D agreement with 
Siemens Energy & Automation, Inc., and UOP to improve pyrolysis oil 
production technology. 

Blending Limits and Transportation Pose Challenges to Expanded Ethanol 
Consumption: 

In 2008, U.S. biorefineries produced and distributed more than 9.2 
billion gallons of ethanol. This ethanol was blended with gasoline to 
make either E10, which most vehicles can use as an oxygenate additive, 
or E85, which has a more limited market, primarily in the upper 
Midwest. Because the current economic slowdown has reduced U.S. 
gasoline demand, the nation may reach the blend wall--the point where 
all of the nation's gasoline supply is blended as E10 and extra volumes 
of ethanol cannot be readily consumed--as early as 2011. The United 
States may reach the blend wall limit solely with existing ethanol 
production from corn starch. This could greatly restrict the growth of 
the cellulosic biofuels industry, because ethanol is likely to be the 
first biofuel produced from cellulosic sources, rather than bio-oil or 
jet fuel. 

One option to avoid the blend wall is to determine whether higher 
ethanol blends--E12, E15, or E20--can be used in the gasoline 
distribution and storage infrastructure and vehicles without adversely 
affecting the integrity of storage tank systems or vehicle equipment 
and performance. E10 is the highest ethanol blend that may currently be 
used in most U.S. vehicles. Before a higher ethanol blend could be 
marketed, EPA would have to approve a waiver to the Clean Air Act that 
would classify the blends as substantially similar to 
gasoline.[Footnote 132] Similarly, automobile manufacturers would have 
to determine that a higher ethanol blend than E10 has no long-term 
effects on vehicle equipment and performance. Without this 
determination, they might void their warranty protection for existing 
vehicles that use a higher blend of ethanol. In addition, there are 
concerns that higher blends, or even E10, could damage non-auto 
engines, such as boat engines and small engines for equipment like lawn 
mowers and small tractors, and underground storage tank systems that 
were not rated to handle these higher blends. Also, leak detection 
technologies used in underground storage tank systems were developed 
for use with petroleum fuel and would need to be tested for performance 
with higher ethanol blend fuels. 

DOE's NREL and Oak Ridge National Laboratory are collaborating with EPA 
to conduct a short-term emissions study using 20 cars to test 31 fuels, 
including ethanol blends. The study is expected to be completed by 
December 2009. In addition, under DOE's Intermediate Blends Test 
program, the two laboratories have initiated a project to test the long-
term effects of using E15 and E20 blends by comparing them with 
vehicles that use unblended gasoline. Specifically, the laboratories 
are testing 32 cars over their full useful lives to assess emission 
control catalyst durability. The cars will run 120,000 miles with stops 
for all required vehicle maintenance and emission testing at 60,000; 
90,000; and 120,000 miles. Smaller programs conducted in collaboration 
with the automotive and petroleum industries are examining fuel system 
materials compatibility and evaporative emissions, and they plan to 
initiate a study of vehicle cold start and drivability. Researchers 
expect to publish test results by June 2010. 

A second option to avoid the blend wall is to increase E85 consumption 
by providing the infrastructure needed to distribute, store, and 
dispense E85, while also increasing the number of vehicles, called flex-
fuel vehicles, that can run on E85. Expanding ethanol consumption will 
be costly because of the following: 

* Ethanol is transported primarily on the freight rail system, which is 
more costly than shipping by pipeline. According to NREL, the overall 
cost of transporting ethanol from refineries to fueling stations is 
estimated to range from 13 cents per gallon to 18 cents per gallon, as 
compared to the overall cost of transporting petroleum fuels via 
pipelines from refineries to fueling stations of about 3 cents to 5 
cents per gallon. While ethanol cargo currently represents a relatively 
small share of overall rail volume, DOE and ethanol industry experts 
are concerned about the limited capacity of the freight rail system for 
transporting greater amounts of biofuels if production increases 
significantly. For example, in an April 2009 study, the National 
Commission on Energy Policy reported that few blending terminals have 
the off-loading capacity to handle large train shipments of ethanol. 
[Footnote 133] In 2006, we reported that replacing, maintaining, and 
upgrading the existing aging rail infrastructure is extremely costly, 
and while railroad officials plan to make substantial investments in 
infrastructure, the extent to which these investments will increase 
capacity as freight demand increases is unclear.[Footnote 134] 

Ethanol is not transported through the petroleum product pipeline 
system because of concerns that, for example, it will attract water in 
the pipes, rendering it unfit to blend with gasoline, according to DOE 
officials. Our June 2007 report found that even if ethanol could be 
shipped by existing pipelines, no pipelines exist to transport it from 
the Midwest, where it is mainly produced, to major markets on the East 
and West coasts.[Footnote 135] Alternatively, existing petroleum 
pipelines could be used in certain areas to transport ethanol if 
ongoing efforts by operators to identify ways to modify their systems 
to make them compatible with ethanol or ethanol-blended gasoline are 
successful. A 2006 NREL report estimated the current costs of 
constructing pipelines at roughly $1 million per mile, although the 
costs can vary dramatically based on right-of-way issues, the number of 
required pumping stations, and other considerations. 

* Ethanol is corrosive, so gasoline stations will need to install 
dedicated tank systems for storing E85 and specialized pumps and 
equipment for dispensing it. EPA estimates that the cost of installing 
E85 refueling equipment will average $122,000 per facility--which may 
be a significant impediment for many potential retailers. Liability 
concerns are also a challenge to increasing the number of E85 pumps. 
According to the Biomass Research and Development Board, one of the 
most significant hurdles to retail ethanol expansion is the current 
lack of Underwriters' Laboratory certification for pumps dispensing 
blends of E15 or higher because large operators of fuel pumps, ranging 
from the Postal Service to large retailers, will be reluctant to sell 
E85 or potentially other approved intermediate blends. 

In October 2008, we reported that the lack of E85 fueling stations 
greatly reduced the ability of the federal vehicle fleet to achieve its 
nationwide energy objectives for using alternative fuels.[Footnote 136] 
We concluded that until alternative fuel, particularly E85, is more 
widely available, federal agencies will likely continue to expend time 
and resources on acquiring flexible-fuel vehicles that can run on E85 
with limited success in displacing petroleum, possibly missing 
opportunities to displace petroleum through other means, such as 
through the purchase of conventional hybrids (vehicles that are powered 
by both an internal combustion engine and an electric motor) or natural-
gas-powered vehicles. 

* Only about 8 million flexible-fuel vehicles out of more than 250 
million in the nationwide vehicle fleet can use E85. However, many 
flexible-fuel vehicles are using E10 because a ready supply of E85 does 
not exist outside the upper Midwest. Fueling stations offering E85 are 
concentrated in the upper Midwest--15 states have less than 10 such 
fueling stations and 7 states have none. As of February 2009, only 
about 1,900 fueling stations nationwide offered E85, compared with 
nearly 168,000 gas stations. 

The Biodiesel Industry Faces Feedstock and Market Challenges: 

The domestic biodiesel industry faces several challenges that limit its 
potential market.[Footnote 137] Specifically, the biodiesel industry 
faces high feedstock costs.[Footnote 138] The cost for soybean oil, the 
most common feedstock for U.S. biodiesel production, and other plant 
oils is high because the biodiesel industry competes with food and 
animal feed markets for these oils. These high feedstock costs have 
prompted the biodiesel industry to look to other feedstock sources, 
including animal fats, recycled greases, and nonfood-grade corn oil. 
The biodiesel industry also faces substantial production overcapacity. 
According to the National Biodiesel Board, as of September 2008, the 
annual production capacity from 176 existing U.S. biodiesel refineries 
totaled 2.61 billion gallons--yet actual U.S. biodiesel production 
reached 700 million gallons from October 1, 2007, to September 30, 
2008, leaving the capacity utilization at many of these facilities 
extremely low. 

In contrast to the U.S. ethanol industry, the nation's biodiesel 
refining capacity is relatively dispersed. While many biodiesel 
refineries are located in the Midwest, substantial refineries are 
located in the South and on the West Coast. Yet, as with the U.S. 
ethanol industry, biodiesel cannot be blended at oil refineries and 
transported through product pipelines because of contamination 
concerns. Rather, biodiesel is transported by railroad cars and tanker 
trucks to fueling stations, which are expensive and slower than using 
pipeline and, in turn, add to product cost. In addition, for biodiesel 
to penetrate the light-duty vehicle fleet beyond the B5 or B10 blending 
levels,[Footnote 139] additional biofuel-capable vehicles must be 
produced and marketed to consumers. There are limited numbers of 
fueling stations carrying B20, because its physical properties may 
require the retrofit of storage tank systems and dispensing equipment. 

Furthermore, while the RFS requires use of at least 500 million gallons 
of biodiesel in 2009, the National Biodiesel Board has expressed 
concern that the production from many biodiesel refineries, 
particularly ones using soybean and other vegetable oil feedstocks, may 
not qualify as biomass-based diesel under EPA's proposed RFS regulation 
because biomass-based diesel under the RFS must generally achieve at 
least a 50 percent reduction in lifecycle greenhouse gas emissions as 
compared with petroleum fuels. A new biodiesel feedstock for the future 
is algae. DOE and private companies are increasing their funding of R&D 
to develop technologies that can cost effectively use algae to produce 
biodiesel. 

Conclusions: 

The RFS allows the use of up to 15 billion gallons per year of 
conventional biofuel by 2015 and requires at least 21 billion gallons 
of advanced biofuels--with at least 16 billion gallons of this amount 
coming from cellulosic feedstocks--in 2022. Yet, at present, the 
distribution infrastructure and vehicle types necessary to transport 
and use increased ethanol production do not exist. In addition, the 
United States will reach the blend wall limit as early as 2011 solely 
with existing ethanol production from corn starch, which could greatly 
restrict the growth of the cellulosic biofuels industry. Thermochemical 
processing technologies, such as pyrolysis, have the potential to 
produce advanced biofuels that can be used in the nation's existing 
fuel distribution and vehicle infrastructure and therefore avoid future 
blend wall issues. However, DOE and USDA have not focused substantial 
R&D resources on developing these technologies. Furthermore, EISA and 
the 2008 Farm Bill define renewable biomass differently regarding 
feedstocks and land eligibility, creating difficulties for agencies to 
formulate rules, implement program activities, and effectively execute 
the interagency National Biofuels Action Plan. This may also create 
uncertainty for biofuels producers and could potentially reduce the 
nation's ability to increase advanced biofuels feedstock production and 
realize their benefits. 

Recommendations for Executive Action: 

To minimize future blend wall issues and associated ethanol 
distribution infrastructure costs, we recommend that the Secretaries of 
Agriculture and Energy give priority to R&D on process technologies 
that produce biofuels that can be used by the existing petroleum-based 
distribution and storage infrastructure and the current fleet of U.S. 
vehicles. 

To address inconsistencies in existing statutory language, we recommend 
that the Administrator of the Environmental Protection Agency, in 
consultation with the Secretaries of Agriculture and Energy, review and 
propose to the appropriate congressional committees any legislative 
changes the Administrator determines may be needed to clarify what 
biomass material--based on type of feedstock or land--can be counted 
toward the RFS. 

Agency Comments: 

USDA and DOE commented on our recommendation for giving priority to R&D 
for producing biofuels that can be used by the existing petroleum- 
based infrastructure. Specifically, USDA agreed that this is an 
important goal which its R&D should address, but cited other similarly 
important R&D goals that its scientists are simultaneously pursuing, 
such as the development of feedstocks with physical and chemical 
properties that make them effective for conversion, and the creation of 
productive methods that are environmentally sound and economically 
advantageous for producing large quantities of feedstocks. In its 
comments, DOE stated that it has already expanded in this direction, 
noting for example that its $480 million funding opportunity 
announcement for integrated biorefinery operation, which closed on June 
30, 2009, included green diesel and green gasoline. DOE also cited a 
new solicitation to fund consortia to accelerate development of 
advanced biofuels under the American Recovery and Reinvestment Act 
supports infrastructure-compatible fuels and algae-based fuels. 

USDA, DOE, and EPA commented on our recommendation for clarifying what 
biomass material can be counted toward the RFS. USDA agreed with the 
recommendation that the executive agencies should consult on a 
definition and propose any legislative changes to the appropriate 
congressional committees, stating that the department supports the 2008 
Farm Bill's definition. DOE stated that the department would welcome 
the opportunity to participate in deliberations about how to clarify 
the biomass definition if requested to do so by the EPA Administrator, 
adding that the department supports an expansion of biomass eligibility 
to include materials that do not come from federal lands classified as 
environmentally sensitive and that can be grown and harvested in a 
sustainable manner. EPA stated that the agency is working with USDA to 
identify inconsistencies and interpret how biomass is treated under 
EISA and the 2008 Farm Bill. 

[End of section] 

Appendix I: Key Studies on the Agricultural and Related Effects of 
Biofuels and on the Transition to Advanced Biofuel Feedstock 
Production: 

Abbott, P.C., Hurt, C., and Tyner, W.E. "What's Driving Food Prices?" 
Farm Foundation, 2009. 

Anderson, D.P., Outlaw, J.L., Bryant, H.L., Richardson, J.W., et al. 
"The Effects of Ethanol on Texas Food and Feed," Agricultural and Food 
Policy Center, Texas A&M University, April 2008. 

Babcock, B.A. "Breaking the Link Between Food and Biofuels," Center for 
Agricultural and Rural Development, Iowa State University, Briefing 
Paper 08-BP 53, July 2008. Baker, J.M., Ochsner, T.E., Venterea, R.T., 
and Griffis, T.J. "Tillage and Soil Carbon Sequestration: What Do We 
Really Know?" Agriculture. Ecosystems and Environment, vol. 118 (2007); 
1-5. 

Biomass Research and Development Board, "The Economics of Biomass 
Feedstocks in the United States: A Review of the Literature," October 
2008. 

Biomass Research and Development Board, "Increasing Feedstock 
Production for Biofuels: Economic Drivers, Environmental Implications, 
and the Role of Research," December 2008. 

Cassman, K.G. "Ecological Intensification of Cereal Production Systems: 
Yield Potential, Soil Quality, and Precision Agriculture," Proceedings 
of the National Academy of Sciences, vol. 96 (1999); 5952-5959. 

Collins, K. The Role of Biofuels and Other Factors in Increasing Farm 
and Food Prices: A Review of Recent Developments with a Focus on Feed 
Grain Markets and Market Prospects, June 2008. Report prepared for 
Kraft Foods Global, Inc. 

Congressional Budget Office, The Impact of Ethanol Use on Food Prices 
and Greenhouse Gas Emissions, April 2009. 

De La Torre Ugarte, D., English, B.C., and Jensen, K. "Sixty Billion 
Gallons by 2030: Economic and Agriculture Impacts of Ethanol and 
Biodiesel Expansion," American Journal of Agricultural Economics, vol. 
89, no. 5 (2007): 1290-1295. 

English, B.C., De La Torre Ugarte, D., Jensen, K., Hellwinckel, C., 
Menard, J., Wilson, B., Roberts, R., and Walsh, M. "25% Renewable 
Energy for the United States by 2025: Agricultural and Economic 
Impacts," The University of Tennessee, November 2006. 

Fabiosa, J.F., Beghin, J.C., Dong, F., Elobeid, A., Tokgoz, S., and Yu, 
T. "Land Allocation Effects of the Global Ethanol Surge: Predictions 
from the International FAPRI Model," Center for Agricultural and Rural 
Development, Iowa State University, Working Paper 09-WP 488, March 
2009. 

Fales, S.L., Hess, J.R., and Wilhelm, W.W. "Convergence of Agriculture 
and Energy: II. Producing Cellulosic Biomass for Biofuels," Council for 
Agricultural Science and Technology (CAST) Commentary, QTA2007-2, 
November 2007. 

Fargione, J., Hill, J., Tilman, D., Polasky, S., and Hawthorne, P. 
"Land Clearing and the Biofuel Carbon Debt," Science, vol. 319 (2008): 
1235-1238. 

Feng, H. and Babcock, B.A. "Impacts of Ethanol on Planted Acreage in 
Market Equilibrium," Center for Agricultural and Rural Development, 
Iowa State University, Working Paper 08-WP 472, June 2008. 

Fronning, B.E., Thelen, K.D., and Min, D.H. "Use of Manure, Compost, 
and Cover Crops to Supplant Crop Residue Carbon in Corn Stover Removed 
Cropping Systems," Agronomy Journal, vol. 100, no. 6 (2008): 1703-1710. 

Groom, M.J., Gray, E.M., and Townsend, P.A. "Biofuels and Biodiversity: 
Principles for Creating Better Policies for Biofuel Production," 
Conservation Biology, 22, no. 3 (2008): 602-609. 

Hayes, D.J., Babcock, B.A., Fabiosa, J.F., Tokgoz, S., Elobeid, A., Yu, 
T., Dong, F., Hart, C.E., Chavez, E., Pan, S., Carriquiry, M., and 
DuMortier, J. "Biofuels: Potential Production Capacity, Effects on 
Grain and Livestock Sectors, and Implications for Food Prices and 
Consumers," Center for Agricultural and Rural Development, Iowa State 
University, Working Paper 09-WP 487, March 2009. 

Heaton, E.A., Dohleman, F.G., and Long, S.P. "Meeting U.S. biofuel 
goals with less land: The potential of Miscanthus," Global Change 
Biology, 14 (2008): 1-15. 

Hill, J., Nelson, E., Tilman, D., Polasky, S., and Tiffany, D. 
"Environmental, Economic, and Energetic Costs and Benefits of Biodiesel 
and Ethanol Biofuels," Proceedings of the National Academy of Sciences, 
vol. 103, no. 30 (2006): 11206-11210. 

Hipple, P.C., Duffy, M.D. "Farmers' Motivations for Adoption of 
Switchgrass," in J. Janich and A. Whipkey (eds.),Trends in New Crops 
and New Uses (Alexandria, Va.: ASHA Press, 2002): 252-266. 

Hochman, G., Sexton, S.E., and Zilberman, D. "The Economics of Biofuel 
Policy and Biotechnology," Journal of Agricultural & Food Industrial 
Organization, vol. 6, no. 8 (2008): 1-22. 

Johnson, J.M.F, Coleman, M.D., Gesch, R., Jaradat, A., Mitchell, R., 
Reicosky, D., and Wilhelm, W.W. "Biomass-Bioenergy Crops in the United 
States: A Changing Paradigm," The Americas Journal of Plant Science and 
Biotechnology, 1, 1 (2007): 1-28. 

Johnson, J.M.F, Reicosky, D., Allmaras, R., Archer, D., Wilhelm, W. "A 
Matter of Balance: Conservation and Renewable Energy," Journal of Soil 
and Water Conservation, Jul/Aug, 61, 4 (2006): 120A-125A. 

Khanna, M. "Cellulosic Biofuels: Are They Economically Viable and 
Environmentally Sustainable?" Choices, vol. 23, no. 3 (2008): 16-21. 

Kim, S. and Dale, B.E. "Life Cycle Assessment of Various Cropping 
Systems Utilized for Producing Biofuels: Bioethanol and Biodiesel," 
Biomass and Bioenergy, vol. 29 (2005): 426-439. 

Lawrence, C.J. and Walbot, V. "Translational Genomics for Bioenergy 
Production from Fuelstock Grasses: Maize as the Model Species," The 
Plant Cell, 19 (2007): 2091-2094. 

Lawrence, J.D., Mintert, J., Anderson, J.D., and Anderson, D.P. "Feed 
Grains and Livestock: Impacts on Meat Supplies and Prices," Choices, 
vol. 23, no. 2 (2008): 11-15. 

Low, S.A. and Isserman, A.M. "Ethanol and the Local Economy: Industry 
Trends, Location Factors, Economic Impacts, and Risks," Economic 
Development Quarterly, vol. 23, no. 1 (2009): 71-88. 

McDonald, S., Robinson, S., and Thierfelder, K. "Impact of Switching 
Production to Bioenergy Crops: The Switchgrass Example," Energy 
Economics, vol. 28 (2006): 243-265. 

Mitchell, D. "A Note on Rising Food Prices," The World Bank, Policy 
Research Working Paper, no. 4682, July 2008. 

McPhail, L.L. and Babcock, B.A. "Short-Run Price and Welfare Impacts of 
Federal Ethanol Policies," Center for Agricultural and Rural 
Development, Iowa State University, Working Paper 08-WP 468, June 2008. 

Naylor, R.L., Liska, A.J., Burke, M.B., Falcon, W.P., Gaskell, J.C., 
Rozelle, S.D., and Cassman, K.G. "The Ripple Effect: Biofuels, Food, 
Security, and the Environment," Environment, vol. 49, no. 9 (2007): 31- 
43. 

Oak Ridge National Laboratory, prepared for DOE and USDA. "Biomass as 
Feedstock for a Bioenergy and Bioproducts Industry: The Technical 
Feasibility of a Billion-Ton Annual Supply," April 2005. 

OECD, Economic Assessment of Biofuels Support Policies, 2008. 

Parcell, J.L. and Westhoff, P. "Economic Effects of Biofuel Production 
on States and Rural Communities," Journal of Agricultural and Applied 
Economics, vol. 38, no. 2 (2006): 377-387. 

Pimentel, D. and Patzek, T.W. "Ethanol Production Using Corn, 
Switchgrass, and Wood; Biodiesel Production Using Soybean and 
Sunflower," Natural Resources Research, vol. 14, no. 1 (2005): 65-76. 

Rajagopal, D., Sexton, S.E., Roland-Holst, D., and Zilberman, D. 
"Challenge of Biofuel: Filling the Tank without Emptying the Stomach?" 
Environmental Research Letters, vol. 2 (2007): 1-9. 

Rajagopal, D. and Zilberman, D. "Review of Environmental, Economic and 
Policy Aspects of Biofuels," The World Bank, Policy Research Working 
Paper, no. 4341, September 2007. 

Robertson, G.P., Dale, V.H., Doering, O.C., Hamburg, S.P., Melillo, 
J.M., Wander, M.M., et al. "Sustainable Biofuels Redux," Science, vol. 
322 (2008): 49-50. 

Sarath, G., Mitchell, R.B., Sattler, S.E., Funnell, D., Pedersen, J.F., 
Graybosch, R.A., and Vogel, K.P. "Opportunities and roadblocks in 
utilizing forages and small grains for liquid fuels," Journal of 
Industrial Microbiology and Biotechnology, vol. 35, no. 5 (2008): 343- 
354. 

Schmer, M.R., Vogel, K.P., Mitchell, R.B., and Perrin, R.K. "Net Energy 
of Cellulosic Ethanol from Switchgrass," Proceedings of the National 
Academy of Sciences, vol. 105, no. 2 (2008): 464-469. 

Searchinger, T., Heimlich, R., Houghton, R.A., Dong, F., Elobeid, A., 
Fabioso, J., et al. "Use of U.S. Croplands for Biofuels Increases 
Greenhouse Gases through Emissions from Land-Use Change," Science, vol. 
319 (2008): 1238-1240. 

Senauer, B. "Food Market Effects of a Global Resource Shift Toward 
Bioenergy," American Journal of Agricultural Economics, vol. 90, issue 
5 (2008): 1226-1232. 

[End of section] 

Tokgoz, S., Elobeid, A., Fabiosa, J., Hayes, D.J., Babcock, B.A., Yu, 
T.H., Dong, F., and Hart, C.E. "Bottlenecks, Drought, and Oil Price 
Spikes: Impact on U.S. Ethanol and Agricultural Sectors," Review of 
Agricultural Economics, vol. 30, no. 4 (2008): 604-622. 

Tyner, W., and Taheripour, F. "Biofuels, Policy Options, and Their 
Implications: Analyses Using Partial and General Equilibrium 
Approaches," Journal of Agricultural and Food Industrial Organization, 
vol. 6, article 9 (2008). 

Walsh, M.E., De La Torre Ugarte, D.G., Shapouri, H., and Slinsky, S.P. 
"Bioenergy Crop Production in the United States--Potential Quantities, 
Land Use Changes, and Economic Impacts on the Agricultural Sector," 
Environmental and Resource Economics, vol. 24, no. 4, (2003): 313-333. 

Westhoff, P., Thompson, W., and Meyer, S. "Biofuels: Impact of Selected 
Farm Bill Provisions and Other Biofuel Policy Options, Food and 
Agricultural Policy Research Institute at University of Missouri- 
Columbia, FAPRI-MU Report no. 06-08, 2008. 

U.K. Renewable Fuels Agency. "The Gallagher Review of the Indirect 
Effects of Biofuels Production," East Sussex, United Kingdom, July 
2008. 

USDA, Cooperative State Research, Education, and Extension Service, 
"The Human and Social Dimensions of a Bioeconomy: Implications for 
Rural People and Places," Discussion Paper, March 2007. 

USDA, Economic Research Service and Office of Chief Economist. "An 
Analysis of the Effects of an Expansion in Biofuel Demand on U.S. 
Agriculture," May 2007. 

USDA, Office of the Chief Economist, De La Torre Ugarte, D.G., Walsh, 
M.E., Shapouri, H., and Slinsky, S.P. "The Economic Impacts of 
Bioenergy Crop Production on U.S. Agriculture," Agricultural Economic 
Report, no. 816, February 2003. 

USDA, Economic Research Service. "Productivity Growth in U.S. 
Agriculture," Economic Brief Number 9, September 2007. 

USDA, Economic Research Service. "Economic Measures of Soil 
Conservation Benefits," Technical Bulletin Number 1922, September 2008. 

USDA, Economic Research Service. "Feed Grains Backgrounder," March 
2007. 

USDA, Economic Research Service. "Environmental Effects of Agricultural 
Land-Use Change: The Role of Economics and Policy," Economic Research 
Report Number 25, August 2006. 

USDA, Economic Research Service. "Global Agricultural Supply and 
Demand: Factors Contributing to the Recent Increase in Food Commodity 
Prices," July 2008 (revised). 

USDA, Economic Research Service. "Ethanol Expansion in the United 
States: How Will the Agricultural Sector Adjust?" May 2007. 

USDA, National Agricultural Statistics Service, 2007 Census of 
Agriculture, Vol. 1, Part 51, February 2009. 

USDA, Office of the Chief Economist. "USDA Agricultural Projections to 
2017," February 2008. 

United Nations Food and Agriculture Organization. The State of Food and 
Agriculture: Biofuels--Prospects, Risks, and Opportunities, Rome, 
Italy, 2008. 

Varvel, G.E., Vogel, K.P., Mitchell, R.B., Follett, R.F., and Kimble, 
J.M. "Comparison of Corn and Switchgrass on Marginal Soils for 
Bioenergy," Biomass & Bioenergy, vol. 32 (2008): 18-21. 

[End of section] 

Appendix II: Economic Studies Examining the Impacts of Increased 
Biofuel Production on U.S. Food and Agricultural Markets: 

[End of section] 

We selected 12 key economic studies on the impacts of increased biofuel 
production on U.S. food and agricultural markets. The authors generally 
found, to varying degrees, that increased demand for biofuel production 
will affect many sectors throughout food and agriculture. We summarized 
the results of these studies for biofuel production, feedstock prices, 
feedstock production, food prices, other crop and livestock production 
and prices, land-use effects, changes in government program/welfare 
impacts, net farm income, and other impacts. The variation in impact 
found between these studies may be due, in part, to the different 
economic models, time periods, data and assumptions that they used. 
However, in general, the studies found that increased demand for corn 
ethanol had the following effects: 

* Corn and soybean prices rose significantly, with the amount of the 
rise varying with the baseline, time period, and the scenario that the 
researchers used to make assumptions about economic conditions and 
ethanol demand. 

* The production of other traditional crops declined with increases in 
biofuel demand while their prices increased. 

* The increased prices of corn and other feed crops caused livestock 
production to decline, but the amount of this decline varied by animal, 
with the deepest declines in dairy, swine, and poultry. 

* Increased production of dried distiller's grains (DDG)--a livestock 
feed and a co-product of ethanol production--mitigated the effects of 
increased feed prices somewhat in the short run. 

* Land area devoted to corn increased and some other crops, such as 
barley and oats, used for livestock feed increased, while land planted 
to soybeans and other crops declined sharply. 

* In six of the studies that looked at retail food prices, increased 
biofuel demand caused small increases in food prices. 

Several of the studies also looked at the impacts on agricultural 
markets of increased biofuels from cellulosic feedstocks, and their 
outcomes varied, in part based on the baseline used, model, and 
assumptions they made about the land that was available and type of 
cellulosic feedstock assumed. 

In table 8, we describe the basic methodology and modeling assumptions 
of the economic studies of the impacts of increased biofuel production. 
Specifically, we explain several aspects of the studies, including the 
main objective, type of model, data and time period, major assumptions, 
model scenarios, government policies examined, and other aspects 
examined. For most of them, the sources of biofuel feedstock examined 
was corn for ethanol, but corn stover, switchgrass, and other 
cellulosic feedstocks were also included, as well as soybeans for 
biodiesel. The studies assumed various analytical frameworks, including 
partial equilibrium and general equilibrium,[Footnote 140] and employed 
a range of different modeling techniques, including econometric models, 
simulation models, optimization models, break-even analysis, and 
representative farm models. For the most part, we selected studies that 
took a broader, more national approach. We also included studies that 
were quantitative or empirical in nature, in order to measure the 
impacts of increased biofuel production on various sectors of the food 
and agricultural market. To observe the impact of increased biofuels 
production on various market conditions, a majority of the studies 
included a variety of different scenarios, including higher crude oil 
prices, production shortfalls, higher productivity levels, various 
subsidy and biofuel mandate levels, and land-use policies. Also, three 
of the studies that we examined measured the impacts on various 
stakeholders, such as biofuel producers, crop and livestock producers, 
taxpayers, and consumers. 

Table 8 presents some of the main results of these studies, including 
the impacts of increased biofuels production on feedstock production 
and prices, food prices, other crop and livestock prices, land-use 
impacts, government programs, and other effects. For most studies, we 
reported the results for all scenarios, but for a few we only reported 
on the major scenario due to space limitations. 

Table 8: Major Economic Studies of Agricultural Market Impacts of 
Biofuels Production: 

Model Description: Economic Research Service and Office of Chief 
Economist, USDA, May 2007: 

Objective of the study: Main purpose is to assess the effects on 
agriculture of alternative levels of biofuels production from corn 
(ethanol) and soybean oil (biodiesel). Also, to review the expansion of 
cellulosic ethanol production; 
Model/Time/Data: National Model: Food and Agricultural Policy Simulator 
(FAPSIM) using 2007 USDA baseline for years 2007-2016; Regional Model: 
Regional Environmental and Agricultural Programming Model (REAP) uses 
crop mix from 1992 National Resources Inventory; 
Major assumptions: 
* Increase in biofuel production was assumed to occur gradually over 
time, from 2007-2016; 
* Assumes only dried distiller's grain; 
* Conservation Reserve Program (CRP) acres remain constant in 2016; 
Scenarios: 3 Scenarios: 
1) Corn ethanol increase to 15 billion gallons by 2016, biodiesel to 1 
billion gallons; 
2) Corn ethanol increase to 20 billion gallons by 2016, biodiesel to 1 
billion gallons; 
3) Effects of a production shortfall of 10% below baseline in 2012 for 
each scenario above; 
Results: 
* For scenarios 1 and 2, respectively: Corn production and price rise 
in both scenarios; 5.4 and 7.2 billion bushels and $3.61 and $3.95 per 
bushel in 2016; 
* Overall livestock production is reduced; 
* Soybean, wheat, cotton, and rice acreage declines over baseline; 
* Retail prices for pork, dairy, and broilers increase by 5.4, 4.8 and 
4.4% (scenario 1) and 2, 1.4, and 1.9% (scenario 2) annually during 
2007-2016; 
* Net farm income increases by $2.6 and $7.1 billion, in scenarios 1 
and 2, respectively. 

Model Description: De La Torre Ugarte, English, and Jensen, American 
Journal of Agricultural Economics, 2007[A]: 

Objective of the study: Projects economic impacts of increasing ethanol 
beyond RFS: production to 10, 30, and 60 billion gallons by 2010, 2020, 
and 2030, and biodiesel production by 1 and 1.6 billion gallons by 2012 
and 2030; 
Model/Time/Data: POLYSYS/IMPLAN Integrator (PII) - a dynamic 
agricultural sector model incorporating an economic input-output model. 
2006 USDA baseline. Facility output costs, feedstock and associated 
costs based on prior studies; 
Major assumptions: 
* Cellulose-to-ethanol assumed commercially available by 2012; 
* Switchgrass is proxy for energy crop with yields from 1.5 to 5%; 
* No-till increases from 20-55%; 
* 307 million acres crops plus hay and 56.2 million for pasture; 
* DDGs in feed ration are 30% for beef, and 10% for dairy, hogs, and 
broilers; 
Scenarios: 3 Scenarios: 
1) ETH60-attain targets assuming cellulose-to-ethanol by 2012; 
2) ETH60CA-allows corn ethanol to adjust as cellulose-to-ethanol is 
available in 2012; 
3) ETH60CACD-delays cellulose-to-ethanol until 2015, and corn ethanol 
adjusts; 
Results: ETH60 Scenario; 
* Corn, soybean, and wheat prices increase. Corn ethanol production 
until 2012. After 2012, switches to cellulose of wood residues and then 
dedicated energy crops; 
* Higher feed prices, but lower cattle inventories reduce demand for 
feed, offsetting feed prices. DDGS more heavily incorporated into 
cattle rations; 
* Savings in government payments of $150 billion and increase in net 
farm income of $210 billion in 2007-2030; 
* Economic impacts of $368 billion per year and 2.4 million jobs. 

Model Description: Tokgoz, Elobeid, Fabiosa, Hayes, Babcock, Tun-
Hsiang, Dong, and Hart, Review of Agricultural Economics, Vol. 30, No. 
4, 2008: 

Objective of the study: The study estimates how large the U.S. biofuels 
sector could become and assesses the likely impact of this sector on 
crop markets, trade, and on wholesale and retail livestock markets; 
Model/Time/Data: A multi-commodity, multi-country, partial equilibrium 
econometric model of the agriculture sector which incorporates a 
biofuels component. Feedstocks include ethanol from corn, corn stover, 
and switchgrass, although ethanol only one included in baseline and 
scenarios due to positive returns. Data for supply and use from F.O. 
Lichts, FAO, and USDA. Macro data from Global Insight and other various 
sources. Adjusted NYMEX crude oil prices. Baseline for U.S. and 
international commodity models based on 2006 data; Projections between 
2007 through 2016; 
Major assumptions: 
* Assumes long-run equilibrium conditions baseline and for Scenarios 1 
and 2; 
* Analysis of flex-fuel vehicles and "E-85 Bottleneck" issue; 
* Parameters estimated from the literature, or expert opinion; 
* Assumes 20 DDGs for pork and poultry; this does not affect quality; 
* Assumes domestic and border policies (duties, tariff-rate quotas, 
export subsidies) in all scenarios; 
Scenarios: 2 Scenarios: 
1) Scenario with higher crude oil prices ($10 higher on $60/barrel oil) 
but with constrained demand from an E-85 "bottleneck"; 
2) Short-crop scenario that mimics the 1988 drought in 2012-13 
marketing year (middle of projection period) with an ethanol mandate in 
place of 14.7 billion gallons. Results of the 2 scenarios are 
considered relative to the baseline projections; 
Results: 
Scenario 1: Ethanol production increases to 22.4 billion gallons or a 
55% increase in 2016-17. Corn production increases by 11% and price 
increases by 20% from $3.15 to $3.75 per bushel. Wheat and soybean 
production decreases, and prices increase by 9%. Planted area for corn 
increases by 11% and other crops decrease 3-6%. Overall food price 
increases small, about 1%. Retail meat, dairy, and egg prices would 
increase. 
Scenario 2: Ethanol production from corn falls 2.4% to 14.3 billion 
gallons. Corn price increases 44% and production decreases by 23%. 
Soybean production decreases by 21% and price increases by 22%. Planted 
area for corn increases by 2%, wheat stays the same, soybeans area 
declines. Livestock production decreases. 
Overall: Finds no ethanol price that justifies growing switchgrass. 

Model Description: Tyner and Taheripour, Journal of Agricultural & Food 
Industrial Organization, Vol. 6, Article 9, 2008: 

Objective of the study: The study investigates the economic 
consequences of further ethanol expansion for key economic variables of 
the U.S. agriculture and energy markets under several policy options. 
They extend the analysis to look at global biofuels impacts; 
Model/Time/Data: Break-even analysis, partial equilibrium model 
simulating various policy scenarios, and computable general equilibrium 
built on GTAP; For the break-even analysis, use actual price 
observations of corn and ethanol from 2000 to 2008. For partial 
equilibrium, models calibrated for 2004-2006 data; 
Major assumptions: 
* All simulations done with a 5% fuel demand shock; 
* A 40% corn export demand shock for fall in value of dollar; 
* Infrastructure and blending wall does not restrict the market; 
Scenarios: 4 Scenarios-partial equilibrium model:[B] 
1) A fixed subsidy of 45 cents per gallon, starting 2009; 
2) No ethanol subsidy; 
3) Variable subsidy beginning at $70 for crude oil, increasing $0.0175 
for each dollar of crude that falls below $70; 
4) A renewable fuel standard (RFS) of 15 billion gallons; 
Results: Partial Equilibrium Analysis; Under $40 oil prices and fixed 
subsidy, 10.25 billion bushels of corn production (less than 15 billion 
RFS). With oil at $100 or greater, the subsidy induces higher corn 
production. Above $120 oil, the RFS is not binding. Models show a tight 
linkage between oil and corn prices. Price increase from 2004-2008 due 
to ethanol subsidy ($1) and due to an increase in oil prices ($3). At 
$140 oil, see corn price of $6 under all scenarios except fixed 
subsidy. 
* RFS cost is paid by the consumer at the pump and is high at low 
prices and low at high oil prices; 
* Fixed and variable subsidy costs are financed through the budget; 
* Fixed subsidy rises linearly with oil prices; 
* Variable subsidy has low costs at higher oil prices, and manifests 
only at lower oil prices; 
* At oil prices greater than $80, the cost of RFS is always lower than 
the fixed subsidy. 

Model Description: Walsh, De La Torre Ugarte, Shapouri, and Slinsky, 
Environmental and Resource Economics, 24, 2003: 

Objective of the study: The study seeks to identify what prices are 
needed for bioenergy crops to compete for agricultural land, and what 
would happen to traditional crop prices and farm income if a bioenergy 
market could be developed to use all of the biomass potentially 
available at a given price. Bioenergy crops include switchgrass, hybrid 
poplar, and willow; 
Model/Time/Data: POLYSYS, a simulation model of the U.S. agricultural 
sector. Uses 1999 USDA baseline for 8 major crops and 1999 FAPRI 
baseline for alfalfa and other hay. Baseline timeframe runs from 1999- 
2008. CRP baseline is 1998. Crop enterprise budgets using the APAC 
Budgeting System which estimates costs associated with traditional 
crops. BIOCOST estimates costs for bioenergy crops--hybrid poplar and 
willow[C];
Major assumptions: 
* A planning horizon of 40 years with a real discount rate of 6.5%; 
* On CRP acres, existing contracts can be renewed under same conditions 
or planted to bioenergy crops with 25% of rental rate forfeited; 
* Rational expectations is incorporated into farmers' decisions; 
* Prices of biofuel crops are exogenous to the model; 
Scenarios: 2 Scenarios; 
1) Prices of $30/dt, $31.74/dt, and $32.90/dt for switchgrass, willow, 
and hybrid poplar. Assumes wildlife management practices are employed 
on CRP acres and farmers receive 75% of rental rate for producing 
bioenergy crops; 
2) Prices of $40/dt, $42.32/dt, and $43.87/dt for switchgrass, willow, 
and hybrid poplar. Assumes production management practices employed on 
CRP acres and 75% of rental rate; 
Results: 
* Overall: Authors conclude government policies needed to encourage use 
of bioenergy production. Switchgrass is more profitable than poplars or 
willows in nearly all regions, but under the wildlife scenario (1) 
acres are split between switchgrass and poplars; 
* Scenario 1: Supplies about 8.5 billion gallons of ethanol. For 
feedstock, total switchgrass production of 60.4 million dry tons 
annually. Poplar annualized to 35.5 million dry tons. Traditional crop 
prices increase by an estimated 4 to 9 percent. An estimated 19.4 
million acres planted to bioenergy crops; 
* Scenario 2: Supplies 16.7 billion gallons of ethanol. All from 
Switchgrass (188 million dry tons). Traditional crop prices rise by 9-
14 percent with 41.9 million acres planted to bioenergy crops. 

Model Description: Anderson, Outlaw, Bryant, Richardson, Ernstes, 
Raulston, Welch, Knapek, Herbst, and Allison, Agricultural and Food 
Policy Center, Texas A&M, April, 2008: 

Objective of the study: Objectives of this study that we focused on are 
to 1) examine the impacts of higher corn and energy prices on food 
price increases, 2) evaluate the impacts of higher crop prices on the 
livestock industry. and 3) analyze the effects of a reduction of the 
Model/Time/Data: For the effect of feed prices on livestock markets, 
study uses representative farm models and costs studies. For food price 
section-time series vector autoregression econometric model. Uses DOE 
oil prices, BLS labor prices, and BLS and USDA retail food prices. No. 
2, yellow corn prices Central Illinois, Primark Datastream. Feeder 
cattle prices from AMS/USDA, Fed price from Texas-Oklahoma average 
price. Use monthly data for 2006-2008. For RFS scenarios, authors use a 
hybrid stochastic simulation model; 
Major assumptions: For the retail food model: Assumes underlying 
structural model is recursive with: 
* Price of crude oil in one period is not affected by same period 
shocks in any other variables; 
* Labor price is affected by same period crude oil shocks; 
* Corn price could be affected by shocks in the same period for either 
oil or labor prices; 
* Retail food prices are determined last. 
For the RFS model: tax credits for ethanol and biodiesel blending are 
assumed to continue and biodiesel RFS continues at 1 B. gallon after 
2012; 
Scenarios: For the RFS model 3 scenarios: 
1) First, the current RFS, and all other government programs, proceed 
as currently planned; 
2) The conventional biofuel RFS is immediately and permanently reduced 
by one-quarter; 
3) The conventional biofuel RFS is reduced by one-half; 
Results: 
For livestock model: For dairy, feed costs increased from 17 to 22 
percent from 2006-2008. For cattle, breakeven feed prices went from $94 
to $107 per cwt as feed costs increased and feeder steer prices fell 
from $110 to $98 per cwt over the same period. For broilers, feed costs 
increased from an index of 93.5 in 2006 to 144.3 in 2008; 
For retail model: High corn prices have small overall impact on retail 
food prices. On a product-by-product basis, they found a significant 
effect of corn price on eggs, bread, and milk prices. The livestock 
industry is in the middle of transition, and higher livestock prices 
have yet to be passed on to the retail level to reflect the higher 
costs of feed; 
For RFS model: Relaxing the RFS does not significantly reduce corn 
prices--they are fairly steady under all scenarios. However, they 
gradually diverge, with the one-quarter RFS waiver corn prices falling 
about $0.30 per bushel below the full RFS price, and the one-half RFS 
waiver corn price about $0.50 to $0.60 per bushel below the full RFS 
price. 

Model Description: The Biomass Research and Development Board, 2008[E]: 

Objective of the study: The goal of this report was to research and 
make recommendations to address the constraints surrounding the 
availability of biomass feedstocks. As part of this study, an economic 
assessment was developed that linked an analysis of environmental 
consequences of feedstock production from agriculture and forestry 
sources; 
Model/Time/Data: Two comprehensive models: 
REAP--Regional Environment and Agriculture Programming model, a 
mathematical optimization model which analyzes the feedstocks 
associated with producing first-generation biofuels. The baseline case 
uses the USDA baseline for 2007, which provides projections to 2016. 
POLYSYS, an agricultural policy simulation model, used to assess the 
impacts of cellulosic production of ethanol in 2022 on agricultural 
prices and production. To simulate 2022, the 2007 USDA baseline for all 
crop prices and production used extended to 2022 based on an 
extrapolation of trends in the last 3 years of the USDA baseline. 
Report uses the renewable fuel volumes in EISA as basis for scenarios; 
Major assumptions: Some key assumptions: 
REAP: 
* All demands are national except for regional livestock demands; 
* Crop rotations are allocated proportionately and yields fixed at 
average levels; 
* Total CRP land is fixed, but allowed to reallocate among regions. 
POLYSYS: 
* Constrained to remove no more than 34% of corn stover and 50% of 
wheat straw; 
* Cropland used as pasture will be converted to energy crops provided 
the net returns are greater than the rental rates, they are the most 
profitable, and hay production can offset lost forage production; 
* In cellulosic high productivity scenario, corn productivity doubles 
the rate over baseline in 2022 and energy crops increase at an annual 
rate of 1.5% starting in 2012; 
Scenarios: First generation scenarios: 
1) Reference case: for 2016 represents a total biofuel target of 16 
billion gallons, 15 billion of corn-based ethanol and 1 billion 
biodiesel. 
2) A high productivity scenario represents an increase in productivity 
by an additional 50% above baseline assumptions; 
3) A high input cost scenario represents an increase in the cost of 
energy-intensive inputs of 50 percent over baseline; 
4) A price of $25 is assumed for the positive carbon price scenario; 
Cellulosic scenarios:[F] 
1) Reference Scenarios: 36 BGY biofuel scenario--15 BGY of corn-based 
ethanol, 1 BGY soybean diesel, and 20 BGY of cellulosic biofuels. This 
is broken down into 3 cases of various proportions of cropland, 
forestland, and imported biofuels; 
2) Increased Productivity: Same as reference case scenarios only with 
high productivity assumption (see assumptions); 
Results: Reference case: A 3.6% increase in corn production is 
accompanied by a 4.6% increase in price over baseline. The price of 
soybeans is 3.2 percent higher, while the prices of other crops 
increase by less than 1 percent. Planted acreage in 2016 is 4.4 million 
acres over USDA baseline. Corn acreage expands by 3.7-million-acres 
with an additional 700,000 acres in other crops. Each region exhibits 
an increase of 3%-7% in corn acres, most new corn acres are in the Corn 
Belt, Northern Plains, and the Lake States. The Corn Belt absorbs about 
1 million CRP acres, with CRP acres in the Mountain region increasing 
by 1 million acres. Net farm returns increase by 10.4% for corn and 
3.5% for other crops. Returns for livestock producers decline by 0.8% 
due to increased feed costs; 
High Productivity Scenario: In the high-productivity case, a 50% 
increase in yield growth led to a 6.3% decline in corn price with a 
2.6% increase in production. Also, the price and production effects on 
other crops are mostly mitigated. Net returns for corn producers 
decline by 2.7% compared to the reference case and decline 1.8% for 
other crop producers. The lower price of corn lifts returns for 
livestock producers by 1.4%. Total acres planted is 1.6 million less; 3 
million fewer corn acres are planted nationally than the reference 
case; 
Cellulosic Scenarios: For the reference cases: Cellulosic feedstock 
prices coming entirely from cropland reach over $60/dry ton in 2022. 
About 36 percent of this feedstock would come from perennial grasses, 
woody crops, and annual energy crops with the remainder from crop 
residues, mainly corn stover. For a cropland scenario of 15 BGY, prices 
needed to secure sufficient feedstock are about $15/dry ton less than 
under the previous scenario and are about $20/dry ton less under the 12 
BGY scenario of advanced biofuels from cropland. Scenarios with less 
cropland bring in larger shares of energy crops relative to crop 
residues. 

Model Description: Rajagopal, Sexton, Roland-Holst, and Zilberman, 
Environmental Research Letters, No. 2, 2007: 

Objective of the study: The objective of the study is to estimate the 
maximum amount of ethanol that could be produced from principal food 
crops today if they were diverted entirely to energy production. The 
authors also estimate the impacts of biofuels on food and fuel 
production and develop a framework for estimating the wealth transfers 
from biofuel production; 
Model/Time/Data: Conceptual model and welfare analysis--authors employ 
a conceptual model of supply and demand for a crop with multiple uses, 
like food and fuel. With this conceptual model, they develop estimates 
of short-run costs and benefits of the ethanol production tax credit 
for the year 2006; 
Major assumptions: Corn demand elasticity of -0.5 Corn supply 
elasticity of 0.2; Gasoline demand elasticity of -0.23 and supply 
elasticity of 0.25; Elasticities short-run (inelastic), whereas in the 
long-run both supply and demand are more elastic; Conceptual model does 
not include impacts of other crops, livestock, import tariffs, RFS, or 
deficiency payments; 
Scenarios: N/A[G]; 
Results: 
Corn market: U.S. corn production was 12.5 billion bushels with 1.8 
billion allocated to ethanol. Average price of corn for marketing year 
2006-07 was $3 per bushel. Increase in corn price due to additional 
ethanol demand was estimated to be 21% higher; price of corn in absence 
of ethanol demand $2.48 per bushel. 
Gasoline Market: The average price of gasoline was $2.53 per gallon and 
was estimated to be 3% higher or $2.61 per gallon in the absences of 
ethanol. 
Welfare estimates: Cost to taxpayers from ethanol production--$2.5 
billion; Increase in corn producer surplus--$6.4 billion; Loss in U.S. 
consumer surplus to non-ethanol corn users--$4.4 billion; Loss in 
consumer surplus (from corn) to rest of the world -$1.1 billion. 

Model Description: Fabiosa, Beghin, Dong, Elobeid, Tokgoz, and Yu, 
Working Paper 09-WP 488, Center for Agricultural and Rural Development, 
Iowa State University, March 2009: 

Objective of the study: Authors investigate the trade-offs between 
food, feed, energy, and environment and where they occur in terms of 
geographic and market location. In particular, the authors examine the 
land allocation effects of ethanol expansion and its effects on land 
devoted to feedstock and competing crops; 
Model/Time/Data: Analysis uses FAPRI model, a multi-market, partial-
equilibrium model of world agriculture. They compute average effects of 
ethanol shocks in deviations from 2007 FAPRI baseline and calculate 
proportional impact multipliers on key variables for 2007/08 to 
2016/17. Data from F.O. Lichts, FAOSTAT, USDA, and the European 
Commission Directorate General for Energy and Transport, and UNICA. 
Macroeconomic data from IMF and Global Insight. 
Major assumptions: 
* Supply and demand elasticities for crop and livestock based on 
econometric and consensus estimates; 
* Supply and demand elasticities for ethanol estimated at the sample 
average of 2000-2004; 
* Profit margins do not signal entry and exit, except in ethanol 
capacity; 
* Baseline assumes continuity of policies in the coming decade; 
* Domestic and international policies include tariffs, tariff-rate 
quotas, export subsidies, intervention prices, set-aside programs, and 
other domestic support; 
Scenarios: 2 Scenarios: 
1) A 10% exogenous increase in the U.S. demand for ethanol leading to a 
3% increase in ethanol use; 
2) An exogenous 5% increase in world demand for ethanol (specifically, 
in Brazil, China, the EU, and India) leading to an increase in 
aggregate demand in these countries of about 3%/; 
Results: 
Scenario 1: A 3% increase in ethanol use elicits a much smaller 
increase in total corn use. Derived demand for feedstock increases, as 
corn displaces other grains. Corn for feed use falls and seed use 
increases. Corn exports decrease and stocks fall substantially. Lower 
DDG prices result. There is a short-run departure in prices of DDGs and 
corn, going back to their strong correlation in the long-run; Land area 
devoted to corn increases. Land area planted to hay and barley 
increases. There is a sharp reduction in land devoted to soybeans. Food 
corn use falls slightly; most significant being HFCS; other food use 
falls by much less. Small reduction in aggregate meat production. 
Wholesale prices increase moderately while retail prices increase by 
less. 
Scenario 2: U.S. ethanol production and feedstock are barely affected 
because of the segmentation of the U.S. and world markets due to the 
ethanol import tariff and sugar trade protection. U.S. and world 
ethanol markets are segmented by the ethanol tariff. Authors believe 
that removing the ethanol tariff would remove the corn land area effect 
of the current U.S. ethanol expansion. 

Model Description: McDonald, Robinson, and Thierfelder, Energy 
Economics, Vol. 28, 2006: 

Objective of the study: To evaluate the effects of substituting a 
biomass product, in this case switchgrass, for crude oil in the 
production of petroleum in the U.S. In particular, the study focuses on 
the global general equilibrium implications using a multi-region 
general equilibrium model with detailed commodity markets; 
Model/Time/Data: Policy simulations using a global computable general 
equilibrium (CGE) model. The policy change simulated in the model is 
substitution of crude oil by switchgrass in the petroleum activity. The 
database used is a Social Accounting Matrix (SAM) representation of the 
Global Trade Analysis Project (GTAP). For this study, it was necessary 
to add a switchgrass commodity and activity accounts to the SAM for the 
U.S; 
Major assumptions: 
* Model incorporates the Armington approach--that domestically produced 
and consumed products are imperfect substitutes for both imports and 
exports; 
* Assumes that the private costs equal the social costs; does not 
consider negative externalities of crude oil consumption; 
* Assumed that if 6% of US land was changed to switchgrass production, 
there would be a 4% decline in use of crude oil activity; 
* Assumed equivalent variations for measure of welfare effects of 
policies[H]; 
Scenarios: 4 Scenarios: 
1) "One-to-one" direct substitution--4% increase in switchgrass for 4% 
decrease in crude oil; 
2) "Calibrated" simulation--6% of land is devoted to switchgrass; 
3) With total factor productivity or "TFP"--estimates extent to which 
the efficiency in petroleum activity must increase to compensate for 
use of switchgrass; 
4) "With land"--land restored to agricultural production (such as land 
restored to production from government "set aside" programs) is used to 
produce switchgrass; 
Results: 
1) "One-on-one"-translates into about a 3% increase in land to 
switchgrass. Production increases by 4.83% in the U.S. and draws land 
from other food commodity production. Production in the U.S. of 
cereals, other crops, and livestock decline by between 0.22% and 0.4%. 
U.S. has small increase in welfare of $1.1 billion. While in U.S. there 
are inefficiencies due to switchgrass production, these costs are 
offset by lower crop subsidies for cereals. World welfare effects are 
slightly negative; 
2) This scenario results in 6% of land area converted to switchgrass, 
but this increase makes production less efficient. Decreased production 
of cereals, other crops, and livestock by 0.40% to 0.69%. Increased 
prices for U.S. cereals between 1.5 and 2%. Welfare declines by $2.02 
billion in U.S. due to loss of productivity; 
3) 30% increase in total factor productivity of petroleum sector would 
offset productivity loss of using switchgrass. Increase of U.S. price 
of cereals between 1.5 and 2%. Same increase in land area as in 
scenario 2. Welfare increase to U.S. of $700 million; 
4) Drawing land from "set-aside" program nullifies nearly all negative 
U.S. price impacts from earlier scenarios. Welfare change in U.S. of 
$190 million; Overall: Impacts same as partial equilibrium results-- 
world price of cereals increases slightly. As the U.S. imports less 
crude oil, its exchange rate appreciates. Regions that depend upon U.S. 
imports are hurt because their imports become more expensive. 

Model Description: Congressional Budget Office, April 2009: 

Objective of the study: The 2009 CBO study examines the period from 
April 2007 to April 2008, during the period in which rapidly increasing 
production of ethanol coincided with rising prices for corn, food, and 
fuel. CBO estimated how much of the rise in food prices during that 
time was due to an increase in the consumption of ethanol and how much 
the rise in food prices would have boosted federal expenditures on food 
assistance programs. In addition, they examine how increased use of 
ethanol may lower emissions of greenhouse gases; 
Model/Time/Data: Time period of April 2007 to April 2008. For corn 
price increases attributed only to ethanol, CBO used estimates of 
supply elasticities, along with the actual price increases from USDA. 
CBO used a range of corn supply elasticity estimates of 0.3 to 0.5 
gathered from the agricultural economics literature. To estimate the 
impact of changing corn prices on the; CPI for food, CBO used the 
proportion of corn used in total food expenditures and average price 
increase of corn. For the federal food programs, CBO estimated the 
changes in the CPI-U categories for food consumed at home and food away 
from home attributable to increased production of ethanol; 
Major assumptions: 
* Assumed rising demand allowed producers to pass along the increase in 
costs to consumers for corn, animal feed prices, and other crops; 
* Assumed all food costs were passed along in the same period. Study 
notes that the computation used a "snapshot" from 2007 of the 
consumption and use of corn in the United States; 
* CBO did not consider how the amount of biodiesel produced in 2007 and 
2008 affected prices for corn and soybeans; 
* For the food programs, calculations incorporated the assumption that 
66 percent of calories were consumed at home and 34 percent of calories 
were consumed away from home. Also assumed program participation 
remained somewhat constant; 
Scenarios: N/A; 
Results: 
* CBO estimates that corn prices increased by between 50 and 80 cents 
per bushel between April 2007 and April 2008. This was a range 
equivalent to between 28 percent and 47 percent of the increase in the 
price of corn, which rose from $3.39 per bushel to $5.14 per bushel 
during the same period; 
* Overall, CBO estimates that from April 2007 to April 2008, the total 
rise in food prices resulting from expanded production of ethanol 
contributed between 0.5 and 0.8 percentage points (10-15% of the 
increase) of the 5.1 percent increase in food prices as measured by the 
consumer price index (CPI); 
* To break this down, CBO estimated the higher prices of corn resulting 
from the production of ethanol increased consumers' expenditures on 
food by an additional 0.2 percent to 0.4 percent. Similarly, an 
increase in soybean prices raised expenditures on food by between 0.2 
percent and 0.3 percent; 
* CBO projected for 2009 that increased production of ethanol and 
higher prices for food most likely would account for an estimated $600 
million to $900 million, or roughly 10 percent to 15 percent of the 
change in federal spending for food and child nutrition programs as a 
result of higher food prices[I]; 
* The impact of higher prices for food will probably be greater in 
other countries because the percentage of households' income spent on 
food is larger and the value of commodities makes up a bigger share of 
the cost of food. 

Model Description: Hayes, Babcock, Fabiosa, Tokgoz, Elobeid, Yu, Dong, 
Hart, Chavez, Pan, Carriquiry, and Dumortier, Center for Agriculture 
and Rural Development, March 2009: 

Objective of the study: In an earlier paper, Tokgoz (2007) analyzed the 
likely impact of the growing biofuel sector on the grain and livestock 
sectors and on consumer prices. This report updates that earlier paper, 
specifically, to allow for recent economic changes and policy changes 
introduced by the provisions of the EISA, endogenizes gasoline and 
ethanol prices, adjusts for the new blenders' credits, and increases 
international farm-level production costs when energy prices rise; 
Model/Time/Data: The model is similar to that used in the earlier paper 
by Tokgoz et al. (2007, 2008). It utilizes the FAPRI model, a broad 
partial equilibrium model of the world agricultural economy that is 
used to develop a baseline calibrated on data from January, 2008. The 
projection period is extended to the year 2022. Crude oil price 
projections were taken from NYMEX and extended to 2022 using a simple 
linear trend. The price of unleaded gasoline is calculated through a 
price transmission mechanism; 
Major assumptions: 
* The model was revised to allow for the impact of ethanol production 
on gasoline prices. Wholesale price of gasoline responsive to the 
changes in ethanol supply at the rate of $0.03 per billion gallons; 
* Revisions in model are made to explore long-run equilibrium effects; 
* Ethanol capacity is fixed at 2008/09 and 2009/10 based on 
construction reports, beyond that, model solves for it; 
* International rice and cotton models were run; 
* Higher crude oil prices in the U.S. increase the costs of production 
for all crops; 
* Assumes that the livestock producer passes along costs in full. Also, 
that the retailer passes along these extra production costs on a dollar-
for-dollar basis; 
Scenarios: Baseline: Used the provisions of the EISA and the energy 
provisions of the farm bill of 2008, coupled with a crude oil price of 
$75 per barrel; 
1) "High Energy Price" scenario crude oil prices are increased by 40%, 
to $105, and increased natural gas prices 19%; 
2) "High Energy Price--Removal of Biofuel Tax Credits" high energy 
price scenario without biofuel tax credits; 
3) "Removal of Biofuel Support" includes the baseline $75 crude oil 
price with the elimination of tax credits, the RFS, and import tariffs 
and duties; 
4) The "no bottleneck" scenario where the energy price is high and 
there are no bottlenecks in the delivery mechanism for ethanol. Assumed 
that market can absorb all ethanol mandated by RFS plus that by market 
forces; 
Results: 
Baseline: Ethanol production from corn 16.9 billion gallons and uses 
5.9 billion bushels of corn with total ethanol production at 32.9 
billion gallons. The ethanol price is at $1.55/gallon. The price of 
corn reaches $3.73/bushel and corn area planted is 101.2 million acres. 
Soybean area planted is 73.6 million acres with a price of 
$9.79/bushel; 
High Energy Price: With a crude oil price of $105/barrel, total ethanol 
production from corn increases by 50% and price increases by 18%. The 
price of corn increases by about 20%, and corn net exports decline by 
23%. Soybean planted area decreases by 7%, and price increases by 9%; 
High Energy Price with Removal of Biofuel Tax Credits: Total ethanol 
production from corn declines by 35% relative to the case of a high 
petroleum price and a continuation of biofuel support policies. The 
ethanol price declines by 11% and corn price falls by 16%. Less area 
planted to corn leads to more land available for other crops; 
Removal of Biofuel Support: Ethanol production from corn declines by 
72%. The ethanol price increases by 13%, and ethanol use declines by 
68%. Corn price decreases by 18%, planted area decreases by 9%, and 
corn exports rise by 24%. Corn used for exports and for feed increases. 
Less area going into corn means more area is available for other crops; 
High Energy Price--No Bottleneck: Corn-based ethanol production reaches 
39.8 billion gallons, and ethanol use is approximately 40% of gasoline 
use. The ethanol sector uses more than 13 billion bushels of corn, and 
price is $5.63; 
Food Prices: CPI food component would increase by 0.8% for $1 increase 
in corn. Price impacts greatest for grain-intensive products such as 
eggs and poultry and impacts of value-added products much smaller. 

Source: GAO analysis. 

[A] We report only the results of the ETH60 scenario due to space 
limitations. The authors also depict two other scenarios, including 
ETH60CA, which allows corn-to-ethanol to adjust as cellulose-to-ethanol 
becomes available in 2012, and ETH60CACD, which delays the cellulose-to-
ethanol technology until 2015, and the corn ethanol industry is allowed 
to adjust. 

[B] We excluded the results for the two scenarios in this article that 
include the CGE modeling: (1) the effects of country biofuel mandates 
in land-use changes and (2) one incorporating biofuels by-products. 

[C] BIOCOST is a budget generator model developed by the Oak Ridge 
National Laboratory to estimate the cost of producing bioenergy crops. 

[D] We report on only certain questions or objectives posed by the 
Texas A&M study that are pertinent to our analysis. 

[E] We report on only a limited number of scenarios for the Biomass 
Research and Development Board study regarding both the first and 
second generation biofuels analyses. 

[F] Billion gallons per year. 

[G] Not applicable. 

[H] Equivalent variations is the amount of money that, paid to a 
person, group, or whole economy, would make them as well off as a 
specified change in the economy. It provides a monetary measure of the 
welfare effect of that change that is similar to, but not in general 
the same as, compensating variation (Deardorff's Online Glossary of 
International Economics). 

[I] These programs included the Supplemental Nutrition Assistance 
Program, formerly known as the Food Stamp program and Child Nutrition 
Programs such as the National School Lunch Program, the School 
Breakfast Program, and other, smaller programs. 

[End of table] 

[End of section] 

Appendix III: Scientific Studies on the Environmental Impacts of 
Biofuels: 

Alexander, R.B. R.A. Smith, G.E. Schwarz, E.W. Boyer, J.V. Nolan, and 
J.W. Brakebill. "Differences in Phosphorous and Nitrogen Delivery to 
the Gulf of Mexico from the Mississippi River Basin," Environmental 
Science and Technology, vol. 42, no. 3 (2008): 822-830. 

Barney, J.N. and J.M. DiTomaso. "Nonnative Species and Bioenergy: Are 
We Cultivating the Next Invader?" Bioscience, vol. 58, no. 1 (2008): 64-
70. 

Bechtold, R., J. Thomas, S. Huff, J. Szybist, T. Theiss, B. West, M. 
Goodman, and T. Timbario. Technical Issues Associated with the Use of 
Intermediate Ethanol Blends (>E10) in the U.S. Legacy Fleet: Assessment 
of Prior Studies, Oak Ridge National Laboratory, Department of Energy, 
Oak Ridge, Tennessee, August 2007. 

Berndes, G. "Bioenergy and water-the implication of large-scale 
bioenergy production for water use and supply," Global Environmental 
Change, vol. 12 (2002): 253-271. 

Biomass Research and Development Board. Increasing Feedstock Production 
for Biofuels, Economic Drivers, Environmental Implications, and the 
Role of Research, Washington, D.C., March 2009. 

Biomass Research and Development Board. The Economics of Biomass 
Feedstocks in the United States, A Review of the Literature. Occasional 
Paper No. 1, Washington, D.C., October 2008. 

Börjesson, P. and G. Berndes. "The prospects for willow plantations for 
wastewater treatment in Sweden," Biomass and Bioenergy, vol. 30 (2006): 
428-438. 

Chesapeake Bay Commission. Biofuels and the Bay: Getting It Right to 
Benefit Farms, Forests and the Chesapeake, September 2007. 

Delucchi, M. Emissions of Criteria Pollutants, Toxic Air Pollutants, 
and Greenhouse Gases, From the Use of Alternative Transportation Modes 
and Fuels, UCD-ITS-RR-96-12. Institute of Transportation Studies, 
University of California. Davis, California, 2002. 

Dominguez-Faus, R., S.E. Powers, J.G. Burken, and P.J. Alvarez. "The 
Water Footprint of Biofuels: A Drink or Drive Issue?" Environmental 
Science and Technology, vol. 43 (2009): 3005-3010. 

Department of Energy. Energy Demands on Water Resources: Report to 
Congress on the Interdependency of Energy and Water, Washington, D.C., 
December 2006. 

Diaz, R.J. and R. Rosenberg. "Spreading Dead Zones and Consequences for 
Marine Ecosystems," Science, vol. 321 (2008): pp. 926-929. 

Donner, S.D. and C.J. Kucharik. "Corn-based ethanol production 
compromises goal of reducing nitrogen export by the Mississippi River," 
Proceedings of the National Academy of Sciences, vol. 105, no. 
11(2008):4513-4518. 

Farrell, A.E., R.J. Plevin, B.T. Turner, A.D. Jones, M. O'Hare, and 
D.M. Kammen. "Ethanol Can Contribute to Energy and Environmental 
Goals," Science, vol. 311, no. 5760 (2006): 506-508. 

Gerbens-Leenes, P.W., A.Y. Hoekstra, and Th. Van der Meer. "The water 
footprint of energy from biomass: A quantitative assessment and 
consequences of an increasing share of bio-energy in energy supply," 
Ecological Economics, (2008): Web-published. 

Gilliom, Richard and others. The Quality of Our Nation's Waters: 
Pesticides in the Nation's Streams and Ground Water, 1992-2001: U.S. 
Geological Survey Circular 1291, 2006, 172 p. 

Gilliom, R. J. "Pesticides in U.S. Streams and Groundwater," 
Environmental Science and Technology,(2007): 3409-3414. 

Graham, R.L., R.G. Nelson, J. Sheehan, R.D. Perlack, and L.L. Wright. 
"Current and Potential U.S. Corn Stover Supplies," Agronomy Journal, 
vol. 99, no. 1 (2007): 1-11. 

Granda, C.B., L. Zhu, and M.T. Holtzapple. "Sustainable Liquid Biofuels 
and Their Environmental Impact," Environmental Progress, vol. 26, no. 3 
(2007): 233-250. 

Groom, M.J., E.M. Gray, and P.A. Townsend. "Biofuels and Biodiversity: 
Principles for Creating Better Policies for Biofuel Production," 
Conservation Biology, vol. 22, no.3 (2008): 602-609. 

Heaton, E.A., F.G. Dohleman, and S.P. Long. "Meeting US biofuel goals 
with less land: the potential of Miscanthus," Global Change Biology, 
vol. 14 (2008): 2000-2014. 

Hill, J. "Environmental costs and benefits of transportation biofuel 
production from food and lignocellulose-based energy corps. A review." 
Agronomy for Sustainable Development, vol. 27 (2007): 1-12. 

Hill, J., E. Nelson, D. Tilman, S. Polasky, and D. Tiffany. 
"Environmental, economic, and energetic costs and benefits of biodiesel 
and ethanol biofuels." Proceedings of the National Academy of Sciences, 
vol. 103, no. 30 (2006): 11206-11210. 

Hill, J., S. Polasky, E. Nelson, D. Tilman, H. Huo, L. Ludwig, J. 
Neumann, H. Zheng, and D. Bonta. "Climate change and health costs of 
air emissions from biofuels and gasoline," Proceedings of the National 
Academy of Sciences, vol. 106, no. 6 (2009): 2077-2082. 

Intarapapong, W., D. Hite, and L. Reinschmeid. "Water Quality Impacts 
of Conservation Agricultural Practices in the Mississippi Delta," 
Journal of the American Water Resources Association, vol. 38, no. 2 
(2002): 507-515. 

Jacobson, M.Z. "Effects of Ethanol (E85) versus Gasoline Vehicles on 
Cancer and Mortality in the United States," Environmental Science & 
Technology, vol. 41, no.11 (2007): 4150-4157. 

Jacobson, M.Z. "Review of Solutions to Global Warming, Air Pollution, 
and Energy Security," Energy and Environmental Science, December 2008, 
published online. 

Johnson, J.M., M. Coleman, R. Gesch, A. Jaradat, R. Mitchell, D. 
Reicosky, W. Wilhelm. "Biomass-Bioenergy Crops in the United States: A 
Changing Paradigm," The Americas Journal of Plant Science and 
Biotechnology, vol. 1, no. 1 (2007): 1-28. 

King, C.W. and M.E. Webber, "Water Intensity of Transportation," 
Environmental Science and Technology, vol. 42, no. 21 (2008): 7866- 
7872. 

Landis, D.A., M.M. Gardiner, W. van der Werf, and S.M. Swinton. 
"Increasing corn for biofuel production reduces biocontrol services in 
agricultural landscapes." Proceedings of the National Academy of 
Sciences, vol. 105, no. 51 (2008): 20552-20557. 

Lavigne, A. and S.E. Powers. "Evaluating fuel ethanol feedstocks from 
energy policy perspectives: A comparative energy assessment of corn and 
corn stover," Energy Policy, vol. 35 (2007): 5918-5930. 

Lubowski, R.N., S. Bucholtz, R. Claassen, M.J. Roberts, J.C. Cooper, A. 
Gueorguieva, and R. Johansson. Environmental Effects of Agricultural 
Land-Use Change, The Role of Economics and Policy. USDA Economic 
Research Service, Economic Research Report No. 25 (August 2006). 

Mackay, D.M., N.R. de Sieyes, M.D. Einarson, K.P. Feris, A.A. Pappas, 
I.A. Wood, L. Jacobson, L.G. Justice, M.N. Noske, K.M. Scow, and J.T. 
Wilson. "Impact of Ethanol on the Natural Attenuation of Benzene, 
Toluene, and o-Xylene in a Normally Sulfate-Reducing Aquifer," 
Environmental Science and Technology, vol. 40, no. 19 (2006): 6123- 
6130. 

Malcom, S. and M. Aillery. "Growing Crops for Biofuels Has Spillover 
Effects." Amber Waves, vol. 7, issue 1, USDA Economic Research Service 
(March 2009): 10-15. 

Mann, L., V. Tolbert, and J. Cushman. "Potential environmental effects 
of corn (Zea mays L.) stover removal with emphasis on soil organic 
matter and erosion." Agriculture, Ecosystems and Environment, vol. 89 
(2002): 149-166. 

McMahon, P.B., Böhlke, J.K., and Carney, C.P. Vertical Gradients in 
Water Chemistry and Age in the Northern High Plains Aquifer, Nebraska, 
2003: U.S. Geological Survey Scientific Investigations Report 2006- 
5294, (2007): 58 p. 

Mitchell, R., K.P. Vogel, and G. Sarath. "Managing and enhancing 
switchgrass as a bioenergy feedstock." Biofuels, Bioproducts and 
Biorefining, vol. 2 (2008): 530-539. 

Morris, R.E., A.K. Pollack, G.E. Mansell, C. Lindhjem, Y. Jia, and G. 
Wilson. 

Impact of Biodiesel Fuels on Air Quality and Human Health: Summary 
Report September 16, 1999-January 31, 2003. National Renewable Energy 
Laboratory, Golden, CO, May 2003. 

Mubako, S. and C. Lant. "Water resource requirements of corn-based 
ethanol," Water Resource Research, vol. 44 (2008). 

Nassauer, J.I., R.C. Corry, and R.M. Cruse. "The landscape in 2025: 
Alternative future landscape scenarios: A means to consider 
agricultural policy." Journal of Soil and Water Conservation, vol. 57, 
no. 2 (2002): 44A-53A. 

National Research Council. Mississippi River Water Quality and the 
Clean Water Act: Progress, Challenges, and Opportunities. The National 
Academies Press, Washington, D.C., 2008. 

National Research Council. Nutrient Control Actions for Improving Water 
Quality in the Mississippi River Basin and Northern Gulf of Mexico. The 
National Academies Press, Washington, D.C., 2008. 

National Research Council. Transitioning to Sustainability Through 
Research and Development on Ecosystem Services and Biofuels: Workshop 
Summary. P. Koshel and K. McAllister, Rapporteurs, The National 
Academies Press, Washington, D.C., 2008. 

National Research Council. Water Implications of Biofuels Production in 
the United States. The National Academies Press, Washington, D.C., 
2008. 

Nolan, B.T. and K.J. Hitt. "Vulnerability of Shallow Groundwater and 
Drinking-Water Wells to Nitrate in the United States." Environmental 
Science and Technology, vol. 40 (2006): 7834-7840. 

Orbital Engineering Company, Market Barriers to the Uptake of Biofuels 
Study: A Testing Based Assessment to Determine Impacts of a 20% Ethanol 
Gasoline Fuel Blend on the Australian Passenger Vehicle Fleet, Report 
to Environment Australia, March 2003. 

Orbital Engineering Company, Market Barriers to the Uptake of Biofuels 
Study: Testing Gasoline Containing 20% Ethanol (E20), Phase 2B-Final 
Report, Report to Department of the Environment and Heritage of 
Australia, May 2004. 

Powers, S.E. Quantifying Cradle-to-Farm Gate Life-Cycle Impacts 
Associated with Fertilizer Used for Corn, Soybean, and Stover 
Production. National Renewable Energy Laboratory, Technical Report, 
NREL/TP-510-37500, Golden, CO, May 2005. 

Powers, S.E. "Nutrient Loads to Surface Water from Row Crop 
Production." International Journal of Life Cycle Analysis (2007): 1-9. 

Rabalais, N.N., R.E. Turner, B.K. Sen Gupta, E. Platon, and M.L. 
Parsons. "Sediments Tell the History of Eutrophication and Hypoxia in 
the Northern Gulf of Mexico," Ecological Applications, vol. 17, no. 5 
(2007): S129-S143. 

Robertson, G.P, V.H. Dale, O.C. Doering, S.P. Hamburg, J.M. Melillo, 
M.M. Wander, W.J. Parton, P.R. Adler, J.N. Barney, R.M. Cruse, C.S. 
Duke, P.M. Fearnside, R.F. Follett, H.K. Gibbs, J. Goldemberg, D.J. 
Mladenoff, D. Ojima, M.W. Palmer, A. Sharpley, L. Wallace, K.C. 
Weathers, J.A. Wiens, W.W. Wilhelm. "Sustainable Biofuel Redux," 
Science, vol. 322 (2008): 49-50. 

Ruiz-Aguilar, G.M.L., K. O'Reilly, and P.J.J. Alvarez, "A Comparison of 
Benzene and Toluene Plume Lengths for Sites Contaminated with Regular 
vs. Ethanol-Amended Gasoline," Ground Water Monitoring & Remediation, 
vol. 23, no. 1 (2003): 48-53. 

Secchi, S., P.W. Gassman, M. Jha, L. Kurkalova, H.H. Feng, T. Campell, 
and C.L. Kling. "The cost of cleaner water: Assessing agricultural 
pollution reduction at the watershed scale," Journal of Soil and Water 
Conservation, vol. 62, no.1 (2007): 10-21. 

Secchi, S., J. Tyndall, L.A. Schulte, and Heidi Asbjornsen. "High crop 
prices and conservation: Raising the Stakes," Journal of Soil and Water 
Conservation, vol. 63, no. 3 (2008): 68A-73A. 

Simpson, T.W., A.N. Sharpley, R.W. Howarth, H.W. Paerl, and K.R. 
Mankin. "The New Gold Rush: Fueling Ethanol Production while Protecting 
Water Quality," Journal of Environmental Quality, vol. 37(2008): 318- 
324. 

Tillman, D., J. Hill, and C. Lehman. "Carbon-Negative Biofuels from Low-
Input High-Diversity Grassland Biomass," Science, vol. 314, no. 5805 
(2006): 1598-1600. 

Turner, R.E., N.N. Rabalais, and D. Justic. "Gulf of Mexico Hypoxia: 
Alternate States and a Legacy," Environmental Science and Technology, 
vol. 42, no. 7 (2008): 2323-2327. 

West, B., K. Knoll, W. Clark, R. Graves, J. Orban, S. Przesmitzki, and 
T. Theiss. Effects of Intermediate Ethanol Blends on Legacy Vehicles 
and Small Non-Road Engines, Report 1. Oak Ridge National Laboratory, 
U.S. Department of Energy, Oak Ridge, TN, October 2008. 

Winebrake, J.J., M.Q. Wang, and D. He. "Toxic Emissions from Mobile 
Sources: A Total Fuel-Cycle Analysis for Conventional and Alternative 
Fuel Vehicles," Journal of the Air & Waste Management Association, vol. 
51 (2001): 1073-1086. 

Wu, M. Analysis of the Efficiency of the U.S. Ethanol Industry 2007. 
Analysis by Center for Transportation Research, Argonne National 
Laboratory, Delivered to Renewable Fuels Association on March 27, 2008. 

Wu, M., M. Mintz, M. Wang, and S. Arora. Consumptive Water Use in the 
Production of Ethanol and Petroleum Gasoline. Center for Transportation 
Research, Energy Systems Division, Argonne National Laboratory, January 
2009. 

Wu, M., Y. Wu, and M. Wang. "Energy and Emission Benefits of 
Alternative Transportation Liquid Fuels Derived from Switchgrass: A 
Fuel Life Cycle Assessment," Biotechnology Progress, vol. 22 (2006): 
1012-1024. 

[End of section] 

Appendix IV: Key Studies on the Lifecycle Greenhouse Gas Effects of 
Biofuels: 

Dale B. "Thinking Clearly About Biofuels: Ending The Irrelevant 'Net 
Energy' Debate And Developing Better Performance Metrics For 
Alternative Fuels," Biofuels, Bioproducts, and Bioreferences, vol. 1 
(2007): 14-17. 

Del Grosso S.J., Ogle S.M., Parton W.J., and Adler P.R. "Impacts of 
Land Conversion for Biofuel Cropping on Soil Organic Matter and 
Greenhouse Gas Emissions," p. 58-67. In: M. Khanna (Ed.) Transition to 
a BioEconomy: Environmental and Rural Development Impacts, Proceedings 
of the October 15 and 16, 2008 Conference, St. Louis, Missouri, Farm 
Foundation Oak Brook, IL. 

Del Grosso S.J., Mosier A.R., Parton, W.J., Ojima, D.S. "DAYCENT model 
analysis of past and contemporary soil N2O and net greenhouse gas flux 
for major crops in the USA," Soil and Tillage Research, vol. 83 (2005): 
9-24. 

Delucchi M.A. "Conceptual and Methodological Issues in Life Cycle 
Analysis of Transportation Fuels," U.S. Environmental Protection Agency 
Office of Transportation and Air Quality, 2004. 

Kammen D.M., Farrell, A.E., Plevin R.J., Jones, A.D., Nemet G.F., and 
Delucchi M.A. "Energy and Greenhouse Gas Impacts of Biofuels: A 
Framework for Analysis," UCD-ITS-RR-0804, Institute of Transportation 
Studies, University of California, Davis, 2008. 

Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P. "Land 
Clearing and the Biofuel Carbon Debt," Science, vol. 319, issue 5867 
(2008): 1235-1238. 

Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P. 
"Supporting Online Material for Land Clearing and the Biofuel Carbon 
Debt," Science Express, 2008. 

Farrell A.E., Plevin R.J., Turner, B.T., Jones, A.D., O'Hare, M., and 
Kammen, D.M. "Ethanol Can Contribute to Energy and Environmental 
Goals," Science, vol. 311, issue 5760 (2006): 506-508. 

Food and Agriculture Organization of the United Nations. "The State of 
Food and Agriculture: Biofuels - Prospects, Risks, and Opportunities." 
Rome, Italy, 2008. 

Gallagher E. "The Gallagher Review of the Indirect Effects of Biofuels 
Production," U.K. Renewable Fuels Agency. United Kingdom: 2008. 

Gibbs H.K., Johnston M., Foley J.A., Holloway T., Monfreda, C., 
Ramankutty, N., and Zaks, D. "Carbon Payback Times for Crop-Based 
Biofuel Expansion in the Tropics: The Effects of Changing Yield and 
Technology," Environmental Research Letters, vol. 3 (2008): 1-10. 

Gibbs, H.K., Johnston, M., Foley, J., Holloway, T., Monfreda, C., 
Ramankutty N., and Zaks, D. Supporting online material for "Carbon 
Payback Times for Crop-Based Biofuel Expansion in the Tropics: The 
Effects of Changing Yield and Technology," Environmental Research 
Letters, 3 (2008): 034001. 

Hill J., Polasky S., Nelson E., Tilman D., Huo H., Ludwig L., Neumann 
J., Zheng H., and Bonta D. "Climate Change and Health Costs of Air 
Emissions from Biofuels and Gasoline," Proceedings of the National 
Academies of Sciences, vol. 106, no. 6 (2009): 2077-2082. 

Hill J., Polasky S., Nelson E., Tilman D., Huo H., Ludwig L., Neumann 
J., Zheng H., and Bonta D. Supporting information for "Climate Change 
and Health Costs of Air Emissions from Biofuels and Gasoline," 
Proceedings of the National Academies of Sciences, vol. 106, no. 6 
(2009): 2077-2082. 

Hill J., Nelson E., Tilman D., Polasky S., and Tiffany, D. 
"Environmental, Economic, and Energetic Costs and Benefits of Biodiesel 
and Ethanol Biofuels," Proceedings of the National Academy of Sciences, 
vol. 103, no. 30 (2006): 11206-11210. 

Khanna, M. "Cellulosic Biofuels: Are the Economically Viable and 
Environmentally Sustainable?" Choices - A Publication of the 
Agricultural and Applied Economics Association, vol. 23, no. 3 (2008): 
16-21. 

Kim H., Kim S., Dale B.E. "Biofuels, Land Use Change, and Greenhouse 
Gas Emissions: Some Unexplored Variables." Environmental Science and 
Technology, Accepted November 2008 (pre-publication). 

Kim M.K., and McCarl B.A. "Carbon Sequestration and Its Trading in 
U.S." Invited paper prepared for presentation at the Symposium on 
Measures to Climatic Change in the Agricultural Sector, Rural 
Development Administration (RD), (Korea) National Institute of 
Agriculture Science and Technology (NIAST), Seoul, Korea, September 7- 
11, 2008. 

Kim S. and Dale B.E. "Allocation Procedure in Ethanol Production System 
from Corn Grain," International Journal of Life Cycle Assessment, vol. 
7, no. 4 (2002): 237-243. 

Kim S. and Dale B.E. "Effects of Nitrogen Fertilizer Application on 
Greenhouse Gas Emissions and Economics of Corn Production," 
Environmental Science and Technology, vol. 42, no. 16 (2008): 6028- 
6033. 

Kim S. and Dale B.E. "Ethanol Fuels: E10 or E85 - Life Cycle 
Perspectives," International Journal of Life Cycle Assessment, 
OnlineFirst (2005): 1-5. 

Kim S. and Dale B.E. "Life cycle assessment of fuel ethanol derived 
from corn grain via dry milling," Bioresource Technology, vol. 99, no. 
12 (2008): 5250-5260. 

Kim S. and Dale B.E. "Life Cycle Assessment of Various Cropping Systems 
Utilized for Producing Biofuels: Bioethanol and Biodiesel," Biomass and 
Bioenergy, vol. 29 (2005): 426-439. 

Liebig M.A., Schmer M.R., Vogel K.P., Mitchell R.B. "Soil Carbon 
Storage by Switchgrass Grown for Bioenergy," Bioenergy Research (2008): 
215-222. 

Liska A.J., Yang H.S., Bremer V.R., Klopfenstein T.J., Walters D.T., 
Erickson G.E., and Cassman K.G. "Improvements in Life-Cycle Energy 
Efficiency and Greenhouse Gas Emissions of Corn-Ethanol," Submitted to 
the Journal of Industrial Ecology, Nov. 10, 2008 (prepublication). 

Liska A.J. and Cassman K.G. "Towards Standardization of Life-Cycle 
Metrics for Biofuels: Greenhouse Gas Emissions Mitigation and Net 
Energy Yield," Journal of Biobased Materials and Bioenergy, vol. 2 
(2008): 187-203. 

McCarl B., Gillig D., Lee H.C., Qin X., Cornforth G. "Potential for 
Biofuel-Based Greenhouse Gas Emission Mitigation: Rationale and 
Potential." Presentation for Agriculture as a Producer and Consumer of 
Energy Conference, Farm Foundation, Washington D.C., June 2004: 

McCarl, B.A. "Lifecycle Carbon Footprint, Biofuels and Leakage: 
Empirical Investigations." Presented at USDA, FARM Foundation 
Conference on The Lifecycle Carbon Footprint of Biofuels: January 29, 
2008, in Miami. 

McCarl, B.A. "Bioenergy in a greenhouse mitigating world," Choices--A 
Publication of the Agricultural and Applied Economics Association, vol. 
23, no.1 (2008): 31-33. 

McCarl, B.A., Maung T., and Szulczyk K.T. "Could Bioenergy be Used to 
Harvest the Greenhouse: An Economic Investigation of Bioenergy and 
Climate Change?" Chapter in Handbook of Bioenergy Economics and Policy, 
edited by Madhu Khanna, Jurgen Scheffran, and David Zilberman, 
forthcoming, spring 2009: 

Patzek T.W. "A First-Law Thermodynamic Analysis of the Corn-Ethanol 
Cycle," Natural Resources Research, vol. 15, no. 4 (2006): 255-270. 

Patzek, T.W. "A Statistical Analysis of the Theoretical Yield of 
Ethanol from Corn Starch," Natural Resources Research, vol. 15, no. 3 
(2006): 205-212. 

Patzek, T.W. "Thermodynamics of Agricultural Sustainability: The Case 
of U.S. Maize Agriculture," Critical Reviews in Plant Sciences, vol. 
27, no. 4 (2008): 272-293. 

Pimentel D. and Patzek T. "Ethanol Production Using Corn, Switchgrass, 
and Wood; Biodiesel Production Using Soybean and Sunflower," Natural 
Resources Research, vol. 14, no. 1 (2005): 65-76. 

Schmer M.R., Vogel K.P, Mitchell R.B., and Perrin R.K. "Net Energy of 
Cellulosic Ethanol from Switchgrass," Proceedings of the National 
Academy of Sciences, vol. 105, no. 2 (2008): 464-469. 

Searchinger T., Heimlich R., Houghton R.A., Dong F., Elobeid A., 
Fabiosa J., Tokgoz S., Hayes D., and Yu T. "Use of U.S. Croplands for 
Biofuels Increases Greenhouse Gases through Emissions from Land-Use 
Change," Science, vol. 319 (2008): 1238-1240. 

Searchinger T., Heimlich R., Houghton R.A., Dong F., Elobeid A., 
Fabiosa J., Tokgoz S., Hayes D. and Yu T. "Supporting Online Material 
to 'Use of U.S. Croplands for Biofuels Increases Greenhouse Gases 
Through Emissions from Land-Use Change.'" Published 7 February 2008 on 
Science Express. 

Shapouri H. Duffield J., and McAloon A.J. "The 2001 Net Energy Balance 
of Corn Ethanol." Proceedings on the Conference on Agriculture as a 
Producer and Consumer of Energy, Arlington, VA, June 24-25, 2004. 

Sheehan, J., Aden, A., Paustian, K., Killian, K., Brenner, J., Walsh, 
M., and Nelson, R. "Energy and Environmental Aspects of Using Corn 
Stover for Fuel Ethanol," Journal of Industrial Ecology, vol. 7, no. 3- 
4 (2004): 117-146. 

Sylvester-Bradley, R. "Critique of Searchinger (2008) and Related 
Papers Assessing Indirect Effects of Biofuels on Land-Use Change." ADAS 
UK Ltd. Prepared for the U.K. Renewable Fuels Agency. United Kingdom: 
2008. 

Tillman D., Hill J., and Lehman, C. "Carbon-Negative Biofuels from Low- 
Input High-Diversity Grassland Biomass," Science, vol. 314, no. 5805 
(2006): 1598-1600. 

Wang M. and Huo H. "Fuel-Cycle Assessment of Selected Bioethanol 
Production Pathways in the United States." Sponsored by the U.S. 
Department of Energy, Office of Energy Efficiency and Renewable Energy. 
Argonne National Laboratory Center for Transportation Research, 2006. 

Wang M., Huo H., Hong H., and Arora S. "Methods of Dealing with Co- 
Products of Biofuels in Life-Cycle Analysis and Consequent Results 
within the U.S. Context," Forthcoming in Energy Policy Journal. 
Submitted November 2008; Revised in June 2009: 

Wang M.Q. "Wells-to-Wheels Energy and Greenhouse Gas Emission Results 
and Issues of Fuel Ethanol." Chapter from Biofuels, Food and Feed 
Tradeoffs. 2008 (prepublication). 

Wu M., Wang M., Liu J., and Huo H. "Life-Cycle Assessment of Corn-Based 
Butanol as a Potential Transportation Fuel," Sponsored by the U.S. 
Department of Energy, Office of Energy Efficiency and Renewable Energy. 
Argonne National Laboratory Center for Transportation Research, 2007. 

Wu M., Wu Y., and Wang M. "Energy and Emission Benefits of Alternative 
Transportation Liquid Fuels Derived from Switchgrass: A Fuel Life Cycle 
Assessment," Biotechnology Progress, vol.22 (2006): 1012-1024. 

[End of section] 

Appendix V: Recent Studies on Federal Supports for Biofuels: 

Bruce A. Babcock, Center for Agricultural and Rural Development, Iowa 
State University, Statement before the U.S. Senate Committee on 
Homeland Security and Governmental Affairs, Hearing on Fuel Subsidies 
and Impact on Food Prices (May 7, 2008). 

Congressional Budget Office, The Impact of Ethanol Use on Food Prices 
and Greenhouse-Gas Emissions (Washington, D.C.: April 2009). 

Council on Foreign Relations, Independent Task Force Report No. 61, 
Confronting Climate Change: A Strategy for U.S. Foreign Policy, (New 
York, N.Y.: June 2008). 

Harry de Gorter and David R. Just, "The Economics of a Blend Mandate 
for Biofuels" forthcoming American Journal of Agricultural Economics, 
vol. 91: in press (2009). 

Harry de Gorter and David. R. Just, "The Law of Unintended 
Consequences: How the U.S. Biofuel Tax Credit with a Mandate Subsidizes 
Oil Consumption and Has No Impact on Ethanol Consumption," Department 
of Applied Economics and Management Working Paper No. 2007-20, Cornell 
University (Oct. 23, 2007). [hyperlink, 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1024525]. 

Harry de Gorter and David R. Just, "The Welfare Economics of the U.S. 
Ethanol Consumption Mandate and Tax Credit." Department of Applied 
Economics and Management Working Paper unpublished, Cornell University 
(Nov. 4, 2008). 

Bruce Gardner, "Fuel Ethanol Subsidies and Farm Price Support," Journal 
of Agricultural & Food Industrial Organization, vol. 5, iss. 2 (Dec. 
2007): 

Farzad Taheripour and Wallace E. Tyner, "Ethanol Subsidies, Who Gets 
the Benefits?" Purdue University, paper presented at Biofuels, Food and 
Feed Tradeoffs Conference, St. Louis, MO (April 12-13, 2007). 

Wallace E. Tyner and Farzad Taheripour, "Future Biofuels Policy 
Alternatives," Department of Agricultural Economics, Purdue University, 
paper presented at Biofuels, Food, and Feed Tradeoffs Conference, St. 
Louis, MO (April 12-13, 2007). 

Pat Westhoff, Wyatt Thompson, and Seth Meyer, "Impact of Selected US 
Ethanol Policy Options," Food and Agricultural Policy Research 
Institute, Report No. 04-09, University of Missouri (Columbia, MO: May 
2009). 

[End of section] 

Appendix VI: Economic Linkages of the Corn Ethanol Industry to Food and 
Agricultural Markets: 

Figure 8 depicts some of the complex economic linkages of the ethanol 
industry to food and agricultural markets. Each of the markets is shown 
as a box and is related by supply and demand factors to other markets. 
Additional boxes, such as the one called "Biofuel Drivers," depict 
external energy factors that drive these markets. In the figure, the 
boxes are connected by arrows, signifying that a change in a driver or 
a market leads to a change in another market. For instance, drivers of 
the biofuels market, such as the Renewable Fuel Standard (RFS), 
increase the demand for ethanol in the ethanol market, and thus the 
demand for corn for ethanol in the corn market. Within the boxes are a 
series of bullets indicating either the drivers of change or factors 
changing within a market. For example, within the ethanol market, an 
increase in demand for ethanol causes an increase in the price of 
ethanol, which causes an increase in production of both ethanol and 
ethanol by-products. 

Figure 8: Economic Linkages of Ethanol Production to Food and 
Agricultural Markets: 

[Refer to PDF for image: illustration] 

The following economic linkages (as described above) are depicted in 
the illustration: 

Biofuel drivers (external factor)[linked to Ethanol market]: 
* RFS; 
* Ethanol tax credit; 
* Petroleum prices. 

Ethanol market (ethanol and agricultural market)[linkage and feedback 
effects with Feed by-product market and Crop market]: 
* Demand for ethanol; 
* Ethanol price; 
* Ethanol production; 
* Corn by-product production. 

Feed by-product market (ethanol and agricultural market)[linkage and 
feedback effects with Ethanol market, Livestock market, and Crop 
market]: 
* Corn by-product prices; 
* Price of substitutes for by-products. 

Crop market (ethanol and agricultural market)[linkage and feedback 
effects with Ethanol market, Food by-product market, Input markets, 
Livestock market, Export market, Consumer market, and Farm returns]: 
Corn: 
* Demand for corn for ethanol; 
* Total corn demand; 
* Price of corn; 
Other crops: 
* Soybean prices; 
* Barley prices; 
* Wheat prices; 
* Cotton prices. 

External factors [linked to Crop market, Input markets, and Export 
market]: 
* Weather; 
* Agricultural policies; 
* Trade policies. 

Input markets [linkage and feedback effects with Crop market] 
* Land;
* Fertilizer;
* Pesticides. 

Livestock market (ethanol and agricultural market)[linkage and feedback 
effects with Food by-product market, Input markets, Crop market, 
Consumer market, and Farm returns]: 
* Feed prices; 
* Livestock inventories; 
* Price of livestock. 

Export market (final market) [linkage with External factors; linkage 
and feedback effects with Crop market]: 
* Corn for export; 
* Other crops for export; 
* Livestock export and beef, turkey, pork, and poultry. 

Consumer market (final market) [linkage and feedback effects with Crop 
market and Livestock market]: 
* Price of food containing corn; 
* Price of food containing other crops; 
* Price of beef, turkey, pork, and poultry. 

Farm returns (final market) [linkage and feedback effects with Crop 
market and Livestock market]: 
* Corn prices and production; 
* Other crops’ prices and production; 
* Livestock prices and production; 
* Input prices; 
* Government payments. 

Source: GAO. 

[End of figure] 

In the upper left-hand corner of figure 8, petroleum prices (in 
particular, gasoline prices for which ethanol is a substitute), the 
ethanol tax credit, and the Renewable Fuel Standards are all primary 
"biofuels drivers," leading to increases in the price and production of 
ethanol. As the ethanol price rises, so does the derived demand for 
corn for ethanol and thus corn prices in the crop market. Assuming 
overall production of corn remains constant during the period in 
question, corn used for ethanol would increase and corn used for feed 
is reduced. The increased corn price ripples down into the livestock 
market, increasing feed costs, and the price of livestock. At the same 
time, with greater ethanol production, there are larger supplies of the 
ethanol by-product, dried distiller's grains (DDG), an animal feed by- 
product, reducing its price in the feed market. To a certain extent, 
the lower-priced DDGs counterbalance the rise in corn prices in the 
livestock market. Also, instead of corn for feed, livestock producers 
may be able to substitute other crops in livestock rations, such as 
barley or hay. However, the effects of higher corn prices would very 
likely dominate for livestock such as poultry, swine, and dairy cows, 
since in general corn is a more important feed source than DDGs and 
there are limits on substituting by-products for corn. In the short- 
run, some producers may be able to mitigate the effect of higher corn 
prices by decreasing livestock inventories. Nevertheless, these cost 
increases lead to an overall decrease in livestock production and an 
increase in livestock prices. 

In the longer-term, the higher demand for ethanol and higher corn 
prices affect farmers' future expectations, providing incentives for 
different crop, land allocation, and input decisions. For instance, 
with higher corn prices, farmers may switch from a corn-soybean 
rotation to a corn-corn rotation. With reduced supplies of other crops, 
such as soybeans and barley, their prices also increase. The higher 
demand for and price of corn and other crops would also affect the 
demand for and prices of agricultural inputs associated with crop 
production. For instance, the higher demand for corn for ethanol may 
provide economic incentives for farmers to take land out of pasture or 
rangeland and devote this land to crop cultivation. Prices or rental 
rates for cropland would then be bid up. The increased land devoted to 
crop cultivation also increases the demand for and prices of other 
inputs such as fertilizer and pesticides. Furthermore, these increased 
prices in the input market would have feedback effects on the corn and 
other crop and livestock markets. 

For the farmer, the impact of the increase in corn prices as well as 
other crop prices would be an increase in net farm income. This may be 
tempered somewhat by the increasing costs of inputs. In the near term, 
for the livestock producer, increased feed costs may lead to lower 
overall returns to livestock production and lower net farm income. The 
main short-term adjustment option to higher costs for livestock 
producers is liquidation which would increase revenue temporarily to 
the individual producer. However, this could depress meat prices in the 
market and ultimately prevent livestock producers from covering higher 
feed costs. Also, in the absence of wide-spread herd liquidation, any 
short-term increase in meat prices could trigger an increase in imports 
from lower cost producers overseas, which in turn may lower prices. 
Many analysts see the livestock sector shrinking as ethanol expansion 
could ultimately lead to a smaller U.S. sector and more production 
shifting overseas. As far as government payments to farmers, increased 
ethanol demand would lead to lower counter-cyclical payments and 
marketing loan benefits because crop prices would be supported above 
the levels triggering these program benefits. 

For consumers, higher prices for corn and other crops and livestock are 
eventually passed on in the form of higher food prices, although the 
share of the farm value and the amount of pass-through of price 
increases may be small. These food products for which consumer prices 
are expected to rise are meat or other processed food products that 
contain corn (such as high-fructose corn syrup) or other crops. 

In the export market, increases in the price of corn and other crops, 
all else being equal, would generally cause U.S. corn exports to 
decrease compared to competing exporters. However, depending on other 
factors, such as world demand, exchange rates, stock levels, and world 
weather patterns, higher corn and other crop prices may not cause 
exports to contract and receipts from these exports may even increase. 

Conversely, if the biofuel drivers were to decrease, all else being 
equal, the impacts would go in the opposite direction. For instance, if 
gasoline prices decrease, reducing the demand for ethanol, ethanol 
prices and production would also decrease. This could trickle down to 
other agricultural markets, contributing to lower crop prices, 
including the price of corn and other crops, livestock prices, the 
prices of inputs, and eventually the prices of food. Outside factors, 
such as weather, agricultural policies, and trade policies can either 
lessen or increase the impact of ethanol on crop and livestock markets. 
For instance, a production decline caused by a drought could amplify 
the price impacts of a large RFS target on the corn market. 

[End of section] 

Appendix VII: Summary of Researchers' Assumptions and Conclusions about 
Lifecycle Greenhouse Gas Emissions of Biofuels Production: 

This appendix describes the key assumptions and conclusions of 17 
researchers we interviewed who have published work in the past 4 years 
on the lifecycle greenhouse gas effects of biofuels production. See 
appendix IV for a bibliography of the 46 research articles we reviewed. 

Researcher: Timothy Searchinger (Princeton University); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Food crops for biofuels will trigger higher crop prices and induce 
farmers worldwide to clear more forest and grassland; 
* Carbon sequestered will always be higher if the land reverts to its 
native form than if it is used for biofuel feedstocks; 
* Cellulosic feedstocks will be grown on productive, not marginal land; 
* No energy is allocated to co-products for cellulosic feedstocks. 

Researcher: Ralph Heimlich (Agricultural Conservation Economics); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* No new land will be available for biofuel feedstock production--these 
crops will come from existing croplands or "natural" lands; 
* Yields will continue to increase at the same rate as they have 
historically, but yields will not respond to price increases; 
* General equilibrium models do not adequately estimate costs of 
production on marginal land; 
* No energy is allocated to co-products for cellulosic feedstocks. 

Researcher: Tad Patzek (University of Texas); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Includes cumulative free energy consumed in farming and production as 
opposed to limiting inputs to fossil fuels; 
* Includes as energy inputs both the photosynthetic energy value of 
corn grain as well as the energy used to restore biodiversity damage 
created by biofuel feedstocks; 
* Processing co-products should be returned to the field. 

Researcher: David Pimentel (Cornell University); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Using lignin as fuel for cellulosic conversion might not save energy; 
* Uses fossil fuels as utility energy inputs for both corn ethanol and 
cellulosic ethanol; 
* Corn stover or other agricultural residue would intensify soil 
erosion and further degrade ecosystems by removing nutrients and other 
species and should not be used for ethanol; 
* Includes energy inputs from farm labor, farm machinery, hybrid corn, 
and irrigation. 

Researcher: Holly Gibbs (University of Wisconsin); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Industrialized nations with biofuel mandates are unlikely to have the 
land needed to meet the demand for agricultural biofuels; 
* Expansion of biofuels into productive tropical ecoystems will always 
lead to net carbon emissions for decades to centuries; 
* Expanding into degraded or already cultivated land will provide 
almost immediate carbon savings; 
* Increased demand for crop-based biofuels will likely require 
expanding agricultural production at the expense of tropical 
ecosystems; 
* Crop yield improvements could increase biofuel production and in turn 
improve the carbon payback time; 
* No energy is allocated to co-products. 

Researcher: Joseph Fargione (The Nature Conservancy); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Agricultural land diverted to biofuel production from food crops 
causes land in undisturbed ecosystems to be converted to biofuel crop 
production, resulting in large carbon debts; 
* Some cellulosic feedstocks may also accelerate land clearing by 
adding to the agricultural land base needed for biofuels; 
* No-till farming might not result in soil carbon savings; 
* Crops grown on abandoned agricultural land or from waste biomass may 
not accelerate land clearing; 
* Energy is allocated to co-products using market-based method. 

Researcher: Jason Hill (University of Minnesota); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Carbon saved might not be higher if the land reverts to its native 
form if the biofuel feedstocks sequester more carbon than the original 
land; 
* Used abandoned land as test sites for high-diversity grassland 
instead of land that could still be used for farming; 
* No-till farming might not affect the amount of carbon lost; 
* Recent advances in crop yields and in system machinery reduce biofuel 
energy impacts. 

Researcher: Erik Nelson (University of Minnesota); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* The primary information gap in lifecycle analyses is how land-use 
change is linked to biofuels, since researchers cannot always 
differentiate between existing baseline changes and changes due to 
biofuels; 
* Energy allocated to co-products using mass balance - the weight of 
the co-product versus the weight of ethanol; 
* The method used to allocate energy to the co-product can change the 
final energy impacts. 

Researcher: Michael Wang (Argonne National Laboratory, DOE); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Including land-use changes is correct, but current models cannot 
project the extent to which land-use changes might affect biofuel 
energy impacts; 
* Cellulosic feedstocks may not cause indirect land-use change impacts; 
* Increased yields and conversion productivity will reduce greenhouse 
gas impacts; 
* Agricultural practices and utility process fuels can reduce impacts; 
* Energy is allocated to co-products using economic displacement. 

Researcher: Mark Delucchi (University of California at Davis); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Methods used to measure land-use change have significant 
uncertainties and omissions, including market-mediated effects, land- 
use change, climate impacts of emissions, and uncertain and highly 
variable data; 
* There is not one single model and no well-accepted method that all 
researchers agree is the right one for calculating the magnitude of 
land-use change effects; 
* Changes in carbon stocks related to deforestation might be the most 
important factor associated with land-use conversion; 
* The environmental performance of ethanol varies greatly depending on 
production processes. 

Researcher: Ken Vogel and Marty Schmer (Agricultural Research Service, 
USDA); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* There is no proof regarding indirect land-use change--high commodity 
prices from feedstocks may not lead to land change; 
* Lignin from cellulosic feedstocks can be used to power biorefineries; 
* No-till farming technique will lead to a zero-loss of soil carbon; 
* Switchgrass will be grown on marginal land, not productive land. 

Researcher: Bruce Dale (Michigan State University); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Current economic and equilibrium models cannot project global land-
use, including unused and marginal land; 
* Productive use could made of cleared timber, farmers could use 
conservation tillage or cover crops instead of plow tillage; 
* Cover crops grown in the fall could reduce nitrogen leaching from the 
soil and greenhouse gas emissions, as well as lead to negative land 
requirements if the crop is harvested as an animal feed; 
* Marginal and unused land should be included in the modeling. 

Researcher: Kenneth Cassman (University of Nebraska-Lincoln); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Does not include indirect land-use changes in response to commodity 
price increases because such indirect effects are applied generally to 
all corn ethanol at a national or global level and are not specific to 
a particular corn-ethanol biorefinery; 
* Updated energy efficiencies in new ethanol plants that have initiated 
production since 2005 can reduce greenhouse gas emissions; 
* Advances in agronomic science, not in genomic or biotechnology 
breakthroughs, can result in increased corn yields and reduced 
environmental impacts; 
* Includes updated energy efficiencies in new ethanol plants, including 
plants that are located in close proximity to cattle feeding operations 
to reduce co-product greenhouse gas emissions; 
* Energy is allocated to co-products using displacement method. 

Researcher: Madhu Khanna (University of Illinois); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Research is not clear on increases and decreases in biofuel acreage 
in response to prices; 
* The amount of existing carbon in soil and biomass is unknown; 
* At least one feedstock could be grown and harvested on Conservation 
Reserve Program land that would not compete with food and feed 
cropland. 

Researcher: Steve Del Grosso (Texas A&M University); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Researchers have to make assumptions about the elasticity of the 
supply of feed that might affect measurement results for indirect land-
use change impacts; 
* Conversion to no-tillage at the national scale could mitigate about 
20 percent of U.S. agricultural emissions. 

Researchers: Bruce McCarl; (Texas A&M University); 
Assumptions and conclusions influencing greenhouse gas emission 
results: 
* Indirect land-use change does affect analysis results, but no data 
are available on how much land would be replaced; 
* Used a model that does not include alternative sources for utilities, 
such as biomass, but currently uses the average for the region; 
* Satellite data to find implied land-use changes are not accurate; 
* Allocates energy to co-products based on both the displacement method 
and market price. 

Source: GAO's analysis of greenhouse gas literature and interviews 
conducted with key researchers. 

[End of table] 

[End of section] 

Appendix VIII: Comments from the Department of Agriculture: 

USDA: 
United States Department of Agriculture: 
Research/Education/Economics: 
Office of the Under Secretary: 
Room 216W: 
Jamie L. Whitten Building: 
Washington, DC 20250-0110: 

July 30, 2009: 

Ms. Patricia Dalton: 
Managing Director: 
U.S. Government Accountability Office: 
441 G. Street, NW., Rm. 2T23A: 
Washington, D.C. 20548: 

Dear Ms. Dalton: 

On behalf of the Department of Agriculture (USDA), I am responding to 
your letter of June 17, 2009, to Secretary Vilsack, requesting USDA 
comments on your draft report: "Biofuels: Challenges and Potential 
Effects of Required Increases in Production" (GAO-09-446). We 
appreciate the time and effort you and your staff have invested in 
reviewing this important topic, the care that you have taken to ensure 
your report is constructive and accurate, and the opportunity to 
review. 

Overall, USDA considers the draft report to be a comprehensive, well-
written, and accurate representation of the Government Accountability 
Office (GAO) review process involving USDA officials and experts. 
Indeed, the GAO provides a broad view that would be difficult for any 
one agency to replicate, and the resulting report will be a useful 
review reference for many parties having interest in the production of 
feedstocks for biofuels, including lawmakers considering energy 
legislation in the coming months. The report appropriately highlights 
the complexity of the issues and the many uncertainties ahead. We agree 
with most of the findings and conclusions. In the interest of 
strengthening the report, we offer several substantive comments and 
statements on recommendations for executive action. 

Substantive Comments: 

1. Although we do not dispute most findings and conclusions, we note 
that the report generally tends to emphasize negative aspects of 
increased biofuels production. Since the title of the report refers to 
"challenges" of required increases in production, the reader is 
prepared for emphasis on potential adverse effects, and we consider 
many of these to be priorities for research in USDA. However, some of 
the negative effects may be overstated, including the extent of 
feedstock production and its adverse impacts on the environment. We 
suggest that the impact of feedstock production might be assessed 
differently under alternative-and equally likely-scenarios. Moreover, 
we saw few positive outcomes from increased biofuels production 
discussed in the report. For example, in discussing the potential 
problems of using ethanol in small engines (e.g., lawn mowers), the 
report provides virtually no consideration of the major benefits to air 
quality arising from the Environmental Protection Agency (EPA) 
reformulated gasoline program that relies on ethanol as a clean air 
additive. In some cases where studies critical of biofuels are cited, 
the literature answering such criticisms is not offered as a balance. 

To be sure, we agree that increasing biofuels production will present 
challenges such as those cited in the report concerning water quality 
and quantity, soil erosion, fertilizer use and runoff, pests and 
pesticide use, air quality, and wildlife habitat. However, these are 
challenges facing agriculture and forestry in general, and USDA has 
vigorous research programs addressing such challenges in many 
production systems and contexts. We are more optimistic than the 
report's writers that current and future research and development will 
rise to those challenges. 

2. The report is written as if the EPA study on the Renewable Fuels 
Standard is still in progress. This study has been released. The GAO 
report could be improved if the EPA study's findings and conclusions 
are discussed, along with dimensions of the debate on including 
indirect land use changes in projecting impacts of biofuel feedstock 
production. 

3. The report notes several mechanisms and processes that facilitate 
coordination of research and development spread among several 
Departments and agencies, but the report does not recognize one type of 
obstacle to achieving the best possible biofuels research: restrictions 
on eligibility for some research funding programs. The Energy Policy 
Act of 2005, Section 989, "Merit Review of Proposals," subsection (b) 
precludes scientists at Government Owned-Government Operated research 
facilities, such as those operated by researchers employed by the USDA 
Agricultural Research Service or Forest Service, from applying for and 
receiving research funds from the Department of Energy (DOE) Bioenergy 
Research Centers program. Competitive research funding programs should 
be open to competition from all sources to ensure support of the best 
science in the public interest. The report's recognition of how 
restricted funding eligibility limits the participation of certain 
Federal scientists could stimulate changes that enhance the pool of 
research talent available to focus on important topics in bioenergy 
research and development. 

4. The impact of linkages between the corn ethanol industry and the 
livestock industry (Appendix VI, page 172) needs clarification and 
correction. In particular, the conclusion that the livestock industry 
could achieve an increase in net farm income due to increasing ethanol 
demand is questionable. We believe it would be possible only under 
certain assumptions the report's authors seem to have accepted without 
adequately explaining or justifying them. The discussion in Appendix VI 
does not seem consistent with the main text where impacts on the 
livestock sector are discussed (pages 43-44). Although our more 
detailed response to this issue can be found in our technical comments, 
our doubts about the report's conclusion on this important issue are 
substantial. 

Comments on Recommendations for Executive Action: 

(Page 98, bottom) "...Develop a coordinated approach to identifying and 
researching unknown variables and major uncertainties in the lifecycle 
greenhouse gas analysis of increased biofuels production..." 

We agree with the general premise implicit in this recommendation, 
namely, that life cycle analyses are complex, delineating the 
boundaries of a system for life cycle analysis can be controversial, 
and analytical outcomes depend on many assumptions and methodological 
choices. Although we agree that the scientific expertise residing in 
USDA, EPA, DOE, and elsewhere should engage in a discussion of the 
complex issues of life cycle analyses, we have concerns about a 
potential undesirable consequence of this specific recommendation for 
executive action. Methods of conducting life cycle analyses differ 
depending on the system involved, so we would want to ensure that the 
coordinated scientific discussions do not lead to "standard methods" 
that become codified in regulations, which then would inhibit the 
adoption and use of new information and improved or more appropriate 
methods as they become available. We recommend that, while the science 
is still in its infancy and is being widely debated, USDA, EPA, and DOE 
should develop forums to engage the community of experts in ongoing 
discussions of methods and come to agreement on standards not for the 
analytical methods themselves, but instead, standards for transparent 
documentation of assumptions, methods, boundaries, and uncertainties in 
the analyses, so that differences in the outcomes of analyses on which 
polices are based can be freely examined. 

(Pg. 134, bottom) "...Give priority to R&D on process technologies that 
can be used by the existing petroleum-based distribution and storage 
infrastructure and current fleet of U.S. vehicles." 

We agree that this is an important goal and that USDA R&D should 
address it. However, given the numerous and diverse challenges raised 
in the GAO report, research in USDA must progress simultaneously on 
several fronts, not just giving priority to the development of process 
technologies. Research must focus also on the development of feedstocks 
with physical and chemical properties that make them effective for 
conversion, and the creation of productive methods that are 
environmentally-sound and economically advantageous for producing large 
quantities of feedstocks. 

(Bottom of page 134 to top of 135) "...Review and propose to the 
appropriate congressional committees any legislative changes the [EPA] 
Administrator determines may be needed to clarify what biomass 
material - based on type of feedstock or land - can be counted toward 
the RFS. 

We agree with this recommendation, the finding that there are 
inconsistent definitions of renewable biomass, and the stated 
consequences of these inconsistencies on development of regulations. 
USDA believes that a definition of biomass that excludes materials from 
all Federal lands and from naturally regenerating forests toward 
meeting requirements of the Energy Independence and Security Act (EISA) 
is unacceptable and will limit the role of existing forests in meeting 
energy demand and in maintaining or improving environmental quality of 
natural resources. For example, if the definition does not include all 
forest lands, then it will be difficult to attain 16 billion gallons of 
cellulosic biofuels in 2022. Furthermore, USDA favors the Farm Bill 
definition of biomass and agrees with the recommendation that 
Departments within the Administration come to agreement on a 
definition, and then work with Congress to resolve inconsistencies. 

Technical and editorial comments and corrections recommended by several 
different USDA agencies' staff are contained in the document 
accompanying this letter. We urge you to consider each of these 
recommendations, particularly those specified to correct matters of 
fact or interpretations of facts. We also acknowledge that GAO 
solicited technical comments directly from several USDA scientific 
experts. Some comments submitted directly to you in response to those 
requests are not included herein, but we trust they may be useful to 
you. 

In closing, I reiterate my compliments on the high quality of work done 
by GAO on a complex and very visible topic. I hope our comments will be 
constructive as you finalize the report. Should you have questions, 
please contact Dr. Steven Shafer, Deputy Administrator for Natural 
Resources and Sustainable Agricultural Systems of the USDA Agricultural 
Research Service (301-504-7987), or contact my office (202-720-1542) 
directly. 

Sincerely, 

Signed by: 

M.L. O'Neill, for: 

Rajiv J. Shah: 
Chief Scientist, USDA: 
Under Secretary: 

Enclosure: 

cc: 
F. Woods, USDA-AMS: 
S. Shafer, USDA-ARS: 
G. Casamassa, USDA-FS: 
P. Riley, USDA-FSA: 
H. Baumes, USDA-OCE: 
J. Johnson, USDA-NASS: 
C. Zelek, USDA-NRCS: 
B. O'Loughlin, USDA-RD: 

[End of section] 

Appendix IX: Comments from the Department of Energy: 

Department of Energy: 
Washington, DC 20585: 

July 20, 2009: 

Ms. Patricia Dalton: 
Managing Director: 
Natural Resources and Environment: 
U.S. Government Accountability Office: 
441 G. St. NW: 
Washington, DC 20548: 

Dear Ms. Dalton: 

Thank you for the opportunity to comment on the draft GAO Report 
titled: "Biofuels: Challenges and Potential Effects of Required 
Increases in Production - (GAO-09-446). The Department of Energy (DOE) 
appreciates the effort put forth by GAO with regard to this report and 
the Recommendations for Executive Action it includes. The 
recommendations pertain specifically to the administration of the 
Renewable Fuels Standard (RFS) under the Energy Independence and 
Security Act and a requested shift in research priorities to be more 
supportive of biofuels that can be used in the existing petroleum-based 
fuels distribution and storage infrastructure with the current fleet of 
U.S. vehicles. 

The DOE has reviewed the Report and its comments are detailed below. 

On page 15, based on reasonable assumptions regarding E85 
infrastructure development. the Energy Information Administration's 
Annual Energy Outlook 2009 projects that E85 could account for 30% of 
the total ethanol volume in 2020 and 50% in 2030, as long as E85 is 
slightly less expensive than E10 on an "energy equivalent" basis. Thus 
the blend wall is not necessarily insurmountable to achieving the RFS 
goals. Nevertheless, allowing for E15 in conventional vehicles may be 
seen by some parties as an economic "path of least resistance" in the 
short run (2011-2015) while the fleet for FFVs increases and E85 
equipment at the retail level becomes more readily available. 

On page 17, with regard to the recommendation for improved coordination 
with the Environmental Protection Agency (EPA) and the U.S. Department 
of Agriculture in determining greenhouse gas emissions and defining 
fuels eligibility under the RFS. it should be noted that EPA already 
consults with DOE on these matters, but that DOE would welcome the 
opportunity to become more engaged in this process if requested to do 
so by the EPA Administrator. 

Also on page 17, with regard to increased support for petroleum-based 
fuels, sometimes referred to as hydrocarbon fuels, the Department has 
already expanded in this direction. Beginning in 2007, DOE started 
funding hydrocarbon fuels development through our gasification and 
pyrolysis research and development. The $480 million funding 
opportunity announcement for integrated biorefinery operations that 
closed on June 30, 2009, included green diesel and green gasoline under 
eligible fuels. A new solicitation to fund consortia to accelerate 
development of advanced biofuels under the Recovery Act also supports 
infrastructure-compatible fuels and algae-based fuels. In the future it 
is anticipated that hydrocarbon fuels will become a higher priority and 
contribute to RFS requirements for advanced biofuels. 

On page 18, regarding eligibility of biomass material suitable for 
meeting the RFS mandate, the Department supports an expansion of 
biomass eligibility to include Federal lands that do not come from land 
classified as environmentally sensitive and can be grown and harvested 
in a sustainable manner. Again, if the EPA Administrator requests 
clarification on biomass definitional considerations, DOE would be 
responsive and welcome the opportunity to participate in these 
deliberations. 

Footnote 20 found on page 26 refers to Cello Energy's production plans. 
Since Cello Energy recently lost a fraud lawsuit, it is recommended 
that the authors consider hedging the remarks associated with this 
reference. 

GAO's concerns about piercing the blend wall are fleshed out on page 
129-132 of the report. Their concerns might partly stem from the 
statement found on page 13 1, "DOE and ethanol industry experts are 
also concerned about the limited capacity of the freight rail 
system..." In fact, ethanol cargo currently represents a mere fraction 
of the total rail cargo. Also, given major capital expansions 
envisioned over the coming decades by the railway industry, even with 
the growth of ethanol production mandated, ethanol cargo will still be 
a very minor portion of total rail capacity, although, "beefing up" of 
rail terminal infrastructure will need to occur. However, no mention 
was made of barge movement of ethanol, which could face more 
significant problems as ethanol distribution is increased (see NCEP's 
recent "Biofuels Infrastructure Task Force" white paper). 

Finally with regard to the ethanol pipeline discussion on page 131, it 
should be noted that Kinder-Morgan has performed extensive testing on 
transporting ethanol in existing petroleum product pipelines in 
Florida. 

Thank you again for the opportunity to comment on the draft Report. We 
look forward to working with GAO as we continue our efforts to develop 
the potential of biofuels. 

If you have any questions, please contact me or Ms. Martha Oliver, 
Office of Congressional and Intergovernmental Affairs, at (202) 586-
2229. 

Sincerely, 

Signed by: 

Jacques Beaudry-Losique: 
Deputy Assistant Secretary for Renewable Energy: 
Office of Technology Development: 
Energy Efficiency and Renewable Energy: 

[End of section] 

Appendix X: Comments from the Environmental Protection Agency: 

United States Environmental Protection Agency: 
Office Of Air And Radiation: 
Washington, D.C. 20460: 

July 24, 2009: 

Patricia Dalton: 
Managing Director: 
Natural Resources and Environment: 
U.S. Government Accountability Office: 
441 G. St., NW: 
Washington, DC 20548: 

Dear Ms. Dalton: 

Thank you for the opportunity to comment on the draft final report, 
"Biofuels: Challenges and Potential Effects of Required Increases in 
Production," (GAO-09-446), dated July 2009. This draft was distributed 
across the key offices of the Environmental Protection Agency (EPA) to 
assure a full review. In general, our reviewers found the draft report 
to comprehensively identify the main issues that should be considered 
when assessing expanded biofuel production. Herein we identify our 
major comments. We have also provided in a separate document additional 
technical comments; consideration of these comments will also enhance 
the final product. 

The Report makes three critical policy and legislative recommendations 
that require Administration review. 

GAO recommendation 1: The Congress may wish to consider amending the 
Energy Independence and Security Act of 2007 (EISA) to require the 
Environmental Protection Agency (EPA) to develop a strategy to assess 
the effects of increased biofuels production on the environment at all 
stages of the lifecycle - cultivation, harvest, transport, conversion, 
storage, and use - and to use this assessment in determining which 
biofuels are eligible for consideration under the RFS. 

Comment: This recommendation might best be addressed by the newly 
created Executive Biofuel Interagency Working Group co-chaired by the 
EPA, the Department of Agriculture (USDA), and the Department of Energy 
(DOE). This Working Group is tasked to address, among other things, 
"new policy options to promote the environmental sustainability of 
biofuel feedstock production, taking into consideration land use, 
habitat conservation, crop management practices, water efficiency and 
water quality, as well as life cycle assessment of greenhouse gases." 
The draft report also on numerous occasions points out that the EISA 
legislation mandating the RFS2 program does not specifically require 
assessment of air quality impacts, water quality impacts and similar 
environmental impacts. We point out, however, that EPA has clear 
authorities and responsibilities under other statues (including the 
Clean Air Act, the Clean Water Act, the Resource Conservation and 
Recovery Act, and other legislation) and, indeed, is considering a 
range of environmental impacts as part of the RFS2 rulemaking. Further, 
under EISA Section 204, EPA is required to evaluate the environmental 
impacts of biofuels and submit a report to Congress; we intend to fully 
comply with that responsibility. In fact, EPA has worked very closely 
with DOE and USDA in the development of the lifecycle assessment 
proposed for the RFS2 regulations and will continue to do so as we 
develop the final rules. Further, improving biofuel lifecycle 
assessment will be an ongoing emphasis in EPA and we expect to continue 
to work closely with our federal partners. 

GAO Recommendation 2: The Administrator of EPA, in consultation with 
the Secretaries of Energy and Agriculture, develop a coordinated 
approach for identifying and researching unknown variables and major 
uncertainties in the lifecycle greenhouse gas analysis of increased 
biofuels production, including standardized parameters for using models 
and a standard set of assumptions and methods in assessing greenhouse 
gas emissions for the full biofuel lifecycle. 

Comment: As required by EISA, EPA has undertaken development of a 
comprehensive lifecycle greenhouse gas impact assessment of biofuels. 
The Agency proposed rules in May that include our draft analysis of the 
greenhouse gas impact of biofuels. Throughout development of that 
proposal we worked closely with experts in both the Departments of 
Agriculture and Energy in developing the lifecycle assessment 
methodology and, importantly, incorporated their input on critical data 
and assumptions to be used. We fully expect to continue that 
cooperative working relationship as we develop final rules implementing 
the amendments to the Renewable Fuels Program. Additionally, there is 
extensive interagency coordination already in progress and extensive 
sharing of information between U.S., European Union (EU) and other 
international governmental organizations and scientists on modeling 
including the impact of indirect land use change. 

GAO Recommendation 3 To address inconsistencies in existing statutory 
language, the Administrator of EPA, in consultation with the USDA and 
DOE, upon review, propose to the appropriate Congressional committees 
any legislative changes the Administrator determines may be needed to 
clarify what biomass material - based on type of feedstock or type of 
land - can be counted toward RFS. 

Comment: EPA is working with USDA to identify discrepancies and 
interpret how biomass is treated under two pieces of legislation, EISA 
and the 2008 Farm Bill. 

Additional Comments: 

In addition to addressing the specific draft recommendations affecting 
EPA, we also wish to make the following comments. EPA earlier this year 
provided extensive comment on a prior draft of this report. We note 
that a number of our comments and recommendations are reflected in this 
redraft. However, as indicated in our earlier comments, the analyses 
provided via EPA's notice of proposed rulemaking for the Renewable Fuel 
Standard (RFS2) mandated under the Energy Independence and Security Act 
(EISA) represents the most up-to-date and comprehensive assessment of 
many of these issues. (74 FR 24904, May 26, 2009) While in a few cases 
the publicly available work completed for that proposal is recognized 
in this draft, it is not clear that the Government Accountability 
Office (GAO) fully considered or acknowledged these analyses. We ask 
that the report more clearly reference this EPA product. 

The report emphasizes the inconsistencies in biofuel assessments in 
reported literature and interprets these as suggesting a lack of 
agreement amongst researchers as to the impacts of biofuels. Literature 
on lifecycle assessment of biofuels has grown considerably in the last 
few years as more researchers evaluate different aspects of lifecycle 
assessment and continually refine the tools, methodologies and data 
used in these analyses. While it is clear lifecycle assessment is an 
area of evolving research and analysis, we are concerned that the 
portrayal of a wide range of analytical results in the literature is 
being interpreted as the range of uncertainty in biofuel lifecycle 
assessment. We believe that in many of the examples cited, the 
differences in analytical results can in large part be explained by 
either differences in what is being modeled or in some cases the use of 
more precise or up-to-date data and assumptions. We recommend the GAO 
acknowledge in the report that the results found in the evolving 
lifecycle literature reflect, in fact, improvements in lifecycle 
assessment. 

Once again, thank you for the opportunity to review this draft report. 

Sincerely, 

Signed by: 

Gina McCarthy: 
Assistant Administrator: 

[End of section] 

Appendix XI: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Mark E. Gaffigan, (202) 512-3841 or gaffiganm@gao.gov for energy 
issues: 

Anu K. Mittal, (202) 512-3841 or mittala@gao.gov for environmental 
issues: 

Lisa R. Shames, (202) 512-3841 or shamesl@gao.gov for agricultural 
issues: 

Staff Acknowledgments: 

In addition to the individuals named above, Richard Cheston, Assistant 
Director; Elizabeth Erdmann, Assistant Director; James Jones, Assistant 
Director; Sarah Lynch; Micah McMillan; Tim Minelli; Kevin Bray; Erin 
Carson; Jay Cherlow; Julie Corwin; Barbara El Osta; Cindy Gilbert; 
Rachel Girshick; Marietta Mayfield; Charles K. Orthman; Tim Persons; 
Jeanette Soares; MaryLynn Sergent; Ben Shouse; Anne Stevens; Barbara 
Timmerman; Swati Thomas; Lisa Vojta; and Rebecca Wilson made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] Under the act, the RFS applies to transportation fuel sold or 
introduced into commerce in the 48 contiguous states. However, the 
Administrator of the Environmental Protection Agency (EPA) is 
authorized, upon a petition from Alaska or Hawaii, to allow the RFS to 
apply in that state. On June 22, 2007, Hawaii petitioned EPA to opt 
into the RFS, and the Administrator approved that request. For the 
purposes of this report, statements that the RFS applies to U.S. 
transportation fuel refer to the 48 contiguous states and Hawaii. 

[2] Pub. L. No. 109-58, §1501 (2005). The act authorizes the EPA 
Administrator, in consultation with the Secretaries of Agriculture and 
Energy, to waive the RFS levels established in the act, by petition or 
on the Administrator's own motion, if meeting the required level would 
severely harm the economy or environment of a state, a region, or the 
United States or there is an inadequate domestic supply. Throughout 
this report, the RFS levels established in the act are referred to as 
requirements, even though these levels could be waived by the EPA 
Administrator. 

[3] Pub. L. No. 110-140, § 201 (2007). 

[4] While EISA specifies the reductions in lifecycle greenhouse gas 
emissions that each type of renewable fuel must achieve, it also 
authorizes EPA to adjust the required reductions if the specified 
reduction is not commercially feasible for fuels made using a variety 
of feedstocks, technologies, and processes. EPA's proposed rule, if 
finalized, would adjust the reduction for advanced biofuels to 44 or 40 
percent. 74 Fed. Reg. 24904 (May 26, 2009). 

[5] The tax credit is paid to the crude oil refiners or gasoline 
wholesalers that blend the ethanol with gasoline. 

[6] Greenhouse gases trap a portion of the sun's heat in the atmosphere 
and prevent the heat from returning to space. The insulating effect, 
known as the greenhouse effect, moderates atmospheric temperatures, 
keeping the earth warm enough to support life. According to the 
Intergovernmental Panel on Climate Change--an organization within the 
United Nations that assesses scientific, technical, and economic 
information on the effects of climate change--global atmospheric 
concentrations of these greenhouse gases have increased markedly as a 
result of human activities over the past 200 years, contributing to a 
warming of the earth's climate. 

[7] Biofuels can be in solid, gaseous, or liquid form. In this report 
we refer to liquid biofuels as biofuels. 

[8] Under the act, the RFS applies to transportation fuel sold or 
introduced into commerce in the 48 contiguous states. However, the 
Administrator of the Environmental Protection Agency (EPA) is 
authorized, upon a petition from Alaska or Hawaii, to allow the RFS to 
apply in that state. On June 22, 2007, Hawaii petitioned EPA to opt 
into the RFS, and the Administrator approved that request. For the 
purposes of this report, statements that the RFS applies to U.S. 
transportation fuel refer to the 48 contiguous states and Hawaii. 

[9] The act authorizes the EPA Administrator, in consultation with the 
Secretaries of Agriculture and Energy, to waive the RFS levels 
established in the act, by petition or on the Administrator's own 
motion, if meeting the required level would severely harm the economy 
or environment of a state, a region, or the United States or there is 
an inadequate domestic supply. Throughout this report, the RFS levels 
established in the act are referred to as requirements, even though 
these levels could be waived by the EPA Administrator. 

[10] Section 211(o)(1) of the Clean Air Act defines lifecycle 
greenhouse gas emissions as the aggregate quantity of greenhouse gas 
emissions--including direct emissions and significant indirect 
emissions such as significant emissions from land-use changes--as 
determined by EPA's Administrator, related to the full fuel lifecycle. 
Lifecycle emissions include all stages of fuel and feedstock production 
and distribution, from feedstock generation or extraction through the 
distribution and delivery and use of the finished fuel to the ultimate 
consumer, where the mass values for all greenhouse gases are adjusted 
to account for their relative global warming potential. 

[11] Ethanol is also imported from some member nations of the Caribbean 
Basin Initiative and Brazil, which use sugarcane as their feedstock, 
and produced from domestically grown sorghum. 

[12] The 2007-2008 corn marketing year began September 1, 2007, and 
ended August 31, 2008. 

[13] These estimates were based on 93.5 million planted acres in 2007, 
of which 86.5 million were harvested, at an average yield of 150.7 
bushels per acre. For 2008, USDA estimated that corn growers will plant 
86 million acres, of which 78.6 million would be harvested, at an 
average yield of 153.9 bushels per acre. 

[14] It is generally estimated that 7.5 pounds of soybean oil will 
yield 1 gallon of biodiesel. 

[15] Predominant feedstocks for biodiesel production are rapeseed in 
Europe and palm, coconut, and castor oils in tropical and subtropical 
countries. 

[16] The 2007-2008 soybean marketing year began September 1, 2007, and 
ended August 31, 2008. 

[17] Energy Information Administration, Short-Term Energy Outlook 
Supplement: Biodiesel Supply and Consumption in the Short-Term Energy 
Outlook, April 2009. 

[18] See Biomass Research and Development Board, Increasing Feedstock 
Production for Biofuels Economic Drivers, Environmental Implications, 
and the Role for Research (Washington, D.C., December 2008) for 
information about biomass yields and fuel yields for different biofuel 
feedstocks. 

[19] For example, Cello Energy recently opened a biorefinery in Bay 
Minette, Alabama, that uses pyrolysis technology to process tires, hay, 
straw, wood chips, and switchgrass. 

[20] Pub. L. No. 95-618, §221 (1978). 

[21] Pub. L. No. 108-357, §301 (2004). 

[22] The 2008 Farm Bill limits the combined value of all tax credits 
for cellulosic ethanol to $1.01 per gallon. 

[23] Pub. L. No. 101-508, §11502 (1991) Small Ethanol Producer Credit; 
Pub. L. No. 109-58, §1345, §1342 (2005) Small Agri-Biodiesel Tax Credit 
and Alternative Fuel Infrastructure Tax Credit; Pub. L. No. 109-432, 
§209 (2006) Special Depreciation Allowance for Cellulosic Biomass 
Ethanol Plant Property 

[24] Because of its lower production cost, corn starch ethanol is the 
predominant U.S. biofuel used to meet the RFS. 

[25] EPA determined that the regulatory scheme for the RFS created 
pursuant to the Energy Policy Act of 2005 did not provide a mechanism 
for implementing this requirement in 2009. Accordingly, EPA decided to 
create a combined 2009/2010 requirement by increasing the RFS's 2010 
biomass-based diesel requirement by 500 million gallons and allowing 
obligated parties to demonstrate compliance only at the end of the 2010 
compliance period. 73 Fed. Reg. 70643 (Nov. 21, 2008). 

[26] Biorefineries for which construction began before EISA's enactment 
are not subject to this requirement. 

[27] While EISA specifies the reductions in lifecycle greenhouse gas 
emissions that each type of renewable fuel must achieve, it also 
authorizes EPA to adjust the required reductions if the specified 
reduction is not commercially feasible for fuels made using a variety 
of feedstocks, technologies, and processes. 

[28] The yearly blending standard is calculated as a percentage, by 
dividing the amount of renewable fuel that the RFS requires to be used 
in a given year by the amount of gasoline expected to be used during 
that year, including certain adjustments specified by EISA. 

[29] See GAO, Advanced Energy Technologies: Budget Trends and 
Challenges for DOE's R&D Program, [hyperlink, 
http://www.gao.gov/products/GAO-08-556T] (Washington, D.C.: March 5, 
2008). 

[30] See GAO, Federal Energy Management: Agencies Are Acquiring 
Alternative Fuel Vehicles but Face Challenges in Meeting Other Fleet 
Objectives, [hyperlink, http://www.gao.gov/products/GAO-09-75R] 
(Washington, D.C.: Oct. 22, 2008). 

[31] Pub. L. 106-224, Title III, 114 Stat. 428 (as amended by section 
Pub. L. No. 109-58, Pub. L. No. 110-14, and Pub. L. No. 110-246). 

[32] Biomass Research and Development Board, Increasing Feedstock 
Production for Biofuels: Economic Drivers, Environmental Implications, 
and the Role of Research (Washington, D.C., December 2008). 

[33] Other factors such as drought conditions in some grain-producing 
countries also contributed to higher feed prices. 

[34] According to USDA's National Resources Inventory, privately owned 
grassland decreased by almost 25 million acres from 1982 through 2003, 
and more recent data indicated that this decline continues, 
particularly in the Northern Plains states, including North Dakota and 
South Dakota. GAO, Agricultural Conservation: Farm Program Payments Are 
an Important Factor in Landowners' Decisions to Convert Grassland to 
Cropland, [hyperlink, http://www.gao.gov/products/GAO-07-1054] 
(Washington, D.C.: Sept. 10, 2007) and Prairie Pothole Region: At the 
Current Pace of Acquisitions, the U.S. Fish and Wildlife Service Is 
Unlikely to Achieve Its Habitat Protection Goals for Migratory Birds, 
[hyperlink, http://www.gao.gov/products/GAO-07-1093] (Washington, D.C.: 
Sept. 27, 2007). 

[35] The Corn Belt is the area of the United States where corn is a 
principal cash crop, including Iowa, Indiana, most of Illinois, and 
parts of Kansas, Minnesota, Missouri, Nebraska, Ohio, South Dakota, and 
Wisconsin. 

[36] We previously reported on the direct and indirect economic impacts 
of a new renewable energy employer in rural communities. See GAO, 
Renewable Energy: Wind Power's Contribution to Electric Power 
Generation and Impact on Farms and Rural Communities, [hyperlink, 
http://www.gao.gov/products/GAO-04-756] (Washington, D.C.: Sept. 3, 
2004). 

[37] The stocks-to-use ratio indicates the level of carryover stock for 
any given agricultural commodity as a percentage of the total use of 
the commodity. 

[38] Pasture, or pastureland, is land used primarily for the production 
of domesticated forage plants for livestock. In contrast, range, or 
rangeland, is land where vegetation is naturally occurring and is 
dominated by native grasses, grasslike plants, and shrubs. 

[39] Switchgrass is a native prairie grass long used for conservation 
planting and cattle feed in the United States. Switchgrass is a 
promising biofuel feedstock crop because it can be grown across a wide 
range of conditions, can yield great amounts of biomass, establishes 
deep roots to store carbon in the soil, and does well on marginal 
lands. 

[40] GAO, International Food Security: Insufficient Efforts by Host 
Governments and Donors Threaten Progress to Halve Hunger in Sub-Saharan 
Africa by 2015, [hyperlink, http://www.gao.gov/products/GAO-08-680] 
(Washington, D.C.: May 29, 2008). 

[41] Pub. L. No. 110-246 § 9001, 122 Stat. 1651, 2089 (amending 7 
U.S.C. § 8111). 

[42] GAO, Agricultural Conservation: USDA Should Improve Its Process 
for Allocating Funds to States for the Environmental Quality Incentives 
Program, [hyperlink, http://www.gao.gov/products/GAO-06-969] 
(Washington, D.C.: Sept. 22, 2006), Conservation Security Program: 
Despite Cost Controls, Improved USDA Management Is Needed to Ensure 
Proper Payments and Reduce Duplication with Other Programs, [hyperlink, 
http://www.gao.gov/products/GAO-06-312] (Washington, D.C.: Apr. 28, 
2006), and GAO, Agricultural Conservation: State Advisory Committees' 
Views on How USDA Programs Could Better Address Environmental Concerns, 
[hyperlink, http://www.gao.gov/products/GAO-02-295] (Washington, D.C.: 
Feb. 22, 2002). 

[43] As of the 2008 Farm Bill, direct payments are available for 
producers with eligible historic base acres of such crops as corn, 
wheat, grain sorghum, and oilseeds. Countercyclical payments are 
available for producers with eligible historic base acres when the 
commodity's effective price is less than the target price. The 
effective price is the sum of the direct payment rate plus either the 
national commodity loan rate or the national average farm price for the 
crop year, whichever is higher. 

[44] Producing one bushel of corn in any of the major corn-producing 
regions consumes between 19 and 865 gallons of water, on average, based 
on an evaluation by the Argonne National Laboratory. The amount of 
water needed depends on precipitation, atmospheric demand (which is a 
result of solar radiation, wind, humidity, and temperature) and plant 
growth stage. Greater amounts of water are needed during peak growth 
stages (July and August for the U.S. Corn Belt), when rainfall may be 
insufficient to satisfy the needs of a rapidly growing plant. Good soil 
quality can help keep a plant from stress during dry spells by its 
moisture-holding capacity. 

[45] King and Webber, "Water Intensity of Transportation," 
Environmental Science and Technology (2008), vol. 42, no. 21, pp. 7866- 
7872. 

[46] Comparatively, biodiesel shows potential benefits over petroleum- 
based diesel if nonirrigated soy is used. Irrigated soy consumes 0.6 to 
24 gallons of water per mile traveled, while rainfed soy consumes .01 
to .02 gallons of water traveled per mile traveled. Comparatively, 
petroleum-based diesel consumes 0.05 to 0.11 gallons. (King and Webber, 
"Water Intensity of Transportation," Environmental Science and 
Technology (2008), vol. 42, no. 21, pp. 7866-7872.) 

[47] See Center for Transportation Research, Energy Systems Division, 
Argonne National Laboratory, "Consumptive Water Use in the Production 
of Ethanol and Petroleum Gasoline" (Argonne, Ill.: Jan. 2009). 

[48] USGS, 1997, Groundwater Atlas of the United States: Kansas, 
Missouri, and Nebraska, HA 730-D. 

[49] Crop residues are materials left in the field after the crop has 
been harvested. For example, corn stover is the unharvested portions of 
the corn plant, including stalks, leaves, and cobs. 

[50] According to EPA officials, the long-term impacts of irrigating 
with wastewater or saline water sources are currently unknown and may 
be detrimental. Additional controls on runoff will need to be added to 
protect water quality. 

[51] Corn requires significantly higher applications of nitrogen as 
compared with soybeans, which are legumes that obtain their own 
nitrogen from the atmosphere. For example, in crop year 2005, the 
average annual applications for corn were 138 pounds of nitrogen per 
acre and 58 pounds of phosphorous per acre for 96 percent and 81 
percent of planted acreage in the United States, respectively. In 
comparison, in crop year 2004, soybeans required, on average, 28 pounds 
of nitrogen per acre and 69 pounds of phosphorous per acre for 21 
percent and 26 percent of total planted acres respectively [NASS 2006, 
2005] 

[52] The algae themselves do not reduce oxygen; instead, when the algae 
die, bacteria deplete oxygen during the decomposition process. 

[53] Diaz, Robert and Rutger Rosenberg, "Spreading Dead Zones and 
Consequences for Marine Ecosystems." Science, vol. 321, 2008, pp. 926- 
929. 

[54] Alexander, Richard, Richard Smith, Gregory Schwarz, Elizabeth 
Boyer, Jacqueline Nolan, and John Brakebill, "Difference in Phosphorous 
and Nitrogen Delivery to the Gulf of Mexico from the Mississippi River 
Basin," Environmental Science and Technology (2008), vol. 42, no. 3, 
pp. 822-830. 

[55] Malcom, S. and M. Aillery. "Growing Crops for Biofuels Has 
Spillover Effects." Amber Waves, USDA Economic Research Service, vol. 
7, issue 1, March 2009, pp. 10-15; and Donner, S. and C. Kucharik. 
"Corn-based ethanol production compromises goal of reducing nitrogen 
export by the Mississippi River." Proceedings of the National Academy 
of Sciences of the United States, vol. 105, no. 11, 2008, pp. 4513- 
4518. 

[56] Nolan, B. and K. Hitt. "Vulnerability of Shallow Groundwater and 
Drinking-Water Wells to Nitrate in the United States." Environmental 
Science & Technology, vol. 40, no. 24, 2006, pp. 7834-7840. 

[57] EPA's maximum contaminant level goals for drinking water are set 
at the level at which no known or anticipated adverse effects on the 
health of persons occur and which allows an adequate margin of safety. 
The maximum contaminant level goal for total nitrate and nitrogen is 10 
milligrams per liter. This does not mean that less than 10 milligrams 
per liter poses no risk. Recent studies also indicate levels of nitrate 
as low as 2.5 milligrams per liter may be associated with several types 
of cancer. 

[58] Gilliom, and others. "The Quality of Our Nation's Waters--
Pesticides in the Nation's Streams and Ground Water, 1992-2001." U.S. 
Geological Survey Circular 1291, 2006, p. 172. 

[59] Malcom, S. and M. Aillery. "Growing Crops for Biofuels has 
Spillover Effects." Amber Waves, USDA Economic Research Service, vol. 
7, issue 1, March 2009, pp. 10-15. 

[60] According to USDA officials, perennial grasses will probably have 
lower input requirements than corn, but incentives to increase yields 
will narrow any gap. Compared to other crops, the difference in input 
requirements ultimately may be quite small. 

[61] Landis, D., M. Gardiner, W. van der Werf, and S. Swinton. 
"Increasing corn for biofuel production reduces biocontrol services in 
agricultural landscapes." Proceedings of the National Academy of 
Sciences of the United States of America, vol. 105, no. 51, 2008, pp. 
20552-20557. 

[62] Tillman D., J. Hill, and C. Lehman. "Carbon-Negative Biofuels from 
Low-Input High-Diversity Grassland Biomass," Science, vol. 314, issue 
5805, 2006, pp. 1598-1600. 

[63] Barney, J.N. and J.M. DiTomaso. "Nonnative Species and Bioenergy: 
Are We Cultivating the Next Invader?" Bioscience, vol. 58, no. 1, 2008, 
pp. 64-70. 

[64] An invasive species is a nonnative species whose introduction does 
or is likely to cause economic or environmental harm or harm to human, 
animal, or plant health. For example, an invasive plant may outcompete 
and displace native grasses and broadleaf plants that serve as a 
primary source of forage for animals. 

[65] Wu, M., M. Mintz, M. Wang, and S. Arora. "Consumptive Water Use in 
the Production of Ethanol and Petroleum Gasoline." Center for 
Transportation Research, Energy Systems Division, Argonne National 
Laboratory (Argonne, Ill. January 2009). 

[66] Average water consumption in the United States is 100 gallons per 
day per person, according to EPA. 

[67] National Research Council, "Water Implications of Biofuels 
Production in the United States," 2008. 

[68] McMahon, P.B., J.K. Böhlke, and C.P. Carney. Vertical Gradients in 
Water Chemistry and Age in the Northern High Plains Aquifer, Nebraska, 
2003: U.S. Geological Survey Scientific Investigations Report 2006- 
5294, 2007. 

[69] Among the problems with using low-quality water in the biofuel 
conversion process, boilers lose heat capacity and may be spoiled if 
using water with high total dissolved solids. 

[70] Thermochemical gasification is a process where the entire biomass 
input is converted in a syngas (an intermediate mixture of carbon 
monoxide and hydrogen) that can then be refined into a number of 
biofuel products, including ethanol, diesel, methane, or butanol, among 
other fuels. 

[71] Reverse osmosis is a filtration process used to purify fresh water 
by, for example, removing the salts from it. This process is used to 
treat the water supply for the ethanol plant. 

[72] EPA Region 7 has developed guidance manuals for the construction 
and operation of ethanol and biodiesel facilities: "Environmental Laws 
Applicable to Construction and Operation of Ethanol Plants; 2007" and 
"Environmental Laws Applicable to Construction and Operation of 
Biodiesel Production Facilities, 2008." These guidance manuals can be 
viewed at [hyperlink, http://www.epa.gov/sustainability/energy.htm]. 

[73] Biological oxygen demand is a measure of how much oxygen it will 
take to break down the material. According to EPA officials, biodiesel 
wastewater with small amounts of glycerin and efficient recovery of 
methanol has a biological oxygen demand of 10,000 to 15,000 mg/liter, 
compared to a normal wash water biological oxygen demand of about 200 
mg/liter. With glycerin, biodiesel wastewater has a biological oxygen 
demand of 80,000 mg/liter. Pure glycerin has a biological oxygen demand 
of 1,000,000 mg/liter. 

[74] Under the Clean Air Act, EPA has established, and regularly 
reviews, national ambient air quality standards (NAAQS) for six air 
pollutants also known as "criteria" pollutants: ozone, particulate 
matter (PM2.5 and PM10), lead, nitrogen dioxide (NO2), carbon monoxide 
(CO), and sulfur dioxide (SO2). Additionally, EPA monitors volatile 
organic compounds, which are known ozone precursors. The volatile 
organic compounds emitted from ethanol plants might include, but are 
not limited to, acetaldehyde, acrolein, formaldehyde, and methanol. 
Some volatile organic compounds are hazardous air pollutants, such as 
acetaldehyde, and are regulated as such under section 112 of the Clean 
Air Act. 

[75] A major modification is a physical or operational change that 
would result in a significant net increase in emissions. 

[76] A Title V operating permit contains all existing federal Clean Air 
Act requirements, including reporting and monitoring requirements, 
applicable to the source in one document. These operating permits 
contain any applicable new source performance standards and national 
emission standards for hazardous air pollutants. 

[77] EPA Region 7 serves the states of Iowa, Kansas, Missouri, and 
Nebraska. About 44 percent of existing U.S. ethanol production capacity 
is located in these states as of March 2009. 

[78] According to EPA, the standards for biorefineries are less 
stringent given their size than for larger petroleum facilities on a 
per unit of production basis, and the result is that as more and more 
biorefineries are built to displace gasoline, there will be a steady 
increase in nationwide emissions due to biofuel production. 

[79] Acetaldehyde is mainly used as an intermediate in the synthesis of 
other chemicals. It is ubiquitous in the environment and may be formed 
in the body from the breakdown of ethanol. Acute (short-term) exposure 
to acetaldehyde results in effects including irritation of the eyes, 
skin, and respiratory tract. Symptoms of chronic (long-term) 
intoxication of acetaldehyde resemble those of alcoholism. Acetaldehyde 
is considered a probable human carcinogen based on inadequate human 
cancer studies and animal studies that have shown nasal tumors in rats 
and laryngeal tumors in hamsters. 

[80] See Hill, J., S. Polasky, E. Nelson, D. Tilman, H. Huo, L. Ludwig, 
J. Neumann, H. Zheng, and D. Bonta. "Climate Change and Health Costs of 
Air Emissions from Biofuels and Gasoline," Proceedings of the National 
Academies of Sciences, vol. 106, no. 6, 2009, pp. 2077-2082; and Wu, 
M., Y. Wu, and M. Wang. "Energy and Emission Benefits of Alternative 
Transportation Liquid Fuels Derived from Switchgrass: A Fuel Life Cycle 
Assessment," Biotechnology Progress, no. 22, 2006, pp. 1012-1024. 

[81] There are other hazards that may occur from releases of ethanol- 
blended fuels. For example, some spills of gasoline with ethanol may 
pose an explosion risk. Large scale releases of ethanol have been shown 
to degrade under anaerobic conditions to produce explosive 
concentrations of methane. According to EPA, this can pose a 
significant challenge for emergency responders mitigating biofuel 
spills. In addition, the methane generated in the subsurface can 
migrate into overlying buildings, degrading indoor air quality. 

[82] According to EPA officials, owners using blends containing 85 
percent ethanol generally work with a licensed installer to use 
certified, compatible storage and dispensing equipment. UST systems are 
comprised of many components; however, some of these components have 
not been tested for use with high ethanol fuel blends. 

[83] When ethanol is present, the ethanol is consumed by microorganisms 
in the soil first. This decomposition takes up nutrients and oxygen 
needed to break down benzene and related compounds. As a result the 
benzene plume extends a greater distance. 

[84] Mackay, Douglas, Nicholas R. de Sieyes, Murray D. Einarson, Kevin 
P. Feris, Alexander A. Pappas, Isaac A. Wood, Lisa Jacobson, Larry G. 
Justice, Mark N. Noske, Kate M. Scow, and John T. Wilson. "Impact of 
Ethanol on the Natural Attenuation of Benzene, Toluene, and o-Xylene in 
a Normally Sulfate-Reducing Aquifer." Environmental Science Technology, 
vol. 40, 2006, pp. 6123-6130; and Ruiz-Aguilar, G., K. O'Reilly, and P. 
Alvarez. "A Comparison of Benzene and Toluene Plume Lengths for Sites 
Contaminated with Regular vs. Ethanol-Amended Gasoline." Ground Water 
Monitoring & Remediation, vol. 23, no. 1, winter 2003, pp. 48-53. 

[85] The Clean Air Act Amendments of 1990 require areas with the worst 
air quality to use reformulated gasoline, which includes oxygenate 
additives that increase the oxygen content of the fuel and reduce 
emissions of carbon monoxide in some engines. In recent years, ethanol 
has been increasingly used as the primary oxygenate in gasoline. 

[86] Small nonroad engines include leaf blowers, line trimmers, 
generator sets, lawn mowers, and small tractors. 

[87] Before approving the use of intermediate ethanol blends, EPA would 
assess potential impacts on vehicle emissions. 

[88] Vehicles have pollution control systems--known as catalytic 
converters--that are located between a vehicle's engine and tailpipe. 
Catalytic converters work by facilitating chemical reactions that 
convert exhaust pollutants such as carbon monoxide and nitrogen oxides 
to normal atmospheric gases such as nitrogen, carbon dioxide, and 
water. As the catalytic compound breaks down over time, the converter 
loses its capacity to reduce pollutant emissions. 

[89] A 2007 review of available literature by a team of researchers at 
Oak Ridge National Laboratory found that limited data existed on the 
use of intermediate ethanol blends in conventional gasoline vehicles in 
the United States. A study contracted by the Australian Department of 
Environment found nitrogen oxide emissions increases and accelerated 
long-term degradation of the vehicle's pollution control system with 20 
percent ethanol fuel blends. See Bechtold, R., J. Thomas, S. Huff, J. 
Szybist, T. Theiss, B. West, M. Goodman, and T.A. Timbario. "Technical 
Issues Associated with the Use of Intermediate Ethanol Blends (>E10) in 
the U.S. Legacy Fleet: Assessment of Prior Studies." Oak Ridge National 
Laboratory, DOE, August 2007; Orbital Engine Company, "Market Barriers 
to the Uptake of Biofuels Study: A Testing Based Assessment to 
Determine Impacts of a 20% Ethanol Gasoline Fuel Blend on the 
Australian Passenger Vehicle Fleet." Report to Environment Australia, 
March 2003; and Orbital Engine Company, "Market Barriers to the Uptake 
of Biofuels Study: Testing Gasoline Containing 20% Ethanol." Phase 2B- 
Final Report to the Department of the Environment and Heritage of 
Australia, May 2004. 

[90] Acetaldehyde emissions increased with fuel blends containing 20 
percent ethanol by an average of 0.81 milligrams per mile when compared 
to regular gasoline. Increases for blends containing 10 percent and 15 
percent ethanol were 0.38 milligrams per mile and 0.70 milligrams per 
mile, respectively. 

[91] The full useful life of a vehicle is considered to be 100,000 to 
150,000 miles. 

[92] Criteria have been developed to help measure environmental, 
economic, and social benefits and consequences, as well as the impacts 
on energy diversification and security. 

[93] Researchers have generally used Argonne National Laboratory's 
GREET model to estimate fuel-cycle energy use and emissions associated 
with alternative transportation fuels and advanced vehicle 
technologies. In addition, some researchers have used (1) the 
University of Missouri's and Iowa State University's FAPRI model to 
estimate international crop expansion, (2) the FASOM model developed by 
Texas A&M University and others to estimate domestic crop expansion, 
(3) NASA's MODIS satellite-based data to estimate the percentage of 
each land type converted to cropland, and (4) Purdue University's GTAP 
general equilibrium model to predict the amount and types of land 
needed in a region to meet demands for both food and fuel production. 

[94] Argonne National Laboratory, Fuel-Cycle Assessment of Selected 
Bioethanol Production Pathways in the United States (Argonne, IL: Nov. 
2006). 

[95] Life-Cycle Analysis of Biofuels: Issues and Results, presentation 
by Dr. Michael Wang, Center for Transportation Research, Argonne 
National Laboratory, at an American Chemical Society forum for 
Congressional staff (August 2008). The reduction of greenhouse gas 
emissions exceeded 100 percent in one study because some feedstocks 
create a net carbon benefit by sequestering more carbon than is 
released when combusting the fossil fuels used to produce the biofuel. 

[96] Kim S. and Dale B. "Effects of Nitrogen Fertilizer Application on 
Greenhouse Gas Emissions and Economics of Corn Production." 
Environmental Science and Technology, vol. 42, no. 16 (2008): pp. 6028- 
6033. 

[97] Using a winter cover crop, such as wheat, in the cropping system, 
could reduce soil emissions of nitrous oxide compared to continuous 
corn cultivation without a cover crop. See Kim S., and Dale B. "Life 
Cycle Assessment of Various Cropping Systems Utilized for Producing 
Biofuels: Bioethanol and Biodiesel." Biomass and Bioenergy, 29 (2005) 
pp. 426-439. 

[98] See Wang M., Wu M., and Huo H. "Life-Cycle Energy and Greenhouse 
Gas Emission Impacts of Different Corn Ethanol Plant Types," 
Environmental Research Letters, 2 (2007). 

[99] See Pimentel D., Patzek T. "Ethanol Production Using Corn, 
Switchgrass, and Wood; Biodiesel Production Using Soybean and 
Sunflower," Natural Resources Research, vol 14, no. 1 (2005): pp. 65- 
76; Schmer M.R., Vogel K.P., Mitchell R.B., and Perrin R.K. "Net Energy 
of Cellulosic Ethanol from Switchgrass." Proceedings of the National 
Academy of Sciences, vol. 105, no. 2 (2008): pp. 464-469; and Argonne 
National Laboratory, Fuel-Cycle Assessment of Selected Bioethanol 
Production Pathways in the United States (Argonne, IL: Nov. 2006). 

[100] In a 2006 survey of published and gray literature examining the 
greenhouse gas effects of ethanol, Farrell found that calculations 
about the net energy calculations for ethanol were most sensitive to co-
product allocation. See Farrell A.E. "Ethanol Can Contribute to Energy 
and Environmental Goals," Science, vol. 311, issue 5760 (2006): pp. 506-
508. 

[101] Wang M., Huo H., and Arora S. "Methods of Dealing with Co- 
Products of Biofuels in Life-Cycle Analysis," forthcoming in the Energy 
Policy Journal. 

[102] Searchinger T., Heimlich R., Houghton R.A., Dong F., Elobeid A., 
Fabiosa J, Tokgoz S., Hayes D., and Yu T.H. "Use of U.S. Croplands for 
Biofuels Increases Greenhouse Gases Through Emissions from Land-Use 
Change." Science, vol. 319 (2008): pp. 1238-1240. Supporting online 
material was published on Science Express (Feb. 7, 2008). 

[103] See Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P. 
"Land Clearing and the Biofuel Carbon Debt," Science, vol. 319, issue 
5867 (2008): 1235-1238; and Gibbs H.K, Johnston M, Foley J.A, Holloway 
T., Monfreda, C., Ramankutty N., and Zaks, D. "Carbon Payback Times for 
Crop-Based Biofuel Expansion in the Tropics: The Effects of Changing 
Yield and Technology." Environmental Research Letters, vol. 3 (2008): 1-
10. 

[104] For example, the development of hybrid seeds could offset some of 
the potential increase in cultivated land. 

[105] Hill J., Nelson E., Tilman D., Polasky S., and Tiffany D. 
"Environmental, Economic, and Energetic Costs and Benefits of Biodiesel 
and Ethanol Biofuels." Proceedings of the National Academy of Sciences, 
July 25, 2006, vol. 103, no. 30, pp. 11206-11210; and McCarl, B.A., 
"Bioenergy in a Greenhouse Mitigating World." Choices, 23(1), pp. 31- 
33, 2008. 

[106] Fargione J., Hill J., Tilman D., Polasky S., and Hawthorne P. 
"Land Clearing and the Biofuel Carbon Debt," Science, vol. 319, issue 
5867 (2008): pp. 1235-1238, and Hill J., Nelson E., Tilman D., Polasky 
S., and Tiffany D. "Environmental, Economic, and Energetic Costs and 
Benefits of Biodiesel and Ethanol Biofuels." Proceedings of the 
National Academy of Sciences, vol. 103, no. 30 (2006): pp. 11206-11210. 

[107] The International Organization of Standardization has developed 
lifecycle analysis standards. However, researchers use different 
assumptions and system boundaries in their analyses, which influence 
final results. 

[108] For example, while USDA's National Resources Inventory surveys 
land use, natural resource conditions, and trends on domestic 
nonfederal, nonforest lands, it does not analyze comprehensive land use 
data gathered at the same locations every year. Also, these survey data 
cannot be readily integrated with data from USDA's survey of producers 
or agricultural census because of differences in land use definitions. 

[109] Producers may alternatively take this credit as an income tax 
credit to the extent the credits exceed the tax imposed on taxable fuel 
under 26 U.S.C. § 4081. 

[110] EPA's proposed rulemaking on lifecycle greenhouse gas emissions 
will affect decisions whether to construct new corn starch ethanol 
biorefineries because biorefineries built after December 19, 2007, must 
reduce emissions by at least 20 percent to qualify under the RFS. 

[111] The yearly blending standard is calculated as a percentage by 
dividing the amount of renewable fuel that the RFS requires to be used 
in a given year by the amount of gasoline expected to be used during 
that year, including certain adjustments and exemptions specified by 
the EISA. The percentage exceeds 10 percent in part because the 
numerator includes the combined RFS for ethanol and biodiesel while the 
denominator excludes biodiesel. 

[112] A RIN consists of a 38-character code that includes the year the 
biofuel is produced or imported, the equivalence value for that type of 
biofuel, and a company and a facility identification. 

[113] The RFS did not affect ethanol production volumes in the spring 
and summer of 2008 because domestic ethanol consumption exceeded the 
RFS's required amount. 

[114] U.S. biofuels consumption has been limited primarily to corn 
starch ethanol because of its lower production costs. 

[115] With a binding RFS, much of the VEETC's benefit may go to ethanol 
producers if the retail price of blended motor fuels is affected more 
by the price of gasoline than by the price of ethanol, as is the case 
of E10. 

[116] The VEETC, in the form of forgone federal tax revenues, pays part 
of the cost of a binding RFS. Without the VEETC, the entire cost would 
be borne by ethanol purchasers--blenders or motor fuel purchasers, or 
both--or others to whom the purchasers may be able to pass on the cost, 
such as workers at blending refineries. Because the cost of tax 
expenditures is often hidden, placing the cost on market participants 
can make the RFS cost more transparent. 

[117] The crude oil price that would make the RFS nonbinding in 2009 
will vary with corn prices, which are affected by such factors as the 
weather and export and livestock demand for corn. USDA data show the 
current ratio of corn stocks to a year's corn use is low by historical 
standards, suggesting the potential for volatile corn prices. 

[118] Crude oil prices on the spot market rose to $137 per barrel in 
July 2008 before dropping to $35 per barrel in January 2009 in response 
to lower demand because of the global economic recession. Crude oil 
prices on the spot market rose to $72 per barrel in June 2009. 

[119] Agri-biodiesel is defined as biodiesel produced from virgin 
agricultural products such as soybean oil or animal fats, as opposed to 
biodiesel produced from previously used agricultural products such as 
recycled fryer grease. 

[120] Biodiesel refineries have about 2.7 billion gallons of annual 
production capacity. 

[121] The Department of the Treasury reports expenditures for the Small 
Ethanol Producer Credit and other ethanol income tax credits together, 
so this total may include expenditures on other ethanol income tax 
credits. 

[122] This total includes USDA obligations for all renewable energy 
programs because USDA could not break-out the total by focus or 
technology. USDA obligations data for fiscal year 2008 are estimates, 
as are obligations data for fiscal years 2005-2008 for DOE's Office of 
Science. 

[123] Oak Ridge National Laboratory, prepared for DOE and USDA, Biomass 
as Feedstock for a Bioenergy and Bioproducts Industry: The Technical 
Feasibility of a Billion-Ton Annual Supply (April 2005). 

[124] The Billion-Ton study may have overestimated the amount of 
feedstock that can be economically harvested because it did not 
calculate costs associated with harvesting potential feedstocks with 
existing technology. The study also included woody biomass from federal 
forest lands, but EISA subsequently excluded such biomass from 
qualifying under the RFS. An updated study is expected to be published 
later this year. 

[125] The Tennessee Biofuel Initiative includes a demonstration pilot 
refinery that is scheduled to begin producing ethanol from switchgrass 
by the end of 2009. The university entered into 3-year contracts with 
switchgrass producers to help reduce the financial uncertainty that 
farmers face when deciding to grow switchgrass and ensure feedstock 
availability for the refinery. 

[126] The Biomass Research and Development Board's November 2008 
report, which models and projects potentially available feedstock 
amounts, does not consider materials from federal lands as eligible. 

[127] The 2008 Farm Bill established a $1.01 per gallon tax credit 
through 2012 for cellulosic biofuels producers and reduced the VEETC, 
which is available for conventional corn starch ethanol, to 45 cents 
per gallon. 

[128] Biomass Research and Development Board, National Biofuels Action 
Plan (Washington, D.C., October 2008). 

[129] Total project investment figures are in 2007 dollars and include 
plant construction, equipment, installation, site development, and 
other costs such as startup costs and permits. 

[130] The slow pyrolysis process, which heats biomass in the absence of 
oxygen over a longer time period, produces more biochar relative to 
pyoil than fast pyrolysis. The distribution of products on a weight 
basis for slow pyrolysis is about 30 percent liquid, 35 percent char, 
and 35 percent gas. 

[131] Biochar may enable the removal of more corn stover and other 
agricultural residues from fields than can currently be removed and 
therefore increase the productivity of feedstock crops. 

[132] Section 211(f)(1)(A) of the Clean Air Act Amendments of 1990 
provides that fuel and fuel additives marketed in the United States for 
use in light-duty vehicles must be "substantially similar" to the fuels 
used by EPA for federal emissions test procedures. Any fuel or fuel 
additive with more than 2.7 percent oxygen (by weight) is not 
considered to be substantially similar although EPA may grant a waiver 
of the substantially similar requirement if certain standards are met. 
EPA has granted waivers allowing ethanol concentrations of up to 10 
percent of the volume of gasoline--or 3.5 percent oxygen by weight. 

[133] National Commission on Energy Policy, Task Force on Biofuels 
Infrastructure (Washington, D.C., April 2009). 

[134] GAO, Freight Railroads: Industry Health Has Improved, but 
Concerns about Competition and Capacity Should Be Addressed, 
[hyperlink, http://www.gao.gov/products/GAO-07-94] (Washington, D.C.: 
Oct. 6, 2006). 

[135] See GAO, Biofuels: DOE Lacks a Strategic Approach to Coordinate 
Increasing Production with Infrastructure Development and Vehicle 
Needs, [hyperlink, http://www.gao.gov/products/GAO-07-713] (Washington, 
D.C.: June 8, 2007). 

[136] GAO, Federal Energy Management: Agencies Are Acquiring 
Alternative Fuel Vehicles but Face Challenges in Meeting Other Fleet 
Objectives, [hyperlink, http://www.gao.gov/products/GAO-09-75R] 
(Washington, D.C.: Oct. 22, 2008). 

[137] The Emergency Economic Stabilization Act of 2008 (Pub. L. No. 110-
343 § 202 (2008)) provides that all biodiesel fuels are eligible for a 
$1 per gallon biodiesel tax credit beginning January 1, 2009. 

[138] Biodiesel production results in glycerol (glycerin) as a co- 
product. Rising biodiesel production has created a need to find new 
uses for it. 

[139] B5 is a blend of 5 percent biodiesel and 95 percent petroleum- 
based diesel. 

[140] Partial equilibrium models study a market for a commodity or 
industry in isolation, given the prices and production of all other 
commodities or industries in the economy are held constant. General 
equilibrium analysis looks at an economic system as a whole and 
observes the simultaneous determination of all prices and quantities of 
all goods and services. 

[141] Although each model in the studies is adapted to the particular 
analysis at hand, a brief description of these general economic 
techniques is as follows: (1) Econometric analysis seeks to verify 
economic theory and measure economic relationships by statistical and 
mathematical methods, using such tools as regression analysis, for the 
purpose of forecasting future events and choosing desirable policies. 
(2) Simulation techniques are a form of forecasting that generates a 
range of alternative projections based on differing assumptions about 
future events, specifically to answer the question, "what would happen 
if" and is often used to assess the likely impacts of various economic 
policies. (3) Optimization models are a type of mathematical model that 
attempts to optimize (maximize or minimize) an objective function 
subject to certain resource constraints; they are also known as 
mathematical programming models. (4) Break-even analysis is an 
investigation of how changes in volume of production affect costs and 
profit, and is a valuable tool in setting price. The break-even point 
is the one which insures that all fixed and variable costs are covered, 
given a particular selling price. (5) Representative farm models are 
typically used to model or simulate the impact on reforms or policy 
changes on the individual farmer or household. This type of model 
relies on the identification of a typical or representative farm and 
production decisions made by the farm subject to resource constraints 
are generally modeled for the farm. 

[End of section] 

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