Environmental Engineering Reference
In-Depth Information
crops, three reversible steps are used to chemically modify the oil so that its properties are similar
to diesel fuel: transesterification, pyrolysis, and emulsification (Meher et al. 2006). In addition to
ethanol and biodiesel, bioenergy crops, especially from forestlands, are used to produce many other
types of energy, including heat, electricity, and syngas (Solomon and Johnson 2009a).
This chapter begins by presenting the policies that are helping drive the rapid increase in the
worldwide production of biofuels, especially in the United States, EU, and Brazil, with an exami-
nation of the current economic situations in each of these places. Results of a case study of public
perceptions in the upper midwestern United States are presented, along with some ideas about what
the near future might hold for biofuels.
12.2
Government PolIcIes
12.2.1 u
nitEd
S
tatES
The United States is the world's leading ethanol producer. Government support for ethanol develop-
ment in the United States has existed at the federal and state levels. Three basic federal subsidies
fueled the early years of the modern fuel ethanol industry, which was focused on corn until 2007.
The first and most important of these was a partial exemption from the federal gasoline excise tax
for “gasohol” (defined as a fuel containing at least a 10% component of biomass-derived ethanol).
This exemption was approved by the Energy Tax Act of 1978 and implemented in 1979 (Solomon
1980). A fuel blender's tax credit and a pure alcohol fuel credit were added in 1980. These new ini-
tiatives were basically the same subsidy as the fuel excise tax exemption but recouped through a dif-
ferent system and available to a small number of companies who were unable to claim the fuel tax
exemption. Through later years, all of these tax provisions were periodically renewed and altered in
terms of the benefit magnitude, with changes in one being mirrored by changes in the others. The
excise tax exemption has been by far the most widely used incentive (double crediting with the fuel
blender's tax credit is not allowed) with total government revenue impacts estimated at between
16 and 56 times those of the other two tax credits combined (GAO 2000). Thus, this exemption was
the most important of the early ethanol support mechanisms and it remains of critical importance
to this industry in the United States today.
Further federal support came in 1990 with passage of the Small Ethanol Producer Tax Credit,
which provided small refineries (less than 1.1 × 10
8
L/year production capacity) with an additional
$0.026/L income tax credit for volumes up to 5.7 × 10
7
L/year (California Energy Commission
2004). The Energy Policy Act of 2005, which is discussed below, redefined small producers as those
producing up to 2.3 × 10
8
L/year. In recent years the total federal and state support for ethanol and
biodiesel has equaled a taxpayer subsidy of $10 + billion/year (Koplow 2007), including a tariff on
ethanol imports, although these subsidies arguably offset an even larger subsidy to U.S. farmers and
the cost of foreign oil imports (Goldemberg 2007).
From 1978 to 2004, there was little change to the main component of federal support, the
excise tax exemption. Benefit levels changed several times, culminating in a progressive reduc-
tion from $0.14/L ($0.54/gal) to $0.13/L ($0.51/gal) of ethanol during 1998-2005 as a result of
the Transportation Equity Act of 1998. However, in 2004 the basic mechanics of the subsidy were
changed by the introduction of the Volumetric Ethanol Excise Tax Credit (VEETC). The VEETC
(or “blender's credit”) streamlined the system by (1) making it volume-based rather than limited
to specific blends; (2) eliminating negative impacts on the Highway Trust Fund by taking the
credit from general government revenues; and (3) renewing the subsidy at $0.13/L ($0.51/gal) of
ethanol, which was lowered to $0.12/L ($0.45/gal) for 2009 by the 2008 Farm Bill (RFA 2011).
Similarly, biodiesel was given a Volumetric Biodiesel Excise Tax Credit (VBETC) of $0.13/L
($0.50/gal) for biodiesel from waste cooking oils and $0.26/L ($1.00/gal) for biodiesel made from
virgin agricultural feedstock (Koplow 2007). Most of the biodiesel produced in the United States
is soybean based.
