Major GAO Report Examines Critical Ethanol, Biofuels & RFS Issues

Oct 2: The Government Accountability Office (GAO) just released a major 184-page report, requested by Senator Barbara Boxer, Chairman of the Environment and Public Works Committee, and Senator Susan Collins (R-ME) entitled, Biofuels: Potential Effects and Challenges of Required Increases in Production and Use (GAO-09-446, August 25, 2009). The report addresses issues surrounding the December 2007, expansion of the renewable fuel standard (RFS) by Congress, which requires increasing the use of ethanol and other biofuels, from 9 billion gallons in 2008 to 36 billion gallons in 2022.

GAO says 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. Specifically, the 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. GAO extensively reviewed scientific studies, interviewed experts and agency officials, and visited five DOE and USDA laboratories.

GAO indicates that 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, GAO says 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. GAO makes a number of recommendations as follows:

(1) To improve EPA's ability to determine biofuels' greenhouse gas emissions and define fuels eligible for consideration under the RFS, the U.S. EPA Administrator and the Secretaries of Agriculture and Energy should 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.

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

(3) To address inconsistencies in existing statutory language, the Administrator of the Environmental Protection Agency should, 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.

Access the complete report (click here).