Box 4: Biofuel policies in the United States of America

The production of ethanol from maize currently dominates United States biofuel production, with production levels of 30 billion litres in 2007, followed by biodiesel from soybean, which reached 2 billion litres. The United States of America is also devoting significant resources towards developing and implementing next-generation biofuel technologies.

A range of policies are currently being implemented to promote bioenergy, including the Energy Policy Act of 2005, the Energy Independence and Security Act of 2007, the 2002 Farm Bill and the Biomass Research and Development Act of 2000. Several of these affect liquid biofuels for transport.

Financial incentives to biofuels began during the Carter Administration with the 1978 Energy Tax Act, following the oil price shocks of the 1970s. The Act provided an excise tax exemption for alcohol fuel blends at 100 percent of the petrol tax, which at the time was 4 cents per gallon. More recently, the American Jobs Creation Act of 2004 introduced the Volumetric Ethanol Excise Tax Credit (VEETC), a tax credit of 51 cents per gallon of ethanol for blenders and retailers. The VEETC was extended by the 2005 Energy Policy Act through to 2010, and was expanded to include biodiesel. Biodiesel producers who use agricultural feedstocks are eligible for a tax credit of US$1.00 per gallon, while producers of waste-grease biodiesel can receive a credit of 50 cents per gallon. Several states also offer some form of excise tax exemptions. VEETC is applied to biofuels regardless of their country of origin. However, a 54 cents/ gallon and 2.5 percent ad valorem tariff is imposed on imported ethanol.

The Energy Policy Act of 2005 introduced quantitative targets for renewable fuels. Indeed, the Renewable Fuels Standard (RFS), established by the Act, mandated that all motor petrol sold in the United States of America must have reached a renewable fuel content of 7.5 billion gallons (1 gallon = 3.785 litres) by 2012; after 2012, the percentage content was to be maintained at the level of 2012. Several states have also implemented, or plan to implement, their own renewable fuels standards.

The 2005 Act also continued funding for the Biomas Program, providing more than US$500 million to promote use of biotechnology and other advanced processes to make biofuels from cellulosic feedstocks cost-competitive with petrol and diesel, to increase the production of bioproducts that reduce the use of fossil fuels in manufacturing facilities and to demonstrate the commercial application of integrated bio-refineries that use cellulosic feedstocks to produce liquid transport fuels, high-value chemicals, electricity and heat.

The Energy Independence and Security Act of 2007 established more ambitious quantitative targets, stipulating a volume for 2008 of 9 billion gallons of renewable fuels and a phased increase to 36 billion gallons by 2022. Of the latter, 21 billion gallons should be covered by advanced biofuels (of which 16 billion from cellulosic biofuels and 5 billionfrom undifferentiated advanced biofuels).

In terms of grants, the 2007 Energy Independence and Security Act authorized US$500 million annually for the fiscal years 2008–15 for the production of advanced biofuels with at least an 80 percent reduction in life-cycle greenhouse gas emissions relative to current fuels. It likewise foresaw a US$200 million grant programme for the installation of refuelling infrastructure for ethanol-85.

The 2002 Farm Bill had included several provisions to promote the development of bio-refineries, to provide incentives to feedstock producers and to realize education programmes for farmers, local authorities and civil society promoting the benefits of biofuel production and utilization. The 2007 Farm Bill, voted by Congress in May 2008, reduced the tax credit for maize-based ethanol from 51 to 45 cents per gallon and introduced a tax credit of US$1.01 per gallon for cellulose- based ethanol.

Sources: based on GBEP, 2007, and information from USDA (United States Department of Agriculture), 2008a, Agricultural Baseline Projections: U.S. Crops, 2008-2017. Web site (available at ) and RFA (Renewable Fuels Association), 2008. Renewable Fuels Standard. Web site (available at )

Source: FAO, The State of Food and Agriculture, Biofuels: Prospects, Risks and Opportunities (2008) , Chapter 3, p.30-31

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Other Figures & Tables on this publication:

TABLE 1: Biofuel production by country, 2007

TABLE 2: Biofuel yields for different feedstocks and countries

TABLE 3: Hypothetical potential for ethanol from principal cereal and sugar crops

TABLE 4: Voluntary and mandatory bioenergy targets for transport fuels in G8+5 countries

TABLE 5: Applied tariffs on ethanol in selected countries

TABLE 6: Total support estimates for biofuels in selected OECD economies in 2006

TABLE 7: Approximate average and variable rates of support per litre of biofuel in selected OECD economies

TABLE 8: Energy demand by source and sector: reference scenario

TABLE 9: Land requirements for biofuel production

TABLE 10: Water requirements for biofuel crops

TABLE 11: Import bills of total food and major food commodities for 2007 and their percentage increase over 2006

TABLE 12: Net importers of petroleum products and major cereals, ranked by prevalence of undernourishment

TABLE 13: Share of net staple food-seller households among urban, rural and total households

Box 1: Other types of biomass for heat, power and transport

Box 2: Biotechnology applications for biofuels

Box 3: Biofuel policies in Brazil

Box 4: Biofuel policies in the United States of America

Box 5: Biofuel policies in the European Union

Box 6: Main sources of uncertainty for biofuel projections

Box 7: Biofuels and the World Trade Organization

Box 8: Biofuels and preferential trade initiatives

Box 9: The Global Bioenergy Partnership

Box 10: Biofuels and the United Nations Framework Convention on Climate Change

Box 11: Jatropha – a “miracle” crop?

Box 12: Agricultural growth and poverty reduction

Box 13: Cotton in the Sahel

Box 14: Biofuel crops and the land issue in the United Republic of Tanzania

Figure 1: World primary energy demand by source, 2005

Figure 2: Total primary energy demand by source and region, 2005

Figure 3: Trends in consumption of transport biofuels

Figure 4: Biofuels – from feedstock to end use

Figure 5: Uses of biomass for energy

Figure 6: Conversion of agricultural feedstocks into liquid biofuels

Figure 7: Estimated ranges of fossil energy balances of selected fuel types

Figure 8: Support provided at different points in the biofuel supply chain

Figure 9: Biofuel production costs in selected countries, 2004 and 2007

Figure 10: Breakeven prices for crude oil and selected feedstocks in 2005

Figure 11: Breakeven prices for maize and crude oil in the United States of America

Figure 12: Breakeven prices for maize and crude oil with and without subsidies

Figure 13: Maize and crude oil breakeven prices and observed prices, 2003–08

Figure 14: Price relationships between crude oil and other biofuel feedstocks, 2003-08

Figure 15: Food commodity price trends 1971–2007, with projections to 2017

Figure 16: Global ethanol production, trade and prices, with projections to 2017

Figure 17: Major ethanol producers, with projections to 2017

Figure 18: Global biodiesel production, trade and prices, with projections to 2017

Figure 19: Major biodiesel producers, with projections to 2017

Figure 20: Total impact of removing trade-distorting biofuel policies for ethanol, 2013–17 average

Figure 21: Total impact of removing trade-distorting biofuel policies for biodiesel, 2013–17 average

Figure 22: Life-cycle analysis for greenhouse gas balances

Figure 23: Reductions in greenhouse gas emissions of selected biofuels relative to fossil fuels

Figure 24: Potential for cropland expansion

Figure 25: Potential for yield increase for selected biofuel feedstock crops

Figure 26: Potential for irrigated area expansion

Figure 27: Agricultural trade balance of least-developed countries

Figure 28: Distribution of poor net buyers and sellers of staple foods1

Figure 29: Average welfare gain/loss from a 10 percent increase in the price of the main staple, by income (expenditure) quintile for rural and urban households