Agriculture as a source of fuel prospects and impacts, 2007 to 2017

Introduction For most of the period since 1978 when the first federal legislation to encourage ethanol production was enacted, U.S. agriculture served in a relatively minor role as a source of renewable fuels. Starting with the federal Clean Air Act of 1990 which mandated oxygenated gasoline in certain cities to improve air quality, ethanol and its petroleum alternative, methyl tertiary butyl ether (MTBE), provided the needed additive until MTBE came into disfavor for contaminating groundwater. In the past five years, ethanol production has nearly tripled, and biodiesel production has increased ten fold although at a much lower level than ethanol. As a result, this growth has recently elevated the prices of the major feedstocks of corn and soybean oil. Federal and state policies have encouraged this acceleration, prompted by a combination of (1) sharply rising energy prices, (2) increased dependence on supplies of crude oil from nations hostile to the U.S. or with unstable political structures, (3) growing environmental concerns including global warming, (4) issues related to balance of payments, (5) depressed farm prices and high farm program costs and (6) ongoing efforts to promote rural development. Among the federal programs to support renewable fuels, blenders’ tax credits amounting to about 50 cents per gallon on ethanol and $1.00 per gallon on biodiesel (50 cents for non-virgin feedstock) have been particularly important. These provisions expire in 2010 for ethanol and 2008 for biodiesel. The Energy Policy Act of 2005 established a “Renewable Fuels Standard” (RFS) of 7.5 billion gallons for renewable fuels for 2012, a target which ethanol production alone will exceed by a wide margin. President Bush, in his State of the Union address on January 23, 2007, called for an enhanced RFS of 35 billion gallons by 2017.