The Farm Bill: Planting Seeds of Renewable Energy

By Matthew E. Ross | July 08, 2008
On May 22, 2008, Congress overrode President George W. Bush's veto to enact the Food, Conservation and Energy Act of 2008, more commonly known as the farm bill. The bill recognizes the value that rural and agricultural land can play in the renewable energy economy, both in terms of the renewable fuels that can be grown or harvested into energy and the use of key real estate available for the siting of renewable energy projects. Although many of the more lucrative tax provisions, grants and other incentives were pared down prior to enactment, the farm bill is an important first step in shining light on the valuable role that agricultural and rural landsand the raw materials found on themcan play in the renewable energy industry.

In the past, the Energy Policy Act of 2005 and industry players created considerable public attention around corn-based ethanol and solar and wind power. Less attention was paid to various waste-to-energy technologies including landfill gas-to-energy, wood and crop waste biomass, anaerobic digestion of animal solid waste, and gasification of municipal solid waste. Certainly, there were incentives available to some of these technologies, such as production tax credits and five-year depreciation for certain biomass technologies and other qualifying facilities, and the availability of tax-exempt bonds for certain landfill gas and municipal solid waste projects. However, projects in these and similar areas, while generally worthwhile and commercial, were not given as much attention by the press, project developers and lenders. This lack of focus made these types of projects more difficult to develop and finance even though in many cases they offered potentially much greater returns than wind or solar if the technical challenges could be successfully met. Without as many financial incentives, such projects had to work harder to get off the ground. The Farm Bill, by directing certain incentives and public attention to farm-based and other rural bioenergy projects, should help breathe new life into these types of projects.

Earlier versions of the farm bill had significantly more robust incentives for both farms and project developers to install renewable energy equipment on rural and agricultural land. However, in the interest of building a strong majority, many of those provisions were stripped out in conference before the bill was submitted to the president with the promise that they would be re-addressed in other energy legislation this year. However, what remains is not insignificant. Congress has demonstrated a real interest in harnessing both the raw material and real estate that agricultural and rural lands have to offer as well as diversifying America's energy portfolio.

Making Way for Innovation, Development
Some of the more interesting technologies that are boosted by the Farm Bill are the various waste-to-energy possibilities that either extract methane from, or burn, various types of waste streams and use the resulting product to produce either natural gas or electricity. For example, the USDA has estimated that there are 150 million animal units (cows, swine and poultry) that collectively produce more than 2 billion tons of waste per year in the United States. If just 10 percent of this total waste stream were able to be captured and converted to energy via anaerobic digestion or gasification, that would create either approximately 110 billion cubic feet of natural gas per year or about 32,230 megawatt hours of electricity per year. Further, there are countless millions of tons of food and other organic wastes that are created in farming operations nationwide. Harvesting that waste, as well as tapping the prolific cellulosic and other woody biomass located on rural and agricultural land, could be a vital source of energy.

Here is a closer look at some of the provisions that bode well for biomass and other biofuels development:
BiorefineriesThe USDA provides 1) grants of up to 30 percent of project costs to assist in the development and construction of demonstration-scale biorefineries (facilities that convert renewable biomass into biofuels or electricity) to demonstrate the viability of one or more processes for converting renewable biomass (including various forms of plant material, waste material and animal waste) into advanced biofuels (fuels derived from cellulosic biomass, vegetative waste, animal waste and biogas), and 2) loan guarantees of up to 80 percent of project costs (or 90 percent of a loan amount), up to a maximum of $250 million, to fund the development, construction and retrofitting of commercial-scale biorefineries. This provision allows for companies to implement innovative solutions to convert things like plant material, waste material, and animal waste into advanced biofuels.

In addition, the USDA will enter into contracts with producers of advanced biofuels and will provide funding to help the development, construction and retrofitting of commercial scale biorefineries.

RepoweringThe farm bill encourages biorefineries already in operation as of the date of the enactment of the Farm Bill to install new systems or produce new energy from renewable biomass by allocating $35 million in mandatory funding for 2009 and $15 million in discretionary funding for each of 2009-2012.

Rural Energy for AmericaThe USDA and U.S. DOE will create a program to promote energy efficiency and renewable energy development by agricultural producers and small rural businesses. In particular, the program will provide grants for energy audits and renewable energy development and other financial assistance for energy efficiency improvements and renewable energy systems. Grants provided under this section can cover 25 percent of the project costs and, combined with loan guarantees, can be used for 75 percent of the total project costs. The farm bill sets aside mandatory funding of $55 million in 2009, $60 million in 2010 and $70 million in each of 2011 and 2012, as well as discretionary funding of $25 million in each of such years.

Additional provisions legislators may want to consider in the future would include increased renewable portfolio standards and renewable fuels standards, a national mandatory carbon emissions trading regime, and appropriations for more robust grants and incentives for these technologies and projects.

Progress One Step at a Time
In a world of $130 per barrel oil, global warming, aging energy infrastructure and transmission congestion, it is in America's interest to look for as many other creative opportunities to produce renewable energy as possible. The farm bill is a step in the right direction, although more robust incentives will be necessary for this industry sector to reap the seeds that were sown with the farm bill.

Matthew E. Ross is Of Counsel in the Energy and Project Finance Group at the law firm Ballard Spahr Andrews & Ingersoll LLP. Reach him at rossm@ballardspahr.com or (202) 661-2279. The views expressed in this article are his own and not those of his practice group or firm.