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CBO releases report this week assessing biofuel incentives.  Study finds that biofuel subsidies, costs associated with reducing petroleum use and GHG emissions vary by fuel.

The Congressional Budget Office (CBO) released a new report this month, “Using Biofuels Tax Credits to Achieve Energy and Environmental Policy Goals,” which assesses the incentives provided by the biofuel tax credits for producing different types of biofuels and analyzes whether they favor one type of biofuel over others.

The study also estimates the cost to U.S. taxpayers of reducing the use of petroleum fuels and emissions of greenhouse gases through those tax credits.  Finally, it analyzes the interaction of the credits and the biofuel mandates.

According to the report, there are 3 key justifications for biofuel support:

1. Biofuels may help the nation meet energy policy goals by increasing the domestic production of fuels for transportation and reducing the United States’ dependence on fossil fuels, such as oil.
2. Biofuels may contribute to meeting environmental policy objectives, such as the reduction of greenhouse gas emissions.
3. Federal support for biofuels can increase incomes in the agricultural sector.

The CBO report draws three key conclusions, noting in each case that the effects of tax credits vary by fuel.

First, after making adjustments for the different energy contents of the various biofuels and the petroleum fuel used to produce them, the report finds that producers of ethanol made from corn receive 73 cents to provide an amount of biofuel with the energy equivalent to that in one gallon of gasoline.  On a similar basis, producers of cellulosic ethanol receive $1.62, and producers of biodiesel receive $1.08.

Second, the report finds reducing petroleum use costs taxpayers anywhere from $1.78 – 3.00 per one gallon of gasoline, again, depending on the type of fuel.  The amount mostly depends on the size of the tax credit for each fuel, the changes in federal revenues that result from the difference in the excise taxes collected on sales of gasoline and biofuels, and the amount of biofuels that would have been produced if the credits had not been available.

Specifically:

The costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for ethanol made from corn and $3.00 for cellulosic ethanol. The cost of reducing an equivalent amount of diesel fuel (that is, a quantity having the same amount of energy as a gallon of gasoline) using biodiesel is $2.55, based on the tax policy in place through last year.

Third, the costs to taxpayers of reducing greenhouse gas emissions varies from $275 per metric ton of CO2e for cellulosic, $300 per metric ton for CO2e for biodiesel, and about $750 per metric ton of CO2e for ethanol .  NOTE: the CBO estimates do not reflect any emissions associated with land use change (direct or indirect).

The CBO report adds:

If those emissions were taken into account, such changes in land use would raise the cost of reducing emissions and change the relative costs of reducing emissions through the use of different biofuels—in some cases, by a substantial amount.

The CBO report comes on the eve of a potential energy policy overhaul in Washington as reported by Biofuels Digest.  With the U.S. biofuel industry struggling to meet RFS2 targets, trade groups are calling for harmonization of policies to create a more competitive marketplace.

Domestic Fuel reports this week that the Renewable Fuels Association (RFA) asserts the report provides no comparison to other technologies or types of biofuels against the destruction that goes hand in hand with fossil fuel production.

RFA President Bob Dinneen expanded on the issues his organization has taken with the report:

It may seem penny-wise, but would be pound-foolish to dismiss the benefits of current biofuels in light of the havoc wrought by our dependence on fossil fuels.  Analyzing American energy policy cannot occur in a vacuum.  To effectively address the energy, environmental and economic problems caused by our addiction to oil, we need to take a holistic approach.  All comprehensive analyses demonstrate that ethanol provides a real world, cost effective tool to reduce dependence on oil and create domestic jobs. Additionally, as CBO rightly notes, ethanol also reduces carbon emissions compared to gasoline.

The association plans to post a detailed analysis on its blog.

Download the CBO report discussing biofuel tax credits (PDF).

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