USDA Initiative Is Funding New Ethanol Infrastructure

USDA Initiative Is Funding New Ethanol Infrastructure

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March 16, 2016
USDA Initiative Is Funding New Ethanol Infrastructure
In June 2015, the U.S. Department of Agriculture (USDA)
recipients of BIP funds are expected to be retail fueling
announced the availability of $100 million in matching
stations, although the infrastructure installed through BIP
grants under a Biofuel Infrastructure Partnership (BIP). A
could also be provided to state, local, or private entities for
Notice of Funds Available (NOFA) explained that the
providing higher-level ethanol blends to fleet vehicles.
grants were aimed at overcoming infrastructure constraints
that limit the market for biofuels, specifically higher-level
$210 Million for New Fuel Infrastructure
ethanol blends such as E15 (gasoline blends with up to 15%
On October 28, 2015, USDA announced that it had
ethanol content) and E85 (blends with between 51% and
accepted applications from 21 states, leading to a total
83% ethanol content). USDA cited economic uncertainty
investment under BIP of $210 million (including the state
facing biofuel feedstock producers (in practice corn, the
match). As a result, the agency estimates that nearly 5,000
primary feedstock for ethanol production) as a result of
fuel pumps will be installed at almost 1,500 fueling stations
record supplies and lower commodity prices.
out of some 150,000 fueling stations nationwide. The
funding total also includes new fuel storage tanks and
Goal Is to Expand Ethanol Usage
promotional efforts (see Table 1). Approved uses for BIP
The goal of BIP is to increase biofuel (ethanol)
funds include:
consumption by enabling public-private partnerships that
will share the costs of installing infrastructure for higher-
 Blender pumps (new or retrofit) to dispense ethanol
level ethanol blends—that is, gasoline blends in excess of
blends up to E85, with USDA share capped at 75%;
10% ethanol by volume. USDA contends that fueling
infrastructure constraints (storage tanks and dispensing
 Dedicated E15 or E85 pumps (new or retrofit), with the
equipment that is certified for higher-level ethanol blends)
USDA share capped at 75%;
is limiting the distribution of these fuels. These constraints,
in turn, effectively limit demand for feedstocks for ethanol
 New storage tanks and related equipment associated
production, mainly corn, contributing to lower corn prices.
with new facilities or additional capacity (excludes
replacement tanks), with USDA’s share capped at 25%.
Prior to the BIP initiative, USDA had supported the
installation of blender pumps through the Rural Energy for
State matching funds may be used to pay for any of the
America Program (REAP). The 2014 farm bill (P.L. 113-
infrastructure approved under the grant portion of BIP as
79) curtailed this practice by altering the definition of
well as any related costs, including additional infrastructure
“renewable energy system” to exclude mechanisms for
to support pumps, marketing, education, data collection,
dispensing energy at retail, which effectively prohibited the
program evaluation and application costs. In addition, state
use of REAP funds for the installation of blender pumps.
programs that provide equipment grants or tax incentives
may be counted toward the match, but they must
In practice, the limited availability of E15 and E85 blends
demonstrate how BIP incentives will add to the growth of
has imposed a ceiling (the “blend wall”) on domestic use of
biofuel infrastructure beyond the existing state program.
ethanol at about 10% of total gasoline consumption. The
Environmental Protection Agency (EPA), which
USDA asserted that the U.S. vehicle fleet in 2014 had the
administers the Renewable Fuel Standard—which mandates
capacity to consume up to 26 billion gallons of ethanol in
annual increases in the use of renewable fuels, including
the form of E15 and E85 that year, far exceeding the actual
ethanol—has cited constraints in the fuel distribution
sales of these blends of between 100 million to 200 million
infrastructure as among the reasons for setting the
gallons that year. For perspective, U.S. gasoline
Renewable Volume Obligation (RVO) for 2014, 2015, and
consumption amounted to 140 billion gallons in 2015, with
2016 at levels below those called for in statute. The RVO
U.S. ethanol usage totaling 13.9 billion gallons. Between
determines the annual volume of renewable fuel that
80% and 85% of the roughly 250 million vehicles
gasoline blenders and other obligated parties must use.
registered in the United States are able to run on E15
blends, according to the EPA, while approximately 14
BIP seeks to ameliorate the infrastructure bottleneck in
million flex-fuel vehicles can use E85.
distributing higher-level ethanol blends by making available
$100 million in federal grants to states that agree to at least
Congressional Appropriation Not Needed
match the USDA funds. Participating states, in turn, may
The BIP initiative is administered by USDA’s Farm Service
enter into arrangements with private entities, such as
Agency with funding from the Commodity Credit
gasoline vendors, farm commodity promotional
Corporation (CCC). A distinguishing characteristic of BIP
organizations, tribes and other entities interested in the
compared with most other biofuels programs administered
by USDA is that BIP did not receive a specific
promotion of renewable fuels to secure non-federal
appropriation from Congress. Given that funds for BIP are
matching funds or in-kind contributions. The ultimate
not contingent on annual appropriations acts but, rather, are
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USDA Initiative Is Funding New Ethanol Infrastructure
derived from CCC at the discretion of the Secretary of
Possible Issues for Congress
Agriculture, it is possible that more BIP grants could be
The 2014 farm bill effectively prohibited the use of REAP
made available at a future date.
funds for promoting the installation of blender pumps. As
such, Congress could consider whether the BIP initiative is
USDA points out that Section 5 of the CCC Charter Act (62
consistent with congressional intent in the farm bill.
Stat. 1070; 15 U.S.C. 714) authorizes CCC to undertake
actions consistent with BIP, including (1) “make available
materials and facilities required in connection with the
Conversely, the congressional mandate of CCC, in part, is
production and marketing of agricultural commodities
to increase the domestic consumption of farm commodities
(other than tobacco),” and (2) “increase the domestic
by facilitating the expansion of domestic markets for these
consumption of agricultural commodities (other than
commodities and by helping to develop new markets. Thus,
tobacco) by expanding or aiding the expansion of domestic
Congress could consider whether BIP, with its emphasis on
markets or by developing or aiding in the development of
facilitating long-term demand for ethanol, is an effective
new and additional markets, marketing facilities, and uses
way to achieve this objective for producers of feedstock for
for such commodities.”
renewable fuels (mainly corn).
The CCC is a government-owned corporation within USDA
under the supervision of the Secretary. CCC operates a
Congress could also consider whether the degree of
revolving fund, which draws on its permanent borrowing
uncertainty facing feedstock producers, compared with the
authority of up to $30 billion at any one time from the U.S.
uncertainty facing other commodity producers, is
Treasury to finance a range of U.S. agricultural programs.
commensurate with the level of assistance in BIP.
Table 1. BIP Grants by State and Proposed Use
Federal Grant
Participating State
Proposed Stations
Proposed Pumps
Proposed Tanks
(in 1,000 US dollars)
Total
99,919.1
1,486
4,880
515
Colorado
600
7
28
7
Florida
15,997.8
130
892
70
Illinois
11,979.8
65
428
54
Indiana
895
110
110
0
Iowa
5,000
100
187
25
Kansas
1,300
170
174
0
Louisiana
1,700
11
110
11
Michigan
3,000
16
89
20
Minnesota
8,000
165
620
92
Missouri
2,875.3
166
171
41
Nebraska
2,285
32
80
20
North Carolina
5,000
37
190
0
North Dakota
1,200
12
90
12
Ohio
3,388
41
148
4
Pennsylvania
7,000
79
308
0
South Dakota
1,500
34
74
0
Texas
17,000
148
763
39
Virginia-Maryland
4,998.1
41
191
20
West Virginia
2,500
22
107
0
Wisconsin
3,700
100
120
100
Source: USDA Farm Service Agency News Release of October 28, 2015, http://origin2.www.fsa.usda.gov/programs-and-services/energy-
programs/bip/index.

IF10377
Mark A. McMinimy, Analyst in Agricultural Policy

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USDA Initiative Is Funding New Ethanol Infrastructure

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