On March 4, 2014, President Obama released his fiscal year (FY) 2015 Budget request, which includes aggressive proposed funding to carry out the Administration's Climate Action Plan designed to reduce harmful greenhouse gas (GHG) emissions and the impacts of climate change. The President's FY 2015 Budget includes funding for several programs and initiatives to help facilitate the continued development and production of biofuels and biobased products. Consistent with the newly enacted Farm Bill, the Budget for the U.S. Department of Agriculture (USDA) includes increased funding for biobased product manufacturing. Given political realities and this midterm election year, it is not expected that the President's FY 2015 Budget Request will be enacted as proposed. It represents a starting point in the budget process, however, and indicates the Administration's priorities.
Here are highlights from the FY 2015 Budget proposal:
• U.S. Environmental Protection Agency (EPA): While the total budget request for EPA of $7.9 billion represents a decrease of $0.3 billion from last year, the cuts are mostly found within water infrastructure funds, with several programs seeing an increase over last year's levels. EPA's budget summary document notes that the Agency intends on evaluating its workforce and "identifying needed skills for a streamlined EPA." EPA's Appendix notes that under the "TSCA Confidential Business Information [CBI] Fund," the "Budget proposes to expand EPA's existing authority to collect fees to recover a portion of the costs of reviewing and maintaining the CBI."
• U.S. Department Of Energy (DOE): The FY 2015 Budget includes $27.9 billion for DOE, a 2.6 percent increase over FY 2014 enacted levels. This funding includes several programs designed to encourage and facilitate the development and production of advanced biofuels. For instance, the FY 2015 Budget would fund the DOE's:
o Bioenergy Technology Program At $253 Million: A $12 million decrease over FY 2014. This program funds research, development and demonstration (RD&D) projects to advance biofuels technologies and to validate and assist in the commercialization of integrated biorefinery technologies that will help transform the nation's transportation sector.
o Energy Security Trust At $2 Billion Over Ten Years: According to the DOE's FY 2015 Budget Appendix, this trust would be newly created to "support research into a range of technologies -- like advanced vehicles that run on electricity, homegrown biofuels, hydrogen, and domestically produced natural gas -- to allow the Nation to transition from oil towards more secure alternatives. The [t]rust will be funded from existing royalty revenues generated from [f]ederal oil and gas development. Establishing a guaranteed source of funding will allow the Department of Energy to maintain targeted and sustained investments that will directly advance U.S. energy security."
o Energy Efficiency And Renewable Energy At $2.3 Billion: An increase of approximately $0.2 billion over FY 2014. Under this program, DOE invests in the development of renewable generation technologies, sustainable transportation technologies, and advanced manufacturing technologies, as well as in improving energy efficiency in our homes, buildings and industries.
o Advanced Research Projects Agency At $325 Million: An increase of $76 million over FY 2014 levels. This program provides funding for research and development of transformational clean energy technologies.
• USDA: The FY 2015 Budget includes $23.7 billion in discretionary funding for USDA, a decrease of approximately $1 billion from FY 2014. The Budget provides for the USDA launch of three new multidisciplinary agricultural research institutes, one of which would be dedicated to advanced biobased manufacturing. It also includes the mandatory funding provided in the newly enacted Farm Bill for important energy programs designed to help encourage the production of biofuels and biobased chemicals. For instance, the FY 2015 USDA Budget Request provides funding for the:
o Biobased Markets Program At $3 Million In Mandatory Funding, the same level as FY 2014: The Biobased Markets (BioPreferred®) Program creates a procurement preference at federal agencies for biobased products.
o Biobased Research And Development Initiative At $3 Million In Mandatory Funding, a decrease of approximately $2 million from FY 2014: This program provides competitive funding for RD&D of technologies and processes leading to commercial production of biofuels and biobased products.
o Biomass Crop Assistance Program (BCAP) At $25 Million In Mandatory Funding: BCAP provides incentives to farmers, ranchers and forest landowners to establish, cultivate and harvest eligible biomass for heat, power, biobased products, research, and advanced biofuels. Crop producers and bioenergy facilities can team together to submit proposals to USDA for selection as a BCAP project area.
o Biorefinery, Renewable Chemical, And Biobased Manufacturing Assistance Program At $50 Million In Mandatory Funding, a decrease of $80 million from FY 2014: This program provides competitive loan guarantees and grants for the construction or retrofitting of demonstration-scale facilities for the commercial production of biofuels, renewable chemicals, and biobased products.
On March 3, 2014, EPA released its final rule on "Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards" (the "Tier 3 rule"). A copy of the 1069-page Tier 3 rule is available online. A copy of EPA's five-page fact sheet on "EPA Sets Tier 3 Motor Vehicle Emission and Fuel Standards" is available online.
The Tier 3 rule is designed to reduce air pollution from passenger cars and trucks. Beginning in 2017, the Tier 3 rule will set new vehicle emissions standards and reduce the sulfur content of gasoline. It will treat the vehicle and its fuel as an integrated system. The final Tier 3 rule is very similar to the proposed version of the rule, although the final Tier 3 rule sets the ethanol content for emissions test gasoline at ten percent (E10) instead of at 15 percent (E15) as proposed.
The final Tier 3 rule is a part of the Obama Administration's efforts to combat the harmful impacts of climate change. It is expected to reduce several tons of harmful GHG emissions by 2030.
On February 25, 2014, EPA sent its final rule to "Establish a Voluntary Quality Assurance Program for Verifying the Validity of Renewable Identification Numbers Under the RFS2 Program" to the U.S. Office of Management and Budget (OMB) for final review. EPA is expected to take action to release the final rule as soon as OMB completes its review.
As proposed, the rule would be retroactive to January 2013. It is the result of efforts to help restore investor confidence in the Renewable Identification Number (RIN) market and address the argument of some Renewable Fuel Standard (RFS) opponents that RIN fraud indicates a flaw in the RFS policy. Since 2010, there have been five major cases in which millions in fake biodiesel RIN credits have been generated. Under the current system, refiners (not renewable fuel producers) who purchase the credits to meet their annual RFS requirements are responsible for replacing the fraudulent credits and are vulnerable to steep penalties for failure to do so.
Under EPA's proposed RFS Quality Assurance Program (QAP), a voluntary third party quality assurance program would be established that could be used to verify that RINs have been validly generated. The proposal would provide a recognized means for independent third parties to audit the production of renewable fuel and the generation of RINs. It would include among other provisions: minimum requirements for QAPs, including such things as verification of type of feedstocks, verification that volumes produced are consistent with amount of feedstocks processed, and verification that RINs generated are appropriately categorized and match the volumes produced; qualifications for independent third-party auditors; requirements for audits of renewable fuel production facilities, including minimum frequency, site visits, review of records, and reporting; and, conditions under which a regulated party would have an affirmative defense against liability for civil violations for transferring or using invalid RINs. In addition, it would provide two options that would be available for the verification of RINs through a QAP.
Generally, the refining and biodiesel industries are supportive of the proposal. The ethanol industry is generally concerned that it would create unnecessary financial burdens on its producers. Given the market, the proposed voluntary QAP has reportedly already become almost a requirement for all renewable fuel producers, even though the fraudulent cases all involve only biodiesel.
On February 28, 2014, global enzyme producer Novozymes announced the launch of a new enzyme solution, LpHera®, that helps make starch conversion more efficient. Starches are used in many consumer products, including sweeteners and soft drinks. Novozymes asserts that LpHera will increase yields, cut chemical usage in half and lead to water and energy savings. The company estimates that the new enzyme could save a starch producer up to $1 per metric ton of substrate. A copy of Novozymes' press release is available online.
On March 3, 2014, BASF announced the successful start-up of the first commercial production facility resulting from the joint venture between Corbion Purac and BASF (Succinity®) for the production and commercialization of biobased succinic acid. The plant, located at the Corbion Purac site in Montmeló, Spain, has an annual capacity of 10,000 metric tons and is producing commercial quantities of biobased succinic acid for the global market. In addition to this first facility, Succinity plans a second large-scale facility. The final investment decision for this facility will be made following a successful market introduction. A copy of BASF's press release is available online.
The EU has launched a new four-year research project called Bio-Qed, which will focus on developing biobased chemicals from renewable sources. The project has ten partners from Italy, Germany, France, Netherlands, Croatia, and Spain.
The Director of the U.S. Environmental Protection Agency's (EPA) Office of Transportation and Air Quality, Christopher Grundler, made public comments recently stating that he expects EPA to issue the final rule setting the 2014 Renewable Fuel Standard (RFS) volumes by midnight on June 20, 2014. The final rule is much anticipated among industry stakeholders. The biofuels industry generally has urged EPA to revisit the proposed reductions to the advanced and corn ethanol 2014 RFS volumes, while RFS opponents, including generally the oil and gas and livestock industries, have been supportive of EPA's proposed 2014 RFS reductions. The Biobased and Renewable Products Advocacy Group (BRAG™) recently reported on the comments EPA has received on its proposed 2014 RFS rule. A copy of that report is available online.
EPA Administrator Gina McCarthy is expected to discuss the upcoming RFS rule during a visit to North Dakota on February 28, 2014.
On February 20, 2014, the National Highway Traffic Safety Administration's (NHTSA) proposed rule on "Alternative Fuel Vehicle Badging, Fuel Compartment Labels and Consumer Information on Alternative Fuel Usage" was published in the Federal Register. Comments are due to NHTSA by April 21, 2014. A copy of the proposed rule is available online.
The proposed rule would require badges, labels, and owner's manual information for new passenger cars, low speed vehicles (LSV), and light-duty trucks rated at not more than 8,500 pounds gross vehicle weight in order to increase consumer awareness regarding the use and benefits of alternative fuels. It would require manufacturers to identify each vehicle capable of running on an alternative fuel by means of a permanent and prominent display affixed to the exterior of the vehicle; add proposed text describing the capabilities and benefits of using alternative fuels to the owners' manuals provided for alternative fuel vehicles; and identify each vehicle that is capable of running on an alternative fuel by means of a label in the fuel filler compartment.
NHTSA reportedly believes the rule will help increase the use of alternative fuels in light-duty vehicles, while helping to decrease harmful greenhouse gas emissions as directed under the Energy Independence and Security Act of 2007 (EISA). These goals are also consistent with the intent of the federal RFS, which was enhanced under EISA. The RFS is designed to encourage the increased production and use of renewable fuels to 36 billion gallons by 2022.
U.S. House Ways and Means Committee Chair Dave Camp (R-MI) and U.S. Senate Finance Committee Chair Ron Wyden (D-OR) are expected to take different approaches to tax reform this year. Camp has stated publicly his intent to focus solely on comprehensive tax reform, which he and his staff have been working on for over a year. He is expected to release a discussion draft of comprehensive tax reform legislation in the coming months.
Meanwhile, newly designated Chair Wyden has publicly expressed support for the idea of comprehensive tax reform, but is expected to focus his near term efforts on passing legislation retroactively to extend several renewable energy incentives that expired at the end of 2013. These incentives include tax credits for the production of biofuels, including cellulosic and biodiesel. Senate Finance Committee Members Charles Grassley (R-IA) and Maria Cantwell (D-WA) have recently introduced legislation to extend the expired $1 per gallon biodiesel incentive, which could be included in a more comprehensive tax extender package.
Given this election year, as well as the divergent approaches of the two Chairmen of the tax writing committees, it will likely be difficult to get comprehensive tax reform legislation and possibly even a tax extender package passed in 2014.
Senators Barbara Boxer (D-CA) and Sheldon Whitehouse (D-RI) are leading a new Senate Task Force on Climate Change designed to combat stated plans by some in the Republican leadership to weaken President Obama's expected upcoming Executive actions to address climate change. While legislative action on climate change remains unlikely this year, Members of the Senate Task Force are doing what they can to highlight the issue. To this end, Senator Brian Schatz (D-HI) is organizing an all-night Senate floor session during which the issue of climate change will be discussed. The session is expected to take place sometime in March 2014.