Conservation Reserve Program

The effect of biofuel production on the federal spending for conservation programs is uncertain. The Conservation Reserve Program (CRP) is the largest federal conservation program directed at agricultural land. Its objective is to provide “technical and financial assistance to eligible farmers and ranchers to address soil, water, and related natural resource concerns on their lands in an environmentally beneficial and cost-effective manner” (http://www.nrcs.usda.gov/programs/crp/). At the time this report was written, participants in the program received an average payment of $44 an acre. Federal outlays for fiscal year 2010 were estimated to cost $1.7 billion. If land is withdrawn from CRP for biofuel feedstock production and not replaced by new enrollment, the cost of CRP will decrease. However, CRP application acreage in a given year typically exceeds the maximum program acreage. The cost of the program will increase if enrollment applications are insufficient and if per-acre payment levels are increased to keep CRP competitive with crop or biofuel feedstock production and to incentivize producers to keep the most sensitive land in the program.

Nutritional and Other Income Assistance Programs

Nutritional and other income assistance programs are often adjusted for changes in the general price level as a means of protecting the real purchasing power of program recipients; therefore, if food retail prices increase, the program payments will typically be adjusted to reflect this change. Under such circumstances, expenses will increase not only for the Supplemental Nutrition Assistance Program and the Special Supplemental Assistance Program for Women, Infants, and Children,6 but also for much larger income assistance programs, such as Social Security, military or civilian retirement programs, or Supplemental Security Income. Given that biofuels are only one of many factors affecting food retail prices, possible increases in the costs of these programs cannot be solely attributed to RFS2.

Grants, Loans, and Loan Guarantees

Grants, loans, and loan guarantees to support the production of feedstock, the cost of biofuel processing, and the development of cellulosic biofuel infrastructure have also been made. Biofuel production subsidies that reduce the cost of feedstock purchased by cellulosic biofuel refineries are typically provided in the form of payments per unit of feedstock purchased. Research into lowering the cost of biofuel processing can be aimed at many different areas in the production chain, including investment in increasing crop yields and in increasing the amount of biofuel produced per unit of biomass. Subsidies to reduce the capital investment cost of constructing cellulosic biofuel refineries are typically provided in the form of tax credits, grants, loans, or loan guarantees that provide a rate of interest below what investors could obtain from alternative financing sources.

Forgone Federal Revenue

Transportation fuels are taxed in the United States, but the structure of excise tax rates and exemptions varies by transportation mode and fuel type. Biofuel use is encouraged through a federal tax credit to fuel blenders. The 2008 farm bill set the Volumetric Ethanol Excise Tax Credit (VEETC) at $0.45 per gallon of ethanol blended with gasoline. Blenders receive a $1 per gallon tax credit for the use of biodiesel, and a $1.01 per gallon credit for the use of cellulosic biofuel. The value of payments made to blenders for the use of biodiesel

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6 Two nutritional assistance programs operated by the U.S. Department of Agriculture.



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