Making The Switch

The commercial production of cellulosic ethanol will require thousands of tons of biomass. EPM details three programs designed to entice farmers to switch from corn and soybeans to energy crops.
By Susanne Retka Schill | October 06, 2008
What will it take to convince farmers to plant energy crops when corn and soybean prices are at or near all-time highs? Nationally, all eyes will be on Washington this winter as USDA begins the process of implementing the Biomass Crop Assistance Program initiated in the 2008 Farm Bill. In Minnesota, policy-makers are waiting to piggyback their Reinvest in Minnesota-Clean Energy program onto the new USDA program. Minnesotans have given serious thought to what it will take to get farmers to make the switch from planting corn and soybeans to grass on productive land. They've found that it's not going to be cheap. In southeastern Iowa, the Natural Resource Conservation Service has had some success signing farmers up for a unique application of the USDA Environmental Quality Improvement Program.

Waiting for BCAP to Unfold
BCAP was designed to help farmers located near biomass facilities switch part of their acreage to dedicated energy crops. John Moore, a senior attorney with the nonprofit Environmental Law and Policy Center, expects it will be a couple of years before USDA will be signing up acres in the program. Farm Service Agency regulations call for an environmental impact study on any new programs, which could take from nine to 18 months, in addition to the rule-making process, which includes public hearings. The environmental law and policy nonprofit had hoped USDA would fast-track the implementation of BCAP, possibly even signing up acres in 2009 under a Notice of Funding Availability, which allows a program to be implemented while the rules are being written. "As long as it takes to get energy crops going—a couple of years at least—and given that the next Farm Bill comes up in 2012, we need to get those dedicated energy crops in the ground soon," Moore says.

The BCAP language in the 2008 Farm Bill provides a framework of the program, but also gives USDA a fair amount of flexibility. The program calls for an application that can be initiated by a group of individuals or a biomass conversion facility. A biomass conversion facility is rather broadly defined to include any facility that will use the biomass to make biobased products or energy—heat, power or advanced biofuels. The application must include a commitment from at least one biomass conversion facility in the area defined in the application to use the biomass in the facility. Moore expects that in practice, the biomass conversion facility will apply and then get farmers to sign up, although in a few well-organized states, farmers or economic development groups may take the lead. Biomass crop producers, however, will sign contracts directly with the USDA. Moore expects the first applications to come from projects that are well underway, especially those targeting corn stover and other crop residues as feedstocks, although the incentives for producers utilizing crop residues will probably be lower than for those planting dedicated energy crops.

Details of BCAP implementation will unfold as USDA goes through the rule-making process. In the meantime, there are a number of provisions contained in the legislation including:

Production Incentives
Ag producers in project areas will receive a payment for up to 75 percent of establishment costs to plant energy crops. Incentives also include an annual payment intended to compensate the producer for the opportunity cost associated with growing an energy crop. Land that was formerly planted to row crops will likely garner a larger annual incentive than land that was fallow, or pasture, the ELPC says. The annual payments can continue for up to five years for producers growing perennial grasses and up to 15 years for tree crops.

Ag producers are required to implement a conservation plan on the enrolled land and to provide information to USDA for research purposes.

Logistics
Anyone collecting and selling biomass crops or agricultural or forest waste for energy is entitled to receive the harvest, transport, processing and storage payment. The payment is structured to match the amount of money the biomass collector, which doesn't have to be a farmer, receives from the biomass user. USDA will match dollar for dollar, up to $45 per dry ton. Materials not eligible for this payment include animal waste and byproducts, food and yard waste, and algae.

Criteria and Eligibility
All biomass production must occur on either agricultural land or industrial private forest land. BCAP excludes all land in federal land protection programs and native sod. BCAP also excludes any crops otherwise eligible for USDA commodity programs covered in Title I of the Farm Bill, along with noxious and invasive species.

USDA will determine whether projects meet the minimum threshold for selection, based on criteria in the statute and others to be determined by USDA. The statutory criteria include:

› The amount of crops to be produced and the likelihood that those crops will actually be used to produce energy
› The amount of biomass likely to be available from sources other than the crops grown with support from BCAP
› The local economic impact of the project
› The opportunity for local investors to participate in ownership of the facility
› The participation of beginning or socially disadvantaged farmers
› The environmental impacts of the proposal
› The variety of agronomic practices and species including mixes of different crops—proposed within a BCAP area
› The range of crops across project areas

Organizations such as the ELPC will be paying close attention to the public hearings and rule-making process as they progress. "I expect the agency will establish scoring criteria for a lot of these issues," he says. "Projects that are more environmentally protective will get more points."

Funding
The funding basis for BCAP is not typical of other Farm Bill programs. The funding is mandatory for "such sums as are necessary," Moore says. Congress did that so projects that qualify will be funded, unlike many other programs that are based on a national competition for limited funds. "The budgeteers estimated it would cost $75 million over four years, but who really knows?" he says. Congress can always establish funding caps in the future or the Office of Management and Budget, which oversees USDA spending, may attempt to limit spending in the program, he adds.

The ELPC Web site, www.farmenergy.com, is following the development of BCAP, as well as other programs. It offers details on writing applications for one popular program established in the 2002 Farm Bill—Section 9006, the Renewable Energy Systems and Energy Efficiency Improvements Program. The 2008 Farm Bill expanded the program somewhat and it was renamed the Rural Energy for America Program. REAP was implemented using a NOFA during the two to three years it took to develop the rules, Moore says. He expects the BCAP process will take less time. "BCAP doesn't have the complexity," he says.

Enhancing BCAP
Minnesotans will be watching BCAP's development closely, hoping to piggyback a recently-passed state initiative onto the program. The 2007 Minnesota Legislative Session established a Reinvest in Minnesota-Clean Energy program. The RIM-Clean Energy program builds on the state's long-established RIM easement program that paid for easements on targeted environmentally sensitive areas such as wetlands, highly erodible soils and riparian buffer strips. In the two decades the program has been in place, 4,800 conservation easements were enrolled covering 180,000 acres. When Conservation Reserve Program enhancements were authorized in the 1996 Farm Bill, the program piggybacked with CRP contracts to extend the benefits paid to farmers and the contract duration.

Hearings have been held and the framework of the RIM-Clean Energy program is in place. A technical committee involving representatives from farm and environmental groups, economic development agencies and industry, served as advisers in the process. However, the state legislature held back on funding the program because the 2008 Farm Bill had not yet passed when they adjourned their last session, says Greg Larson, state soil specialist with the Minnesota Board of Soil and Water Resources, which administers the RIM program. The state hopes to extend the reach and effectiveness of USDA's BCAP.

RIM-Clean Energy is a working lands program where biomass production is equally as important as environmental benefits. The easements are for 20 years, which matches the amortization time of the bonding authority the state will use to fund the program. The program involves a base payment to landowners of 80 percent of the estimated market value as shown on the land's tax statement, with an additional payment that increases as more species are planted. There is an additional incentive for enrolled lands that meet local environmental needs such as land protecting a wellhead or an aquifer recharge area, or planting on flood-prone riparian or highly erodible lands. The maximum payment is 105 percent of the estimated market value. The easement payment will be a single payment when the paperwork is completed. In addition, the program will pay 100 percent of the establishment cost for the biomass crop, plus landowners are free to pocket whatever they are paid for their biomass production. The land stays on the tax rolls and the landowner retains control of the access to the land.

While that may seem quite generous, Larson says they have learned from the RIM wetlands program administered in recent years that it has taken payments of 140 percent of market value to get farmers to sign up. "This was for land that was much more marginal," he adds. There was a time in the late 1980s when most of the RIM acres were enrolled at less than market value, but with high commodity prices for corn, soybeans and wheat, Larson anticipates the clean energy incentives will be needed to coax farmers to make the switch. "To go out and entice a landowner who's been growing corn and soybeans to forsake that known income, we're going to have to meet [row crop income] dollar for dollar," he says.

Larson acknowledges that in some areas of the state, the payments may amount to several thousand dollars per acre to enroll land, plus the added amount for establishment. He
expects the program will start out relatively small, perhaps paying out $5 million the first year and increasing to $20 million, and will ultimately involve only a few thousand acres. "The idea was never to be the major payer in promoting biomass," he says. "It is to find strategically located sites where we can show by example how to do this in an environmentally safe way. We'll take some of the risk away from the energy enterprises, get in, get it started and 20 years later back out."

The RIM-Clean Energy report delivered to the state legislature early in 2008, after a year of public input and technical committee discussions, identified 22 projects in Minnesota that might utilize the program, including two ethanol plants—Central Minnesota Ethanol Co-op in Little Falls, Minn., for boiler fuel for its gasification system and an announced cellulosic ethanol project with SunOpta BioProcess Inc. and Chippewa Valley Ethanol Co. LLLP in Benson, Minn., for a biomass combined-heat-and-power system. Three cellulosic ethanol plants are also included on the list as potential projects—Chisago County Cellulosic, White Earth Cellulosic and Bois Forte Band Cellulosic.

Iowa Gets a Jump-Start
Iowa is ahead of the curve when it comes to encouraging farmers to grow energy crops. The Natural Resource Conservation Service in southeast Iowa is using the Environmental Quality Improvement Program to give farmers cost-share and incentive payments to plant switchgrass. Switchgrass production for biomass has been on the drawing board in southeast Iowa for more than a decade. In 1996, Chariton Valley Resource Conservation and Development Inc. received a U.S. DOE grant to investigate the production and use of the native prairie grass for energy production. A number of projects are in various stages of development, ranging from cofiring switchgrass with coal in Alliant Energy Corp.'s Ottumwa (Iowa) Generating Station that's ready to go, to a switchgrass pelletizing project that's nearing fruition, to a cellulosic ethanol plant that's still in the talking stage.

At the peak of the Iowa switchgrass project, more than 6,000 acres of land were planted to the native perennial grass, which was not even close to the estimated 100,000 acres needed to supply the power plant and other projects being considered. "We realized we needed to get serious about the supply side," says Bruce Trautman, area conservationist for southeast Iowa with the Natural Resource Conservation Service. It took a year to put the components together before farmers were offered EQIP contracts in the 12 southeast Iowa counties that chose to participate. Through EQIP, farmers receive a 50 percent cost-share payment to help with establishment costs, which Trautman says amounted to $60 per acre. In addition, the contract includes an incentive payment of $75 per acre per year to cover additional expenses such as baling, storage and transportation. "We want it to be a working lands program," Trautman says.

The program isn't as restrictive as other programs such as USDA's Conservation Reserve Program and producers can harvest the biomass. "We're getting conservation benefits," he adds. "It makes very good wildlife habitat because the nature of utilizing switchgrass for biomass means we're not harvesting until the middle of summer or wintertime." Trautman admits the 57 contracts worth a total of 2,270 acres of switchgrass may not seem like a lot. "It certainly isn't enough for what we need," he says. "But given the climate of high commodity prices and that fact that it's something new to producers, we think it was a good response."

Susanne Retka Schill is an Ethanol Producer Magazine staff writer. Reach her at sretkaschill@bbibiinternational.com or (701) 738-4922.