USDA is accepting public comments on its BCAP proposal through April 9, 2010. Here is a copy of the proposal (opens in new window); otherwise, read on for more information on the proposal.

Short Summary

BCAP has become controversial in the last several months because of its exploding costs and other impacts. Congress had expected that BCAP would cost only about $70 million through 2012. Yet the program may ultimately cost more than $2 billion, in part because of an expensive interim matching payment program USDA initiated last summer. USDA is now proposing to rein in BCAP’s costs somewhat, largely through some restrictions in the types of renewable biomass materials that will qualify for BCAP funding.

As proposed, BCAP would promote two types of activities:

• Funding for farm and forest owners and others to receive matching payments for eligible crops and agriculture and forestry wastes sold to facilities which produce advanced biofuels, heat, power and bioproducts. These matching payments help offset the costs of collecting these materials and delivering them to the processing facility. Matching payments may continue for up to two years after USDA issues the first payment.

• Funding for farmers and other producers of eligible renewable biomass crops to receive establishment and annual payments to help offset the costs of establishing and producing these crops. Establishment payments may offset up to 75% of the cost of establishing eligible crops, and annual payments may run between 5 and 15 years for crop production.

Matching Payments

USDA’s implementation of BCAP has gotten off to a rocky start. In June 2009 USDA began to issue matching payments for the delivery of renewable biomass material through an interim notice of funds availability (NOFA).  Most of these payments were for ag wastes such as corn stover and forest product wastes such as sawmill dust. Most of the material is being used as a substitute for fossil fuels in boilers. The financial impact of the matching payments program is major, with payments under this interim program expected to exceed $300 million in the next two years.

Apart from financial costs, an unintended consequence of USDA’s interim matching payments program was in restricting the availability of cheap sawdust and other mill residues for the wood products and paper and pulp industries. Responding to their concern, and the unexpectedly high cost for a program that was supposed to cost only $70 million through 2012, USDA has terminated the  matching payments interim program and will replace it with the program proposed in this rule.

No Payments for Woody Biomass Materials with Higher-Value Uses

To avoid this problem in the future, USDA is proposing to disallow matching payments for wood wastes and mill residues typically used to produce higher value-added products such as particle board. USDA also is proposing several options to further restrict matching payments for all forms of eligible renewable biomass material. For example, for facilities that convert wood wastes into heat and power, USDA might allow payments only for eligible materials used to make heat or power above the facility’s historical baseline production of heat or power. USDA is seeking comment on all of these options.

In another departure from its June 2009 matching payments NOFA, USDA is dropping the 20% cap on Farm Bill Title I commodity crop agricultural residues (for example, corn stover and straw), on the basis that that the cap is inconsistent with the 2008 Farm Bill.

Establishment and Annual Payments

USDA’s proposal is the Department’s first effort to create a framework for establishment and annual payments. As required by the 2008 Farm Bill, USDA will make eligible payments only for eligible crops within a specified BCAP “project area.” Either producers or “biomass conversion facilities” can propose BCAP project areas to the Farm Service Administration (acting on behalf of the federal Commodity Credit Corporation).

Key requirements/conditions for project areas include:

• Long-term economic viability.

• Specific geographic boundaries.

• Compliance with other criteria in the 2008 Farm Bill, including consideration of impact on soil, water and related resources.

Notably, several types of land are not eligible to receive payments, including government-owned land and land already enrolled in the Conservation Reserve Program, Wetlands Reserve Program, or Grassland Reserve Program.

Payment Amounts

USDA is proposing to pay for up to 75 percent of the establishment costs for perennial crops, including woody biomass. (Annual crops do not qualify for establishment cost payments.)

For annual payments, USDA proposes to calculate payments on a per-acre basis and based on market-based rental rates sufficient to ensure producer participation in a project area. USDA also is proposing additional incentive payments for biomass crops that are especially likely to produce highly efficient bioenergy or biofuels, that preserve natural resources or that address specific resource conservation needs.

Annual payments would last up to 15 years for woody perennial crops and 5 years for annual and non-woody perennial crops.

The Bigger Picture

Congress intended BCAP to help solve the “chicken and egg” dilemma blocking development of sustainable biomass energy sources. Without an assured feedstock supply, many producers of advanced biofuels, bioproducts and bioenergy could not invest in new biomass energy plants. By the same token, farmers would not incur the substantial costs and risks of growing new biomass crops (like switchgrass) without the assurance of a market from a production facility. By paying farmers and others to establish, grow and deliver energy crops, BCAP overcomes these obstacles, reducing financial risk for both farmers and biomass energy plants.

BCAP Will Help Biopower First, Then Biofuels

USDA expects that most BCAP payments in the early years will support existing biomass conversion facilities using woody biomass as a feedstock (presumably to produce heat and power). BCAP expires in 2012, and according to USDA most biomass conversion facilities need to be in the pipeline now in order to qualify for BCAP benefits.

Reflecting these projections, USDA also expects that matching payments will consume most of the BCAP funds. Of the total expected $2.636 billion cost of BCAP, USDA projects that $2.1 billion will be for matching payments:

These projected costs are far higher than Congress’ expected $70 million cost for the BCAP program. Notably, Congress did not explicitly limit BCAP funding in the 2008 Farm Bill, so if BCAP costs as much as USDA predicts, it will become the highest-funded program in the 2008 Farm Bill’s Energy Title.

Environmental Considerations

BCAP’s environmental impacts, for both better and worse, will depend largely on how USDA implements the BCAP program. By emphasizing such factors as species diversity, habitat and natural resources protection, USDA would increase BCAP’s long-term success and public support. USDA is especially interested in how it takes environmental factors into account in implementing BCAP, and it is seeking comments on this issue in a number of different ways.

For Additional Information

• USDA’s BCAP Proposed Rule (from the Federal Register).

• USDA’s website for the BCAP program.

Secretary of Agriculture Tom Vilsack recently visited the Flick Seed Company and Show Me Energy Cooperative as part of the Obama Administration’s Rural Tour. Secretary Vilsack praised the operation as a model to “create new opportunities in rural communities and new markets for farm products.”

Shortly after Secretary Vilsack’s visit, Show Me Energy Cooperative became the first in the nation to be approved under the USDA’s Biomass Crop Assistance Program (BCAP), providing a working model for sustainable biomass energy. Flick and his partners have developed an agricultural enterprise that provides jobs and increased income for growers – all while helping to slow global warming.

Show Me Energy Cooperative’s story began after founder Steve Flick decided to turn the waste material from his seed company, Flick Seed Company, into an alternative energy source. With the help of a Rural Energy for America Program (REAP) grant, Flick Seed developed a biomass pellet plant. Flick then worked with local farmers to start Show Me Energy Cooperative, a pioneering producer of energy crops, to add prairie grasses to his biomass mix for high energy pellets.

The biomass pellets have diverse uses. Show Me Energy markets for home heating fuel, fuel for small businesses and for generating energy at universities and utility companies. One ton of pellets contains as much energy as 190 gallons of propane, making it a useful renewable energy source.

In 2008, the co-op completed a 150-ton pellet co-firing test run at a coal power plant, keeping over 253 tons of CO₂ out of the atmosphere. The co-op’s partnership with Kansas City Power & Light may lead to biomass pellets entirely replacing other fossil fuel sources to generate electricity at that power plant in the future.

Local Benefits: Jobs and Income

The co-op’s operations reflect its mission to support the local community and economy. The 400 members’ farms provide biomass for the pellets and they are all within a 100 mile radius of the production plant, keeping energy use and transportation costs low. When using crop resideus, Show Me only accepts materials where at least 30% of residues were left on field. Show Me Energy also helps local businesses by blending in biomass residues from local commercial operations. Show Me Energy’s business model benefits local farmers and residents most by creating green jobs, new revenue streams for farmers, and a secure, clean energy source.

Economic Benefits and Global Warming Solutions

As Flick points out, the co-op’s model works for lots of different energy uses, from advanced biofuels, to heating and power—creating both economic and environmental progress. With this flexibility, Show Me Energy’s model could bring economic progress to communities across Rural America while helping us all cut carbon pollution that causes global warming.

For more information

• See Flick Seed Company’s FarmEnergy.org Success Story
• Articles about Secretary Vilsack’s visit
  • “Vilsack: Rural America heart and soul of country”
  • “Vilsack tours biomass facility, holds Rural Tour forum in Sedalia”
• Show Me Energy Cooperative website
• Obama Administration’s Rural Tour website

The control room at Show Me Energy's plant

Biomass pellet bags being prepared for delivery

A truck picks up a shipment of pellets to deliver to Northwest Missouri State University

This program provides funding assistance for biorefineries to reduce their carbon footprint by replacing fossil fuels used in their heat and/or power process with renewable biomass.

For this program, an eligible biorefinery is defined as a production facility for bio-based, liquid transportation biofuels. Facilities can receive payment for up to 3 years. The selection of a project to receive payments as well as the amount and duration of payments will depend upon how a facility scores on the ranking criteria which are, in general: cost, cost effectiveness and technical merit.

Applications for this funding are being accepted starting July 1 and continuing through November 1 of this year. The maximum award is $5 million or 50% of project costs and a total of $20 million is available for 2009, with nationwide competition for funding. You can download the Repowering_NOFA here.

This program, if taken up by local farm energy leaders, can spur a new climate-friendly and farmer-friendly energy source. BCAP, implemented well, could make a major difference for our energy future.

While a great hope for tapping energy crops centers on making ethanol, energy crops can be also be used for fuel for heat and/or power. Prairie grasses have been used for utility boiler fuel co-fired (or blended) with coal. In several instances around the country, entrepreneurs are making fuel pellets from switchgrass. BCAP can accelerate the most successful of these approaches.

Below please find a basic summary of the program, its intent and how it works.

Contents

Purpose
BCAP Funding
Timeline for Implementation
Eligibility
Energy Crop Production Incentives
Harvest, Transport, Processing and Storage Co-Pay

Purpose

The BCAP was designed to support agricultural producers in producing biomass crops and collecting biomass for sale to commercial-scale facilities that commit in writing to use the biomass to produce fuels or power.  The program is also intended to improve water quality through reduced water use and surface water protection. Environmental quality can increase with less fertilizer compared to traditional row crops and encouraging the use of perennial crops, which are better for soil, air, water and wildlife.

The program has two distinct pieces: 1) biomass crop establishment; and 2) assistance for the harvest, storage, processing and transportation of biomass materials for energy.

BCAP Funding

Unlike most programs in which Congress specifies the annual funding level, Congress funded BCAP at essentially an unlimited amount; the BCAP statute specifies simply that USDA will use whatever “sums as are necessary” to implement BCAP. This means that the BCAP funding is both mandatory and is not capped by Congress, reflecting the high value Congress placed on this program. In reality, the Office of Management and Budget, working with USDA, decides each year’s funding allotment based on projected program demand, administration priorities and other factors.

Timeline for Implementation

With new federal legislation, the USDA needs to write program rules, with input from the public as required by law. However, in the interim, the USDA can implement this program in 2009 under a “Notice of Funding Availability” (NOFA) while also preparing a rulemaking on a parallel track for 2010.

They’ve not indicated yet what their plans are for BCAP. The rulemaking process for new programs can take years, as we learned under “Section 9006″ of the 2002 Farm Bill (now REAP – the Rural Energy for America Program).

Eligibility

To participate in the biomass crop establishment portion of the program, a group of farmers or a “biomass conversion facility” (any facility that will use the biomass to make biobased products or energy (heat, power, or advanced biofuels) must submit an application to USDA that defines the borders of the proposed production area and identifies the variety of biomass crop to be used at the facility.  The application also must include a commitment from at least one biomass conversion facility in the area to use the biomass in their facility.

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 Title 1 (Commodity) programs and 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 (presumably through rulemaking.)  The statutory criteria include:

• The amount of crops to be produced and the likelihood that they 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 the BCAP
• The local economic impact of the project
• The opportunity for local investors to participate in the 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 projects areas

If the project meets the established criteria, then it will be funded.

Energy Crop Production Incentives

Ag producers in project areas will receive a payment for up to 75% of establishment costs. Establishment costs refer to the costs to convert lands from an existing use to the new energy crop. Incentives also include an annual payment intended to compensate the producer for the opportunity cost associated with growing an energy crop on the land.  Land that was formerly in a row crop will likely receive more than land that was fallow or pasture.  The annual payments can continue for up to 5 years if the producer is growing a perennial grass and up to 15 years if the crop is trees.

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

Harvest, Transport, Processing and Storage Co-Pay

Any person collecting and selling biomass crops or agricultural or forest waste for energy is entitled to receive this payment. The payment is structured as a match; whatever the biomass collector (whether the farmer or some other person) is paid by the biomass user facility, 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.

ELPC will follow, and report on, the rulemaking process closely.

See also the story REAP clean energy with prairie grasses today.