Since the late 1970s, U.S. policymakers at both the federal and
state levels have authorized a variety of incentives, regulations,
and programs to encourage the production and use of
agriculture-based biofuels-i.e., any fuel produced from biological
materials. Initially, federal biofuels policies were developed to
help kick-start the biofuels industry during its early development,
when neither production capacity nor a market for the finished
product was widely available. Federal policy (e.g., tax credits,
import tariffs, grants, loans, and loan guarantees) has played a
key role in helping to close the price gap between biofuels and
cheaper petroleum fuels. Now, as the industry has evolved, other
policy goals (e.g., national energy security, climate change
concerns, support for rural economies) are cited by proponents as
justification for continuing or enhancing federal policy support.
The U.S. biofuels sector responded to these government incentives
by expanding output every year from 1980 through 2011 (with the
exception of 1996), with important implications for the domestic
and international food and fuel sectors. Production of the primary
U.S. biofuel, ethanol (derived from corn starch), has risen from
about 175 million gallons in 1980 to nearly 14 billion gallons in
2011. U.S. biodiesel production (derived primarily from vegetable
oil), albeit much smaller, has also shown strong growth, rising
from 0.5 million gallons in 1999 to a record 969 million gallons in
2012. Despite the rapid growth of the past decades, total
agriculture-based biofuels consumption accounted for only about 8%
of U.S. transportation fuel consumption (9.7% of gasoline and 1.5%
of diesel) in 2012. Federal biofuels policies have had costs,
including unintended market and environmental consequences and
large federal outlays (estimated at $7.7 billion in 2011, but
declining to $1.3 billion in 2012 with the expiration of the
ethanol blender's tax credit). Despite the direct and indirect
costs of federal biofuels policy and the relatively small role of
biofuels as an energy source, the U.S. biofuels sector continues to
push for federal involvement. But critics of federal policy
intervention in the biofuels sector have also emerged. Current
issues and policy developments related to the U.S. biofuels sector
that are of interest to Congress include: Many federal biofuels
policies require routine congressional monitoring and occasional
reconsideration in the form of reauthorization or new
appropriations; The 10% ethanol-to-gasoline blend ratio-known as
the "blend wall"-poses a barrier to expansion of ethanol use. The
Environmental Protection Agency (EPA) issued waivers to allow
ethanol blending of up to 15% (per gallon of gasoline) for use in
model year 2001 and newer light-duty motor vehicles. However, the
limitation to newer vehicles, coupled with infrastructure issues,
could limit rapid expansion of blending rates; The slow development
of cellulosic biofuels has raised concerns about the industry's
ability to meet large federal usage mandates, which in turn has
raised the potential for future EPA waivers of mandated biofuel
volumes and has contributed to a cycle of slow investment in and
development of the sector. In 2012, the expiration of the blender
tax credit, poor profit margins (due primarily to high corn
prices), and the emerging blend wall limitation have contributed to
a drop-off in ethanol production and have generated considerable
uncertainty about the ethanol industry's future.
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