By ANN HINCH
Assistant Editor

CHAMPAIGN, Ill. — Though the U.S. Environmental Protection Agency’s new Renewable Fuel Standard (RFS) may be a mandate for increased usage of biofuel for the near-term, there are also federal incentives for its production and sale.

But what about the role of states in encouraging the biofuel industry? That was the focus of Jay Kesan’s talk at the EBI Biofuels Law and Regulation Conference at the University of Illinois earlier this month.

Kesan, a professor in the UoI College of Law and leader of Energy Biosciences Institute’s Biofuels Law and Regulation Program, said it’s surprising how little information has been gathered on ethanol consumption patterns throughout the United States, by state.
“This is an area where there’s a lot of mandates and tax credits at the federal level and the state level, and despite that, there’s not been a lot of study at what these incentives are doing, on the ground,” he explained.

There are different ways to measure what the top five states are in terms of ethanol usage, Kesan said, depending on what yardstick one uses. For state-level ethanol usage, in 2008 they were California, Texas, Florida, Illinois and Ohio, in order – for per capita consumption, however, the top five were Minnesota, South Dakota, North Dakota, Oklahoma and Kentucky.

The first five – consumption by state – were responsible for 34 percent of national ethanol usage that year, ranging from 6-1,006.3 million gallons each.

What these 10 states offered by way of biofuel incentives did not show a consistent pattern that works the same in each, but there were four broad types in various combinations or single-use to a state: a difference in taxes at the pump for gasoline and gasohol (usually a mix of ethanol into gas at just above 5 percent); reduced taxes for E85 use; mandatory blending incentives; and an alternative fuel vehicle credit.

Kesan said evidence suggests the impact of these incentives on promoting usage of biofuel among consumers has decreased over time, notably since 2005, when Congress passed the Energy Policy Act creating the RFS program. They just don’t work the same way they once did.

The good news for biofuel, however, is twofold. First, he said increasing the number of E85 pumps still seems to have a positive impact in states that do so. Second, he said states that didn’t use much ethanol prior to 2005 have stepped up their consumption, as those with an initially high per-capita use have held steady.
“There’s a sort of a converging, a channeling that’s going on,” he explained – like a balance trying to find its level between those that once used much and those that did not.

Further, Kesan said if one looks at total state-level consumption across the U.S., it’s noticeable that ethanol usage is now influenced more by a state’s gross domestic product (GDP) and population makeup, than the previously-mentioned incentives.

These are what he described as macroeconomic factors.
“There appears to be a national market for ethanol consumption that seems to be emerging, and state-level incentives seem to matter less,” he said, adding that overall, those financial incentives are modest.

One state’s commitment

In August 2009, New York Gov. David Paterson issued an executive order to achieve an 80 percent statewide reduction in statewide greenhouse gas emissions from 1990 levels, by the year 2050.
Jim Van Nostrand, professor with the Pace University Law School and executive director of the Pace Energy and Climate Center, said 40 percent of these emissions in New York are produced by the transportation sector.

The center received $750,000 to do a study developing a state “roadmap” to increase use of biofuel and reduce emissions. Van Nostrand said its authors completed the report earlier this month and expects it to take the state 10 years to put its recommendations into full use, if policymakers choose to do so.
One of the study’s chief aims was to find sustainable sources of biomass feedstocks and examine what impact increased use of renewable fuel might have on economic development in New York, energy supplies and diversity, the environment and public health.
For example, Van Nostrand said the state is approximately 54 percent forestland and 25 percent agricultural land, from which the state would find feedstock for biofuel. The study found New York can sustainably produce between 4.2-14.6 million dry tons of cellulosic biomass per year (in other words, not including corn kernels or soybeans). The total capacity for cellulosic ethanol is 5.6-16 percent of the state’s projected 2020 consumption of gasoline.

Depending on the rate of industrial growth, he said between 4,000-14,000 jobs could be created by a stepped-up biofuel industry statewide. These would be primarily forestry- and ag-based jobs, followed by transportation-based jobs. Biorefinery positions would likely comprise fewer than 10 percent of new jobs.

Among considerations state officials need to take into account, Van Nostrand said, is the fact that there are competing uses for this available biomass feedstock. Not just in New York, but businesses in surrounding states, depend on a certain amount as raw materials for paper, pulp, coal and the like.

Also, there could be “huge local impacts” in rural areas from increased biofuel production, notably more congestion as truck traffic steps up to transport raw and finished materials to and from biorefineries, forests and cropland.