Obama ploughs $1.8bn into US biofuel industry makeover

The Obama administration grasped the nettle of US corn ethanol policy yesterday, unveiling a £1.8bn strategy designed to bolster biofuel production while guarding against potential environmental damage.

Green groups have argued US subsidies for producers of corn-based ethanol coupled with targets for biofuel production have contributed to rising food prices and deforestation as land previously used to grow corn for food is instead used to supply ethanol producers.

The charge has been vehemently denied by the US biofuel industry, which insists corn-based ethanol delivers net environmental benefits while providing the US with a secure source of fuel.

Now the Obama White House has waded into the row, calling for increased production of conventional biofuels, alongside greater research into its potential environmental impact and more investment in the development of so-called second generation cellulosic biofuels, which experts claim will have less impact on food prices and land use.

The new policy was kicked off with the release of a presidential memo in which Obama instructed the Environmental Protection Agency, the Department of Energy and the Department of Agriculture to form a new Biofuels Interagency Working Group, designed to identify the policies required to drive the production of more environmentally sustainable biofuels.

He also instructed agriculture secretary Tom Vilsack to accelerate the roll out of $1.1bn in new financing, such as loan guarantees, to help developers investing in the construction of biorefineries and biofuel infrastructure.

Meanwhile, energy secretary Steven Chu announced that $786.5 million of economic stimulus funding would be made available to support research into second generation biofuels made from non-food crops such as grasses and algae.

"Developing the next generation of biofuels is key to our effort to end our dependence on foreign oil and address the climate crisis - while creating mil lions of new jobs that can't be outsourced," Chu said. "With American investment and ingenuity - and resources grown right here at home - we can lead the way toward a new green energy economy."

The new funding came as the Environmental Protection Agency (EPA) confirmed it would retain President Bush's target for the US to use 36bn gallons of biofuels by 2022, but would also introduce tough new standards designed to ensure only biofuels that deliver net environmental benefits will be allowed to count towards the target.

Under the new rules, which are now subject to consultation, corn-based ethanol will have to demonstrate that it delivers full lifecycle greenhouse gas emission savings of 20 per cent compared to the fossil fuel it replaces, biomass-based fuels will have to deliver a 50 per cent cut, and cellulosic biofuels will have to deliver a 60 per cent cut.

The EPA also set out annual targets for different types of fuel, which will require producers to deliver 16bn gallons of cellulosic biofuels, 15bn gallons of conventional biofuels, four billion gallons of advanced biofuels, and one billion gallons of biomass-based diesel by 2022.

Lisa Jackson, head of the Environmental Protection Agency, said that the aim of the new policies was to engineer a gradual shift from controversial corn-based ethanol to second generation biofuels.

"As we work towards energy independence, using more homegrown biofuels reduces our vulnerability to oil price spikes that everyone feels at the pump," she added. "Energy independence also puts billions of dollars back into our economy, creates green jobs, and protects the planet from climate change in the bargain."

The proposals were broadly welcomed by both green groups and biofuel producers.

Environmentalists said that the focus on second generation biofuels indicated that the administration was willing to take on the powerful farming lobby and listen to concerns about the full lifecycle impact of biofuels.

Meanwhile, biofuel industry trade group the Renewable Fuels Association gave the package a cautious welcome, but expressed some reservations over how the EPA plans to assess the environmental impact of conventional biofuels.

Bob Dinneen, chief executive and president of trade group the Renewable Fuels Association, said that second generation biofuel technologies had the potential to "create the kind of economic and green job opportunities, as well as provide cleaner solutions to petroleum use, that President Obama desires".

But he also warned that uncertainty continues to surround the viability of some of these technologies and criticised the government's analysis of how biofuel will impact land use, arguing "questionable logic" was "being used to penalise existing biofuel producers for carbon emissions occurring halfway around the globe for reasons that may have little, or nothing, to do with US biofuel production".