Newsletter Archive

On January 11, 2005, U.S. Secretary of Agriculture, Ann M. Veneman, announced the publication of a final rule to implement a program of preferred procurement of biobased products by federal agencies. This final rule establishes provisions for the Federal Biobased Products Procurement Program (FB4P). This program, authorized by Section 9002 of the 2002 Farm Bill, requires all federal agencies to preferentially purchase biobased products that have been designated by the United States Department of Agriculture (USDA) as eligible under this program.¹ The USDA defines biobased products as "a commercial or industrial product, other than food or feed, which utilizes biological products or renewable domestic agricultural (plant, animal, and marine) or forestry materials."²

The new rule establishes the process by which the USDA will designate "items" for preferred procurement by federal agencies. "Items are generic groupings of biobased products, such as biobased greases, biodiesel and ethanol when used as additives, hydraulic fluids, biobased polymers, industrial solvents, biobased fertilizers and cutting oils."³ Now that the final rule is published, federal agencies have one year to ensure that they have procurement specifications in place that are consistent with the final rule on FB4P.⁴

"The Federal Biobased Products Preferred Procurement Program creates a preference across the entire federal government to purchase biobased products … based on price, availability and performance," Secretary Veneman said at the 2005 American Farm Bureau Federation Annual Meeting. She also remarked, "[t]his rule promotes energy independence and the use of environmentally sustainable energy from biological sources, while at the same time creating new demand for agricultural commodities and new business investment and job growth in rural America."⁵

The U.S. Government is Poised for Greater use of Biobased Products
Independent survey research conducted for United Soybean Board (USB) last summer found that other federal purchasing preferences for biobased products, such as soy ink, have played a large role in the increased use of these products by government agencies. Additionally, improved quality, cost, and supply of biobased products, along with more education and outreach, have contributed to increased usage in the federal sector. The survey research included interviews with federal procurement officials and current federal users of biobased products.⁶

The Biobased Products and Bioenergy Coordination Council (BBCC) was established by the Secretary of Agriculture to provide a forum through which USDA agencies will coordinate, facilitate, and promote research, development, technology transfer, commercialization, and marketing of biobased products and bioenergy. This includes promoting information sharing, strategic planning, and providing policy advice to the Secretary. The BBCC is an outgrowth of the USDA New Uses Coordination Council, which was created by the Secretary of Agriculture in 1995, renamed the Biobased Products Coordination Council (BPCC) in 1997, and formalized as the BBCC in 2002 by departmental regulation. About a dozen USDA agencies with programs related to biobased products and or bioenergy participate in BBCC activities.

Benefits of Biobased Products
Secretary Veneman's announcement of the final rule on FB4P is an important step in addressing economic, national security, and environmental challenges facing the U.S. In his first term, President Bush stated that one of his aims was to reduce U.S. dependence on foreign sources of oil. Replacing petroleum-based products with biobased products developed from domestically grown feedstocks would help to achieve this goal. Biobased products have the potential to reduce environmental impacts of petroleum-based alternatives through two main environmental attributes: (1) less harmful decomposition reducing hazardous materials; and (2) managing the greenhouse gas cycle by growing plants to produce more feedstock, which takes carbon out of the atmosphere.

Environmental and Market Externalities
Externalities are defined as third party (or spill-over) effects arising from the production and/or consumption of goods or services for which no appropriate compensation is paid.⁷ Externalities are common in markets and can be positive or negative. They create a divergence between the private and social costs of producing a good or service. In cases where the marginal social cost is greater than the marginal private cost, there is a market failure and, at this point, intervention is often sought.

Biobased products have many positive benefits, or externalities because they are generally less hazardous and offer environmental benefits (e.g. carbon sequestration) over petroleum-based counterparts. By absorbing carbon from the air and using it to grow biomass feedstocks, the use of biobased products has the potential to reduce the amount of greenhouse gasses in the atmosphere. Conversely, fossil fuels release carbon into the air when burned. Additionally, biobased resources do not require drilling in environmentally sensitive areas and have less risk to both indoor and outdoor environments when in use. Biobased products also create less of a burden on landfills because they are biodegradable.

A growing biobased products industry offers numerous economic benefits as well. As the market share for biobased products grows, it will have a multiplier effect on related industries. Segments of the U.S. agricultural sector will grow to meet the production, distribution and storage demands of biomass. U.S. processing and manufacturing facilities will also develop near feedstock sources, thereby improving rural economies.

Trade Perspectives
Globalization has brought the world economy numerous benefits, which pose both opportunities and challenges for the emerging U.S. biobased products industry. The U.S. holds a number of comparative advantages because it is leading much of the R&D on biomass conversion technologies and biobased product development. The U.S. also brings a highly skilled workforce and has greater access to the capital resources necessary to support this emerging bioindustry. Moreover, the U.S. is the world’s largest producer of corn and soybeans, which are currently two of the main feedstocks for biobased products.

Over the long term, U.S. feedstock producers will likely face increasing competition from foreign imports. For example, soybean production in Brazil and Argentina has increased dramatically over the past ten years and both countries are now major players in world markets for soybeans. In 2003, Brazil and Argentina produced 1,966 and 1,249 million bushels of soybeans, respectively, compared to 2,417 million bushels produced in the U.S.⁸ Many foreign competitors have comparative advantages over the U.S, such as low cost labor and inputs, which is enabling them to increase their world market share as demonstrated by Brazil and Argentina. Because of increased foreign competition – in addition to low prices and various reasons – the USDA projects U.S. agricultural exports to drop to $56 million in 2005, down from $62.3 million in 2004.⁹ If the U.S. agriculture sector can find new export markets, such as in biobased products, then it can improve its trade balance and help to sustain current production levels.

The U.S. government views biobased products as a strategic solution to energy, economic and environmental challenges. For biobased products to be successful, they need to be cost effective, reliable, and more available to procure. FB4P will help foster the emerging biobased products industry, offering the potential to open new markets for feedstocks, production facilities, suppliers, and distributors. It will help provide useful information to federal employees involved in procurement so that they can use it to meet environmental and performance objectives. Moreover it offers the opportunity to realize the many environmental and economic benefits that biobased products can deliver.

In 2001, the state of Rhode Island consumed approximately 204 trillion Btu of energy. Petroleum supplied the most energy, accounting for approximately 49 percent of the 204 trillion Btu. Natural gas accounted for 48 percent of the total energy consumed. Coal and other sources provided less than 1 percent each of total energy, while nuclear and hydroelectric power did not account for any energy consumption. Biomass accounted for 2 percent of total energy consumed.¹

An estimated 0.2 billion kWh of electricity could be generated using renewable biomass fuels in Rhode Island. This is enough electricity to fully supply the annual needs of 17,000 average homes, or 7 percent of the residential electricity use in the state. The state of Rhode Island could generate a substantial amount of energy from urban, forest, and mill residues. There are approximately 50,000, 36,000, and 25,000 dry tons per year available for energy use, respectively. The potential supply of energy crops is 5000 dry tons per year, while agricultural residues are not available for energy generation at all in Rhode Island.²

The state of Rhode Island participates in the Northeast Regional Biomass Program (NRBP), a collaboration of eleven states established and funded by the Department of Energy. The mission of the NRBP is to evaluate biomass technologies and fuels and to provide objective, reliable information to consumers and policy leaders through a network of state, local, and national governments and private industry.³ At the state level, the Rhode Island State Energy Office manages biomass-related programs. While its biomass program is still in development, biomass plays a role in several existing state programs. For example, the Rhode Island Greenhouse Gas Action Plan has identified 52 ways the state can contribute to the reduction of greenhouse gases in the atmosphere, calls for a percentage of electricity sold to Rhode Island customers to come from renewable energy sources, including biomass.⁴

Rhode Island participates in several financial incentive programs to encourage the use of biomass-based power. The Mainstay Energy Rewards Program - Green Tag Purchase Program offers customers who install, or have installed, renewable energy systems the opportunity to sell the green tags (also known as renewable energy credits, or RECs) associated with the energy generated by these systems. Biomass installations are included in the program, though credit amounts vary throughout the state. The Renewable Generation Supply Incentive funds renewable energy projects in New England that are designed to serve Rhode Island customers.⁵

The state of Rhode Island also has multiple legislative incentive programs. While they are not formal statewide interconnection standards, Rhode Island’s interconnection standards do allow for net metering of renewable energy and cogeneration systems up to 25 kW. The Renewable Energy Fund was part of August 1996 restructuring legislation establishing the nation’s first public benefits fund to support the development of renewable energy and demand side management programs. The charge was initially set at 2.3 mills ($0.0023) per kWh for five years. From 2003 through 2012, the rate has been decreased to 0.3 mills/kWh. Biomass-related projects are eligible for the fund. The Renewable Energy Standard, signed into law June 29, 2004, requires retail electricity providers, including nonregulated power producers and distribution companies, to supply 16 percent of their retail electricity sales from renewable resources by the end of 2019. Biomass is a renewable resource supported by the legislation.⁶