Cellulosic pioneers approve U.S. biomass aid program

Wed Oct 27, 2010 6:00pm EDT

Related Topics

* Some materials eligible for both types of biomass aid

* USDA sees 5,000 farmers, 12,000 acres in energy crops

* "Black liquor," a paper byproduct, ineligible for aid

* Impact of program blunted by expiry on Sept 30, 2012

By Charles Abbott

WASHINGTON, Oct 27 (Reuters) - Pioneers in cellulosic ethanol, tapped to leapfrog corn-based ethanol, say they are studying or plan to use a new U.S. program that pays farmers and forest owners to experiment with energy crops.

The Biomass Crop Assistance Program, estimated to cost $461 million, took effect on Wednesday. A wide variety of materials are eligible for support, from wood chips and crop residues to switchgrass, woody plants, algae and animal and food waste.

U.S. officials say the program will assure a supply of non-food feedstocks as the infant cellulosic industry grows.

The government is providing loan guarantees for construction of a first round of commercial-size bio-refineries.

Found in grasses and woody plants, cellulose could make moot the "food vs fuel" argument over using corn, a livestock feed, to make fuel. Critics complain corn-based fuel drives up prices for food globally.

The 2007 energy law calls for the use of 21 billion gallons a year by 2022 of advanced biofuels such as cellulosic fuels, compared to 15 billion gallons of corn ethanol.

This year, the ethanol industry will produce 12 billion gallons of ethanol, consuming more than one-third of the crop.

A small amount of U.S. farmland -- 12,000 acres -- would be devoted to energy crops, estimates the Agriculture Department, partly because the biocrop program expires in 2012.

Two types of support are offered -- matching payments for gathering and transporting feedstocks and payments for establishing and producing biomass crops.

Some crops, such as switchgrass, could qualify for both strands of support. Matching payments run two years. Biocrop payments can run up to 15 years.

Privately owned POET, the largest U.S. ethanol maker, says it will ask the Agriculture Department to list three of its plants listed as biomass conversion facilities. Approval would allow matching payments, of up to $45 per dry ton, to farmers for gathering and hauling cellulosic feedstocks to the plants.

Corn stalks and cobs are the feedstock for two POET plants. One in Iowa would produce 25 million gallons a year of ethanol and the other is a pilot plant in South Dakota.

Executives of Range Fuels Inc and Abengoa Bioenergy Corp, a subsidiary of Abengoa SA (ABG.MC), say they are interested in the biocrop program. Range Fuels began production in August at a plant in Soporton, Georgia, using woody biomass. It plans to expand plant capacity to 60 million gallons a year.

Range Fuels chief executive David Aldous said "on the surface, the program has real potential for us."

"If we participate, it has the opportunity to improve our operating cost position as well as provide conditions to local growers to profitably grow new energy crops," said Aldous.

Abengoa plans to begin construction in 2011 on a 15 million-gallon-a-year biomass plant at Hugoton, Kansas, that could use corn and milo stover, wheat straw or prairie grass.

"I think we are interested in both programs," said Chris Standlee, executive vice president of Abengoa Bioenergy, referring to the types of support offered.

Abengoa's U.S. corn ethanol plants have a capacity of 378 million gallons a year. POET, Archer Daniels Midland Co (ADM.N) and Valero Energy Corp (VLO.N) are the leading producers.

USDA said the short lifespan of the program will limits its impact. Lawmakers would decide in 2012 whether to renew it.

Some 5,000 producers of energy crops near 32 biomass plants would receive establishment and production payments and 975 "eligible material owners" who are not affiliated with a plant would qualify for matching payments, estimated USDA.

An earlier version of the program, limited to forestland materials, cost nearly $250 million during a brief life. USDA now bars "black liquor," a fuel that is a byproduct of paper-making, from the program. (Reporting by Charles Abbott,editing by Sofina Mirza-Reid)

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