BCAP Rule Revision

The USDA released the proposed rule for the Biomass Crop Assistance Program in February and is now under pressure to make essential changes. Until the final rules are determined, program payments and applications have been frozen.
By Anna Austin
The long-awaited Biomass Crop Assistance Program proposed rule seems to have revived some interest and enthusiasm in the program. At the same time, many are anxious for the proposed changes to be finalized, for further clarifications and for the current freeze on the program to cease.

Among several new provisions of the rule is a possible prohibition on wood waste and residue on federal and nonfederal lands that otherwise might be used for higher-value products. Kent Politsch, public affairs branch chief for USDA's Farm Service Agency, says the prohibition proposal resulted because of concerns from segments of the wood industry, specifically the pulp and pressboard/fiberboard manufacturers. "They say that the BCAP collection, harvest, storage and transport (CHST) matching funds paying for forest items-bark, excess wood, stumps and limbs--also included residuals from wood product plants such as sawdust and shavings and therefore was directly increasing prices and competition for a market that already was established, mostly the fiberboard industry," he says.

CHST funds allow matching payments to eligible material owners of $1 per $1 paid per ton by the biomass conversion facility (BCF) to the producer, up to $45 per dry ton for a time limit of two years after the first payment is made. In the case of particleboard makers, CHST funds could essentially double the price they typically pay for the materials they use. As of Feb. 8, the USDA stopped accepting CHST applications until the final BCAP rule is in place.

Politsch says the original intent of Congress allowing wood waste and residues to qualify for CHST funds was to appeal to the wood supply industry to clean up unwanted debris that they assumed had no or little market value. "The fiberboard industry responded by saying that was an incorrect assertion, and that there was already a market value for some of that stuff," he says.

Tapping into Trouble

Composite Panel Association President Tom Julia tells Biomass Magazine that the industry didn't initially pick up on the BCAP program's threat to its members, as the organization doesn't track programs that come out of USDA because they usually don't impact the wood products or forestry industries. "We understood BCAP to have a more agricultural orientation to foster new fuel sources, and we figured there would be a regulatory process before money was given out," he says.

The CPA and its members met with the Office of Management and Budget and USDA BCAP personnel last fall, Julia says. "At that point, the staff who put BCAP together quickly admitted their mistake. Knowing very little or nothing about the wood products or composite industry, they put everything they could think of on the eligible materials list without considering the implications. They never met with stakeholders or asked questions or did an environmental impact statement."

As CPA members understood it, the USDA was going to revisit BCAP criteria and request public comment before issuing funds, Julia says. At the end of November, a Notice of Funds Availability was released even though USDA was still sitting on the regulations. "At that point, we intervened and met with members of Congress over the next month to warn them they were about to fail at what they wanted to accomplish," Julia says. "We support BCAP. It's a great idea, but not if all that is really going to happen is that you'll pay companies double for the materials they're already selling to somebody else. There'd be no incentives to go out and develop a new fuel source when someone can get double what they're getting now by selling it to somebody else."

More Changes

Aside from a prohibition on certain wood materials, another proposed change in the rule is to increase the acceptable moisture content of the materials received. USDA reported that many respondents didn't agree with the current system of measuring the moisture levels of biomass deliveries to meet the dry-ton measurement standard. A common industry practice is to measure in terms of green tons, which are generally assumed to possess a moisture level of 45 percent to 50 percent. In the rule, it is proposed to modify the requirement for moisture testing and adopt the industry standard.

Currently, the BCF is required to figure out the green ton to dry conversion. "This requirement may result in the need for facilities like our demonstration facility in Upton, Wyo., to purchase additional equipment or have facility personnel perform additional tasks," says Steve Corcoran, CEO of KL Energy Corp. KL Energy has a qualified cellulosic ethanol demonstration facility in Upton that utilizes wood waste as a feedstock. He says he is supportive of the suggested woody biomass sampling methodologies that follow standard probability sampling of materials, and moisture analysis that follows standard test methods for wood fuels.

Chippewa Valley Ethanol Co., a 48 MMgy ethanol plant in Benson, Minn, uses wood waste and corncobs as a power source via a gasification technology. "There should be some type of allowable moisture to the program and we would certainly support moisture of around 30 percent," says Chad Friese, CVEC commodities manager and biomass delivery coordinator. "Forty [percent] to 50 percent seems a bit high. We currently have to use a shrink in order to bring the tons in line with the zero moisture, and we're doing that with a straight moisture correction shrink, not a shrink factor, as no studies that I'm aware of have detailed what a shrink factor would be for biomass," he says. "Due to the low density and high moisture of biomass products, transportation is one of the biggest costs, so by shrinking excessively, we limit the value that can be offset to transport and reduce the effective draw area of a conversion facility."

Absolute specification on certain aspects of the rule also seems to be an issue of concern. "We're concerned that there are still, even though it's generally supportive of concepts we've enunciated, some that aren't specific enough," Julia says. "There should be some very bright lines for what materials are eligible for subsidy, and what are not. If the draft has too much ambiguity and subjectivity soon you'll have people trying to take advantage of the system in a way they shouldn't. Vagueness is a prescription for mischief. We don't want to come back in three or six months and fight this battle again because someone has discovered a backdoor to access our materials."

Corcoran says though KL Energy doesn't typically use wood materials that are used for higher value-added production, he believes there needs to be clarification of what is meant by "higher value-added production."

Funding Freeze

Without warning as of Feb. 8, the USDA terminated CHST payments and indicated new applications for the payments would not be accepted until the final rule is in place. "We didn't press for that," Julia says. "But I suspect this is becoming a concern for parties who are legitimate beneficiaries of BCAP. They stopped everything cold instead of just changing the eligible materials list, until they put out the final rule. It's what should have done originally but beneficiaries anticipating this money aren't getting it. There is a 60-day comment period, but realistically, there won't be a final rule until middle of this summer so money won't be flowing again for another four or five months."

Friese says that while it is understandable adjustments need to be made to the program, CVEC hopes they will get it done as quickly as possible to get the program back on line and the CHST payments reinstated.

Beyond CHST payments there are establishment payments, which are a second aspect of BCAP funding and are more complicated to qualify for. Establishment payments, a part of BCAP that has not yet been initiated, would cover up to 75 percent of the cost of establishing eligible woody and nonwoody perennial crops, with annual payments for up to 15 years. To be eligible for these payments, production activities must take place in designated project areas-areas which may be proposed by BCFs or by groups of producers. Qualifying for establishment or annual payments requires a producer to provide a description of the eligible land and eligible crops to be grown there, including maps to show current land use, roads, railroads, rivers, barge access, cost of land preparation, and evidence of a need for sufficient equity. A letter of intent from a BCF indicating the facility intends to utilize the crops grown on the eligible land must also be provided, as well as solid evidence that the biomass conversion facility has enough equity to operate in the future if it isn't in operation at the time of the proposal.

Although not definitive, BCAP does have an estimated cap. The USDA reported it intends to cap the cost of the BCAP program at $2.6 billion, including $2.1 billion for matching payments for biomass materials over the next four years, $306 million for crop establishment over the next three years, and $219 million for annual payments over the next 17 years.

The public comment period for the proposed ruling ends at the beginning of April, and the USDA is confident the kinks will be worked out in the long term. "It will take some time, there will be some hills, valleys and bumps in the road," Politsch says. "People are going to get upset along the way, but it will settle down and be a very successful program."

Anna Austin is a Biomass Magazine associate editor. Reach her at aaustin@bbiinternational.com or (701) 738-4968.