November 30, 2011

Biofuel producers may soon have access to additional financing from the US government of up to $510 million over the next three years for construction of new, or retrofitting of existing, plants to produce “drop-in” biofuel.

“Drop-in” biofuel is biofuel that can be mixed with petroleum-based fuel without any problems. The Department of Energy has committed to seek $170 million in new appropriations while the Department of Agriculture and the Navy will each “repurpose” $170 million of already appropriated funds.

An executive steering group made up of representatives from all three departments is still working out the details of the program. Either the Department of Energy or the Navy is expected to contract directly with developers of biofuel plants pursuant to the Defense Production Act. This legislation, enacted at the start of the Korean War, gives the president broad authority to contract and spend funds for national defense. It has been used by the US military in the last two decades to promote innovative military technologies. The Navy is expected to be the offtaker of the biofuel produced. However, it is not clear whether the Navy will be able to commit to an offtake arrangement whose term exceeds five years.

The Department of Agriculture’s commitment to “repurpose” $170 million in already-appropriated funds for the program is being made under the Commodity Credit Corporation Charter Act that authorizes the government to stabilize farm prices and income. This suggests its role may not be directly funding the construction of biofuel plants but rather providing price stability of the feedstock for biofuel production.

Keith Martin