October - December, 2010
BCAP: New and (Maybe) Improved
USDA made significant changes to the Biomass Crop Assistance Program in its final rule, many involving woody biomass utilization, but the jury is still out on how the changes will be implemented.
Critics of USDA's Biomass Crop Assistance Program (BCAP), a federal program designed to jump-start the use of biomass forbioenergy production, caught the attention of USDA officials when they questioned whether certain woody biomass should be included as eligible material in the program.
Their criticism proved to be true when, after the original Notice of Funding Availability in April 2009, some woody biomass suppliers sold their materials to eligible biomass-based heat, power, fuel or chemical producers allowing them to receive matching BCAP payments, rather than selling to their traditional customers. In most cases, that led to higher prices for customers who weren't eligible to participate in BCAP, such as particleboard makers, and therefore distorted established markets. This caused a suspension of the program so the federal agency could make necessary modifications.
Anna Dirkswager, biomass program coordinator for the Minnesota Department of Natural Resources Forestry Division, said that particular loophole definitely affected Minnesota, which has 16.7 million acres of forestland. "With a strong forest products industry in Minnesota, there were a lot of folks upset with round wood or whole trees being chipped and going to combined-heat-and-power facilities, because those materials were eligible," she says. "In some areas where we have collapsed markets, we would like to see those trees cut, the forests managed and that material indeed being used as biomass," she says.
Though initial BCAP rules many not have been crafted as meticulously as they could have been, the USDA has altered them with the intent to safeguard materials already being used. Atthe same time, the door has been left open for qualification of residuals with no local higher value market while endorsing responsible forest management/thinning practices.
USDA has not yet determined who will decide whether there is a local, higher-value market for some wood material. The job may be handed to foresters or Farm Service Agency personnel. While FSA agents know their way around corn and soybean fields, there are concerns that they may not have enough knowledge about wood markets to make these determinations. Dirkswager says she doesn't think the majority of FSA agents have a particularly good understanding of wood markets, but she is hopeful that FSA will work with her and other state officials, and the forest products industry, to determine certain program details such as what constitutes an acceptable Forest Stewardship Plan.
Making a Plan
The 2008 Farm Bill defines a Forest Stewardship Plan as a site-specific plan that addresses one or more resource concerns on land where forestry-related conservation activities or practices will be planned and applied.
The plan must be prepared by a forester with a bachelor's degree in forest management or an equivalent curriculum. It must include, but is not limited to, landowner and plan preparer information; legal descriptions or directions to the site; the number of acres covered; general property description; interaction with surrounding properties; known/ threatened/endangered wildlife present; and soil information as well as in-depth descriptions of stand species, class, health, quality, growth rate, hazardous fuels and timber production potential.
Developing a Forest Stewardship Plan may sound time consuming, but Fred Schatzki, a registered forester for American Forest Management Inc., says once approved, funded and scheduled, it only takes him about two weeks from beginning the fieldwork to preparing the completed plan. The cost will depend on the tract size and the ownership objectives. "As a rule of thumb, it's safe to say that rates run about $8 to $12 per acre with a minimum fee of $600," Schatski says.
He says he expects his workload to increase moderately when the BCAP is fully implemented. "My expectation is we'll still be managing the same base resource, but we'll be looking at capitalizing on harvest residues that currently have no good market," he says.
The verdict is still out, however, on what constitutes an acceptable plan, as well as what defines a higher value market. "We're trying to be proactive here in Minnesota and work with FSA to suggest how it might define these and several other program definitions that haven't yet been defined," Dirkswager says. "For higher value markets, is it going to be from the logger's home area of residence, or is it a procurement radii? Wood chips are eligible only without an existing higher value market and when a result of an ecosystem restoration service, but we don't know what ecosystem restoration will be defined as. We've got a variety of things we would like to suggest, but it is difficult to have a go-to person to make these suggestions to."
Once a Forest Stewardship Plan has been established, it's important to note that eligible woody material must be directly harvested or collected from the land, meaning it cannot be collected or harvested after transport and delivery, nor collected or harvested by separating from that of a higher value material in order to be used for heat, power, biobased products or biofuels. If the material comes from outside of a BCAP project area, it must be a byproduct of preventive treatments to reduce hazardous fuels, to reduce or contain disease or insect infestation, or for ecosystem restoration.
Tom Kimmerer, senior scientist at Moore Ventures and a BCAP specialist, gives the following example: A logging contractor runs a flail de-barker in the woods, which strips off bark and chips the wood for pulp. The bark can be delivered to a biomass facility and it will be eligible for matching payments. However, if there is an established market in the area for bark, such as bark mulch, the bark may not be eligible; that's up to the discretion of the local FSA office. If that same logging contractor delivers whole trees to a paper mill, which strips the bark off and chips the wood for pulp, the bark can be delivered to a biomass facility but will not be eligible for matching payments.
Along with the changes made to the woody biomass eligible materials, there were also modifications to the annual payment component of BCAP that were not implemented with the original NOFA.
More Changes
Annual payments are now paid on a tiered model based on the end-use of the material, a component that favors cellulosic ethanol and advanced biofuels over biopower or bioheat. Upon sale of the crop, if used for heat, power or biobased products, payment is reduced by 40 percent, compared to a 1 percent reduction for cellulosic ethanol and 10 percent for advanced biofuels. "These payments [for biopower/bioheat] are still significant, but one reason for incentivizing advanced biofuels may be because under the [renewable fuel standard 2] there's an aggressive congressional mandate for advanced biofuels and so far, we're well short," says Gregory Lynch, managing partner with Michael Best & Friedrich LLP. "The [U.S.] EPA has been lowering that over the past couple of years by a fairly significant amount, and I think this is one of the policy tools USDA is using to try to promote that."
Related-party transactions, if in accordance with USDA definitions, are also allowed, meaning that a group or party can be both the eligible material owner and the biomass conversion facility, which would include closed-loop bioenergy production models. Additionally, several new feedstocks were added to the eligible materials list, including algae, jatropha, energy cane and pongamia.
While the industry waits for clarification of the new rules, an old concern is still swirling that BCAP funding demands will be much higher than anticipated, and that some eligible participants may miss out. "If ecosystem restoration is considered a thinning or something that's restoring forest health and quality, that's a great opportunity to subsidize work we'd normally have a hard time paying for," Dirkswager says. "But given that $430 million is allocated for fiscal 2011 and only $130 million of that pot is available for the matching payment portion nationwide, we have concerns over how much of that money will actually reach Minnesota. Many of the necessary program pieces that must come together to receive funding are not yet in place and I fear that we'll get ready and it'll be gone. If we did actually get matching payments funds, there are good opportunities to subsidize forest management work."
A significant majority of the $243 million in matching payments already distributed or committed under the original NOFA went to woody resources. "[Foresters] are all curious about how it will ultimately shake out," Schatzski adds. "Last year's experience indicated that there was significantly more demand for BCAP funding than was originally thought."
Now is a unique time for BCAP, as in the past 18 months there's been a lot of stopping and starting, Lynch says. "But the next 30 to 60 days is really the time that companies, especially wood producers or pulp and paper companies should seriously start looking at planning how they can take advantage of BCAP."
In order to ensure that all program participants are in compliance with the modified or new rules, everyone must apply, even those who had previously qualified and were already receiving matching collection, harvest and storage payments.
Though the necessary federal notices have yet to be issued, Lynch says some additional clarification can be expected soon. "Sometime later this month USDA plans to issue additional guidance in what they'll look for in establishing BCAP designated project areas, and they're looking at doing a fairly aggressive education program for industry participants," he says. "The first tentative meetings will be held in early January, and USDA will give presentations on interpreting the new BCAP rules, as well as providing guidance to interested parties on how to certify project areas."
BCAP's past trial-and-error period and collaboration with experienced and relevant state agencies could result in a well-crafted, successful program. Dirkswager says her department has already been working with Minnesota's FSA on BCAP-related issues. "The [USDA] was able to work with us in being able to get some of the systematic hurdles resolved, but I think the creation of the final rules was a polite way of writing off the forest products industry," she adds. "But perhaps a necessary one, with the market diversion it was creating."
Author: Anna Austin
Associate Editor, Biomass Power & Thermal (701) 738-4968 aaustin@bbiinternational.com