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BCAP Update - May 2011

As part of the compromise budget agreement between Congress and the White House, the federal government has reduced funding for the Biomass Crop Assistance Program (BCAP). Funding for FY2011 has been set at $112 million.

According to the final rule governing the program, which was published in October of last year, the total cost of the program for FY2011 was expected to be $199 million. $132 million of that was scheduled to go into the matching payments program, $61 million was earmarked for the biomass crop establishment cost share program, and $4 million was set aside for annual payments. The remaining $3 million was slated for technical assistance. David Schaad, the USDA Farm Service Agency (FSA) Acting Executive Direct in California, said that both matching payments and annual payments would be affected by the reduction in program funding.

How much money does this actually save US taxpayers? A list of cuts released by House Republicans reported the decrease in funding at $134 million. My math pegs the savings at $87 million. If you use Congressional math, however, and add the $134 million cut to the $112 million left in the budget for the program, you get $246 million: $47 million more than the program’s projected FY2011 cost.

This begs the question: was the reduction in BCAP funding a real spending cut, or was the USDA not going to spend that money anyway? Many of the cuts in the new budget deal appear to be cuts in name only. For instance, the bill defunds four policy czar positions in the White House; none of these positions is currently filled, however, so the money would not have been spent in 2011 in the first place. Some provisions slice from the budget money earmarked for state-specific projects that have been discontinued, like the infamous bridge to nowhere. Others focus on money designated for specific projects that states have refused to accept, like grants for the construction of high-speed rail lines. The Congressional Budget Office estimates total savings in fiscal year 2011 will amount to just $352 million, not the $38-$39 billion originally announced.

Who will be affected? The only facilities that have qualified as biomass conversion facilities since October are three POET plants, one in Iowa and two in South Dakota. As a result, the only biomass suppliers who will be immediately affected are those who supply corncobs to these POET facilities.

Beyond the immediate, however, the USDA has said they expect to reinstate matching payments for woody biomass by mid-summer. Aspen Power, a 50-MW facility nearing the end of construction in Texas, will start generating power in May. If the matching payments program is not reopened until July, suppliers for Aspen Power and other energy producers could miss several months of payments.

Looking forward, we expect the 2012 budget to be more austere. The budget introduced by House Republicans, for instance, cuts investments in renewable energy by 70 percent. BCAP will likely be on the chopping block. Since 2012 is the year many of the facilities announced in 2008 are scheduled to open. The program is a clear demonstration of a basic principle of economics: supply follows demand—not the other way around.