The Practical Effects of the Revised Biomass Crop Assistance Program "BCAP"
The Biomass Crop Assistance Program offers matching payments for producers of eligible biomass crops who sell to a qualified biomass conversion facility. When it began in June 2009, the idyllic vision of farmers from coast to coast converting their fields to a new energy future was quickly replaced with the reality of wood waste being redirected from secondary wood products.
The first version of BCAP was quickly halted when the effect of the matching payments on these related markets was realized. In its place, a revised BCAP was announced in October 2010 with additional restrictions and clarifications.
Although the matching payments component of BCAP has generated the controversy and revisions, in practice this component will likely have minimal impact on biomass markets because of the two-year limitation on matching payments for producers. Two years worth of payments is not enough incentive to get producers to commit to an uncertain market and invest resources in the harvesting restrictions imposed by BCAP.
However, just as important as the two-year limit is the fact that a producer must sell to a qualified biomass conversion facility – not just any biomass facility, a qualified facility. This means the buyer of the eligible materials must also be enrolled in BCAP in order for the producer to receive matching payments.
Well, how hard is that? Actually, it’s a fairly significant administrative burden involving thorough record-keeping and certifications as to the eligibility of the materials. While that may not sound unreasonable, there is little incentive for a biomass facility to take on this burden. Consider that most existing facilities already have an adequate supply of fuel and most of that fuel probably doesn’t meet the definition of eligible materials under BCAP.
Qualified facilities won’t see much benefit from BCAP matching payments in terms of fuel prices, either. As we already discussed, two years of matching payments probably won’t be the incentive producers need to convert their crops, meaning there won’t be a noticeable increase in supply leading to lower prices. Further, a cornerstone of BCAP is the prohibition on facilities paying different prices to BCAP sellers than those it pays to sellers not enrolled – the same product must get the same price. In other words, a facility can’t pay a BCAP producer $20 per dry ton, knowing that the producer will end up with a price of $40 after it gets its matching payment, but pay $30 to producers not enrolled in BCAP. Therefore, the supply costs to a qualified facility shouldn’t differ much from any other facility.
All of this adds up to the fact that BCAP’s impact will be felt not through its matching payments but through its less publicized component: BCAP project areas. If a geographic area is approved by USDA as a project area, producers will be eligible for establishment payments to get their biomass crops in the ground as well as annual payments for five to fifteen years. Producers who receive establishment and annual payments are still eligible for matching payments once they sell their eligible materials to a qualified facility.
This is how BCAP will accomplish its stated goal of creating sustainable biomass markets. How is this better than matching payments? To become a project area, the burden is on the application process for a facility and getting approved, thereby reducing the ongoing administrative burden on the facility compared to only enrolling for matching payments. The five to fifteen year payment plan is a much greater incentive for producers to commit to eligible crops and BCAP restrictions.
With committed producers, a facility now will have a stable fuel supply of eligible materials. With a stable fuel supply comes easier financing, and when combined with the one-year extension of the Section 1603 cash grants in lieu of investment tax credits, building or expanding a biomass conversion facility to serve a BCAP project area becomes a real possibility. The cost of such a project just went down when the EPA recently announced greenhouse gas permitting requirements for biomass-burning facilities would be pushed back until 2014.
BCAP gained a lot of negative attention when it first began for its matching payments distorting markets for raw timber and sawdust. All of this attention has left the more important project area component out of the spotlight. However, the focus on the revised BCAP should move past the matching payments and onto the project areas, where the true impact of BCAP will be felt.