USDA Issues Final Rule on Biobased
Products
By Michael Manella, BCS Incorporated
On January 11, 2005, U.S.
Secretary of Agriculture, Ann M. Veneman, announced the publication of a
final rule to implement a program of preferred procurement of biobased
products by federal agencies. This final rule establishes provisions for the Federal Biobased Products Procurement Program (FB4P).
This program, authorized by Section 9002 of the 2002 Farm Bill, requires all
federal agencies to preferentially purchase biobased products that have been
designated by the United States Department of Agriculture (USDA) as eligible
under this program.1 The USDA defines biobased products as "a
commercial or industrial product, other than food or feed, which utilizes
biological products or renewable domestic agricultural (plant, animal, and
marine) or forestry materials."2
The new rule establishes
the process by which the USDA will designate "items" for preferred
procurement by federal agencies. "Items are generic groupings of
biobased products, such as biobased greases, biodiesel and ethanol when used
as additives, hydraulic fluids, biobased polymers, industrial solvents,
biobased fertilizers and cutting oils."3 Now that the final
rule is published, federal agencies have one year to ensure that they have
procurement specifications in place that are consistent with the final rule
on FB4P.4
"The Federal
Biobased Products Preferred Procurement Program creates a preference across
the entire federal government to purchase biobased products … based on price,
availability and performance," Secretary Veneman said at the 2005
American Farm Bureau Federation Annual Meeting. She also remarked,
"[t]his rule promotes energy independence and the use of environmentally
sustainable energy from biological sources, while at the same time creating
new demand for agricultural commodities and new business investment and job
growth in rural America."5
The U.S.
Government is Poised for Greater use of Biobased Products
Independent survey research conducted for United Soybean Board (USB) last
summer found that other federal purchasing preferences for biobased products,
such as soy ink, have played a large role in the increased use of these
products by government agencies. Additionally, improved quality, cost, and
supply of biobased products, along with more education and outreach, have
contributed to increased usage in the federal sector. The survey research
included interviews with federal procurement officials and current federal
users of biobased products.6
The Biobased
Products and Bioenergy Coordination Council (BBCC) was established
by the Secretary of Agriculture to provide a forum through which USDA
agencies will coordinate, facilitate, and promote research, development,
technology transfer, commercialization, and marketing of biobased products
and bioenergy. This includes promoting information sharing, strategic
planning, and providing policy advice to the Secretary. The BBCC is an
outgrowth of the USDA New Uses Coordination Council, which was created by the
Secretary of Agriculture in 1995, renamed the Biobased Products Coordination
Council (BPCC) in 1997, and formalized as the BBCC in 2002 by departmental
regulation. About a dozen USDA agencies with programs related to biobased
products and or bioenergy participate in BBCC activities.
Benefits of
Biobased Products
Secretary Veneman's announcement of the final rule on FB4P is an important
step in addressing economic, national security, and environmental challenges
facing the U.S. In his first term, President Bush stated that one of his aims
was to reduce U.S. dependence on foreign sources of oil. Replacing
petroleum-based products with biobased products developed from domestically
grown feedstocks would help to achieve this goal. Biobased products have the
potential to reduce environmental impacts of petroleum-based alternatives
through two main environmental attributes: (1) less harmful decomposition
reducing hazardous materials; and (2) managing the greenhouse gas cycle by
growing plants to produce more feedstock, which takes carbon out of the
atmosphere.
Environmental and
Market Externalities
Externalities are defined as third party (or spill-over) effects arising from
the production and/or consumption of goods or services for which no
appropriate compensation is paid.7 Externalities are common in
markets and can be positive or negative. They create a divergence between the
private and social costs of producing a good or service. In cases where the
marginal social cost is greater than the marginal private cost, there is a
market failure and, at this point, intervention is often sought.
Biobased products have
many positive benefits, or externalities because they are generally less
hazardous and offer environmental benefits (e.g. carbon sequestration) over
petroleum-based counterparts. By absorbing carbon from the air and using it
to grow biomass feedstocks, the use of biobased products has the potential to
reduce the amount of greenhouse gasses in the atmosphere. Conversely, fossil
fuels release carbon into the air when burned. Additionally, biobased
resources do not require drilling in environmentally sensitive areas and have
less risk to both indoor and outdoor environments when in use. Biobased
products also create less of a burden on landfills because they are
biodegradable.
A growing biobased
products industry offers numerous economic benefits as well. As the market
share for biobased products grows, it will have a multiplier effect on
related industries. Segments of the U.S. agricultural sector will grow to
meet the production, distribution and storage demands of biomass. U.S.
processing and manufacturing facilities will also develop near feedstock
sources, thereby improving rural economies.
Trade
Perspectives
Globalization has brought the world economy numerous benefits, which pose
both opportunities and challenges for the emerging U.S. biobased products
industry. The U.S. holds a number of comparative advantages because it is
leading much of the R&D on biomass conversion technologies and biobased
product development. The U.S. also brings a highly skilled workforce and has
greater access to the capital resources necessary to support this emerging
bioindustry. Moreover, the U.S. is the world’s largest producer of corn and
soybeans, which are currently two of the main feedstocks for biobased
products.
Over the long term, U.S.
feedstock producers will likely face increasing competition from foreign
imports. For example, soybean production in Brazil and Argentina has increased
dramatically over the past ten years and both countries are now major players
in world markets for soybeans. In 2003, Brazil and Argentina produced 1,966
and 1,249 million bushels of soybeans, respectively, compared to 2,417
million bushels produced in the U.S.8 Many foreign competitors
have comparative advantages over the U.S, such as low cost labor and inputs,
which is enabling them to increase their world market share as demonstrated
by Brazil and Argentina. Because of increased foreign competition – in
addition to low prices and various reasons – the USDA projects U.S.
agricultural exports to drop to $56 million in 2005, down from $62.3 million
in 2004.9 If the U.S. agriculture sector can find new export
markets, such as in biobased products, then it can improve its trade balance
and help to sustain current production levels.
The U.S. government views
biobased products as a strategic solution to energy, economic and
environmental challenges. For biobased products to be successful, they need
to be cost effective, reliable, and more available to procure. FB4P will help
foster the emerging biobased products industry, offering the potential to
open new markets for feedstocks, production facilities, suppliers, and
distributors. It will help provide useful information to federal employees
involved in procurement so that they can use it to meet environmental and
performance objectives. Moreover it offers the opportunity to realize the
many environmental and economic benefits that biobased products can deliver.
1USDA News Release. Release No.
0005.05. Contact: Office of Communications (202) 720 4623 http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2005/01/0005.xml
2Ibid
3Ibid
4Ibid
5Ibid
6Ibid
7Tutor2U. What are Externalities? Homepage visited January 25,
2005. http://www.tutor2u.net/
8World Soybean Statistics, http://www.soystats.com/2004/Default-frames.htm
9Carter, Ernest, Whitton, Carol. "Outlook for US Agricultural
Trade". AES-44. November 22, 2004. Economic Research Service. USDA
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